SCUDDER SECURITIES TRUST, 485APOS, 1997-11-03

SCUDDER SECURITIES TRUST
485APOS, 1997-11-03

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Filed electronically with the Securities and Exchange Commission on
October 31, 1997

File No. 2-36238
File No. 811-2021

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.
-----
Post-Effective Amendment No. 53
-----

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 37
-----

Scudder Securities Trust
------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

Two International Place, Boston, MA 02110-4103
--------------------------------------- ------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (617) 295-2567
--------------
Thomas F. McDonough
Scudder, Stevens & Clark, Inc.
Two International Place, Boston MA 02110
-------------------------------------------------
(Name and Address of Agent for Service)

It is proposed that this filing will become effective

immediately upon filing pursuant to paragraph (b)
------

on November 1, 1997 pursuant to paragraph (b)
------

60 days after filing pursuant to paragraph (a)(i)
------

X on January 1, 1998 pursuant to paragraph (a)(i)
------

75 days after filing pursuant to paragraph (a)(ii)
------

on _______________ pursuant to paragraph (a)(ii) of Rule 485.
------

<PAGE>

SCUDDER DEVELOPMENT FUND
CROSS-REFERENCE SHEET

Items Required By Form N-1A

PART A

Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------

1. Cover Page COVER PAGE

2. Synopsis EXPENSE INFORMATION

3. Condensed Financial FINANCIAL HIGHLIGHTS
Information

4. General Description of INVESTMENT OBJECTIVES AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION

5. Management of the Fund FINANCIAL HIGHLIGHTS
A MESSAGE FROM SCUDDER'S CHAIRMAN
FUND ORGANIZATION-Investment adviser,
Transfer agent
SHAREHOLDER BENEFITS-A team
approach to investing
TRUSTEES AND OFFICERS

5A. Management's Discussion NOT APPLICABLE
of Fund Performance

6. Capital Stock and Other DISTRIBUTION AND PERFORMANCE INFORMATION-
Securities Dividends and capital gains distributions
FUND ORGANIZATION
TRANSACTION INFORMATION-Tax information
SHAREHOLDER BENEFITS-SAIL(TM)-Scudder
Automated Information Line, Dividend
reinvestment plan, T.D.D. service for the
hearing impaired
HOW TO CONTACT SCUDDER

7. Purchase of Securities FUND ORGANIZATION-Underwriter
Being Offered PURCHASES
TRANSACTION INFORMATION-Purchasing shares,
Share price, Processing time, Minimum
balances, Third party transactions
SHAREHOLDER BENEFITS-Dividend reinvestment
plan
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
INVESTMENT PRODUCTS AND SERVICES

8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION-Redeeming shares,
Tax identification number, Minimum balances

9. Pending Legal NOT APPLICABLE
Proceedings

Cross Reference - Page 1
<PAGE>

PART B

Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ -----------------------

10. Cover Page COVER PAGE

11. Table of Contents TABLE OF CONTENTS

12. General Information and FUND ORGANIZATION
History

13. Investment Objectives THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
and Policies PORTFOLIO TRANSACTIONS-Brokerage Commissions,
Portfolio turnover

14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders of
Securities

16. Investment Advisory and INVESTMENT ADVISER
Other Services DISTRIBUTOR
ADDITIONAL INFORMATION-Experts, Other
Information

17. Brokerage Allocation PORTFOLIO TRANSACTIONS-Brokerage Commissions,
and Other Practices Portfolio Turnover

18. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

19. Purchase, Redemption PURCHASES
and Pricing of EXCHANGES AND REDEMPTIONS
Securities Being FEATURES AND SERVICES OFFERED BY THE FUND-
Offered Dividend and Capital Gain Distribution
Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE

20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES

21. Underwriters DISTRIBUTOR

22. Calculation of PERFORMANCE INFORMATION
Performance Data

23. Financial Statements FINANCIAL STATEMENTS

Cross Reference - Page 2
<PAGE>

SCUDDER SMALL COMPANY VALUE FUND
CROSS-REFERENCE SHEET

Items Required By Form N-1A

PART A

Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Cover Page COVER PAGE

2. Synopsis EXPENSE INFORMATION

3. Condensed Financial FINANCIAL HIGHLIGHTS
Information

4. General Description of INVESTMENT OBJECTIVES AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION

5A. Management's Discussion NOT APPLICABLE
of Fund Performance

8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION-Redeeming shares,
Tax identification number, Minimum balances

9. Pending Legal NOT APPLICABLE
Proceedings

Cross Reference - Page 3
<PAGE>

PART B

Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ -----------------------

10. Cover Page COVER PAGE

11. Table of Contents TABLE OF CONTENTS

12. General Information and FUND ORGANIZATION
History

13. Investment Objectives THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
and Policies PORTFOLIO TRANSACTIONS-Brokerage Commissions,
Portfolio turnover

14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders of
Securities

16. Investment Advisory and INVESTMENT ADVISER
Other Services DISTRIBUTOR
ADDITIONAL INFORMATION-Experts, Other
Information

17. Brokerage Allocation PORTFOLIO TRANSACTIONS-Brokerage Commissions,
and Other Practices Portfolio Turnover

18. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES

21. Underwriters DISTRIBUTOR

22. Calculation of PERFORMANCE INFORMATION
Performance Data

23. Financial Statements FINANCIAL STATEMENTS

Cross Reference - Page 4
<PAGE>

SCUDDER MICRO CAP FUND
CROSS-REFERENCE SHEET

Items Required By Form N-1A

PART A

Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Cover Page COVER PAGE

2. Synopsis EXPENSE INFORMATION

3. Condensed Financial NOT APPLICABLE
Information

4. General Description of INVESTMENT OBJECTIVES AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION

5. Management of the Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
FUND ORGANIZATION-Investment adviser,
Transfer agent
SHAREHOLDER BENEFITS-A team
approach to investing
TRUSTEES AND OFFICERS

5A. Management's Discussion NOT APPLICABLE
of Fund Performance

8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION-Redeeming shares,
Tax identification number, Minimum balances

9. Pending Legal NOT APPLICABLE
Proceedings

Cross Reference - Page 5
<PAGE>

PART B

Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ -----------------------

10. Cover Page COVER PAGE

11. Table of Contents TABLE OF CONTENTS

12. General Information and FUND ORGANIZATION
History

13. Investment Objectives THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
and Policies PORTFOLIO TRANSACTIONS-Brokerage Commissions,
Portfolio turnover

14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders of
Securities

16. Investment Advisory and INVESTMENT ADVISER
Other Services DISTRIBUTOR
ADDITIONAL INFORMATION-Experts, Other
Information

17. Brokerage Allocation PORTFOLIO TRANSACTIONS-Brokerage Commissions,
and Other Practices Portfolio Turnover

18. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES

21. Underwriters DISTRIBUTOR

22. Calculation of PERFORMANCE INFORMATION
Performance Data

23. Financial Statements FINANCIAL STATEMENTS

Cross Reference - Page 6
<PAGE>

SCUDDER 21ST CENTURY GROWTH FUND
CROSS-REFERENCE SHEET

Items Required By Form N-1A

PART A

Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Cover Page COVER PAGE

2. Synopsis EXPENSE INFORMATION

3. Condensed Financial NOT APPLICABLE
Information

4. General Description of INVESTMENT OBJECTIVES AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION

5. Management of the Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
FUND ORGANIZATION-Investment adviser,
Transfer agent
SHAREHOLDER BENEFITS-A team
approach to investing
TRUSTEES AND OFFICERS

5A. Management's Discussion NOT APPLICABLE
of Fund Performance

8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION-Redeeming shares,
Tax identification number, Minimum balances

9. Pending Legal NOT APPLICABLE
Proceedings

Cross Reference - Page 7
<PAGE>

PART B

Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ -----------------------

10. Cover Page COVER PAGE

11. Table of Contents TABLE OF CONTENTS

12. General Information and FUND ORGANIZATION
History

13. Investment Objectives THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
and Policies PORTFOLIO TRANSACTIONS-Brokerage Commissions,
Portfolio turnover

14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders of
Securities

16. Investment Advisory and INVESTMENT ADVISER
Other Services DISTRIBUTOR
ADDITIONAL INFORMATION-Experts, Other
Information

17. Brokerage Allocation PORTFOLIO TRANSACTIONS-Brokerage Commissions,
and Other Practices Portfolio Turnover

18. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES

21. Underwriters DISTRIBUTOR

22. Calculation of PERFORMANCE INFORMATION
Performance Data

23. Financial Statements FINANCIAL STATEMENTS

Cross Reference - Page 8
<PAGE>

SCUDDER FINANCIAL SERVICES FUND
CROSS-REFERENCE SHEET

Items Required By Form N-1A

PART A

Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Cover Page COVER PAGE

2. Synopsis EXPENSE INFORMATION

3. Condensed Financial NOT APPLICABLE
Information

4. General Description of INVESTMENT OBJECTIVES AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION

5. Management of the Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
FUND ORGANIZATION-Investment adviser,
Transfer agent
SHAREHOLDER BENEFITS-A team
approach to investing
TRUSTEES AND OFFICERS

5A. Management's Discussion NOT APPLICABLE
of Fund Performance

8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION-Redeeming shares,
Tax identification number, Minimum balances

9. Pending Legal NOT APPLICABLE
Proceedings

Cross Reference - Page 9
<PAGE>

PART B

Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ -----------------------

10. Cover Page COVER PAGE

11. Table of Contents TABLE OF CONTENTS

12. General Information and FUND ORGANIZATION
History

13. Investment Objectives THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
and Policies PORTFOLIO TRANSACTIONS-Brokerage Commissions,
Portfolio turnover

14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders of
Securities

16. Investment Advisory and INVESTMENT ADVISER
Other Services DISTRIBUTOR
ADDITIONAL INFORMATION-Experts, Other
Information

17. Brokerage Allocation PORTFOLIO TRANSACTIONS-Brokerage Commissions,
and Other Practices Portfolio Turnover

18. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES

21. Underwriters DISTRIBUTOR

22. Calculation of PERFORMANCE INFORMATION
Performance Data

23. Financial Statements FINANCIAL STATEMENTS

Cross Reference - Page 10
<PAGE>

SCUDDER HEALTH CARE FUND
CROSS-REFERENCE SHEET

Items Required By Form N-1A

PART A

Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Cover Page COVER PAGE

2. Synopsis EXPENSE INFORMATION

3. Condensed Financial NOT APPLICABLE
Information

4. General Description of INVESTMENT OBJECTIVES AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION

5. Management of the Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
FUND ORGANIZATION-Investment adviser,
Transfer agent
SHAREHOLDER BENEFITS-A team
approach to investing
TRUSTEES AND OFFICERS

5A. Management's Discussion NOT APPLICABLE
of Fund Performance

8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION-Redeeming shares,
Tax identification number, Minimum balances

9. Pending Legal NOT APPLICABLE
Proceedings

Cross Reference - Page 11
<PAGE>

PART B

Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ -----------------------

10. Cover Page COVER PAGE

11. Table of Contents TABLE OF CONTENTS

12. General Information and FUND ORGANIZATION
History

13. Investment Objectives THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
and Policies PORTFOLIO TRANSACTIONS-Brokerage Commissions,
Portfolio turnover

14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders of
Securities

16. Investment Advisory and INVESTMENT ADVISER
Other Services DISTRIBUTOR
ADDITIONAL INFORMATION-Experts, Other
Information

17. Brokerage Allocation PORTFOLIO TRANSACTIONS-Brokerage Commissions,
and Other Practices Portfolio Turnover

18. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES

21. Underwriters DISTRIBUTOR

22. Calculation of PERFORMANCE INFORMATION
Performance Data

23. Financial Statements FINANCIAL STATEMENTS

Cross Reference - Page 12
<PAGE>

SCUDDER TECHNOLOGY FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A

PART A

Item No. Item Caption Prospectus Caption
- -------- ------------ ------------------
1. Cover Page COVER PAGE

2. Synopsis EXPENSE INFORMATION

3. Condensed Financial NOT APPLICABLE
Information

4. General Description of INVESTMENT OBJECTIVES AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION

5. Management of the Fund A MESSAGE FROM SCUDDER'S CHAIRMAN
FUND ORGANIZATION-Investment adviser,
Transfer agent
SHAREHOLDER BENEFITS-A team
approach to investing
TRUSTEES AND OFFICERS

5A. Management's Discussion NOT APPLICABLE
of Fund Performance

8. Redemption or EXCHANGES AND REDEMPTIONS
Repurchase TRANSACTION INFORMATION-Redeeming shares,
Tax identification number, Minimum balances

9. Pending Legal NOT APPLICABLE
Proceedings

Cross Reference - Page 13
<PAGE>

PART B

Caption in Statement of
Item No. Item Caption Additional Information
- -------- ------------ -----------------------

10. Cover Page COVER PAGE

11. Table of Contents TABLE OF CONTENTS

12. General Information and FUND ORGANIZATION
History

13. Investment Objectives THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
and Policies PORTFOLIO TRANSACTIONS-Brokerage Commissions,
Portfolio turnover

14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders of
Securities

16. Investment Advisory and INVESTMENT ADVISER
Other Services DISTRIBUTOR
ADDITIONAL INFORMATION-Experts, Other
Information

17. Brokerage Allocation PORTFOLIO TRANSACTIONS-Brokerage Commissions,
and Other Practices Portfolio Turnover

18. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES

21. Underwriters DISTRIBUTOR

22. Calculation of PERFORMANCE INFORMATION
Performance Data

23. Financial Statements FINANCIAL STATEMENTS

Cross Reference - Page 14
<PAGE>
<PAGE>

This prospectus sets forth concisely the information about Scudder Small Company
Value Fund, a series of Scudder Securities Trust, an open-end management
investment company, that a prospective investor should know before investing.
Please retain it for future reference.

If you require more detailed information, a Statement of Additional Information
dated January 1, 1998, as amended from time to time, may be obtained without
charge by writing Scudder Investor Services, Inc., Two International Place,
Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission and is available along with other related
materials on the SEC's Internet Web site (http://www.sec.gov).

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Contents -- see page 4.

[LOGO] Soy Ink [RECYCLED LOGO] Printed on recycled papaer

SCUDDER [LOGO]

Scudder
Small Company
Value Fund

Prospectus
January 1, 1998

A pure no-load(TM) (no sales charges) mutual fund which invests for long-term
growth of capital by seeking out undervalued stocks of small U.S. companies.
<PAGE>
- ----------------------------------
Expense information
- ----------------------------------
- --------------------------------------------------------------------------------
How to compare a Scudder pure no-load(TM) fund

This information is designed to help you understand the various costs and
expenses of investing in Scudder Small Company Value Fund (the "Fund"). By
reviewing this table and those in other mutual funds' prospectuses, you can
compare the Fund's fees and expenses with those of other funds. With Scudder's
pure no-load(TM) funds, you pay no commissions to purchase or redeem shares, or
to exchange from one fund to another. As a result, all of your investment goes
to work for you.

1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.

Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Deferred sales charge NONE
Redemption fees payable to the Fund 1.00%*
Exchange fees payable to the Fund 1.00%*

2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended August 31, 1997.
Investment management fee (after waiver) 0%** 12b-1 fees NONE Other
expenses 1.50% Total Fund operating expenses 1.50%**

Example

Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to shareholders.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$15 $47 $?82 $179

See "Fund organization -- Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.

* There is a 1% fee retained by the Fund which is imposed only on
redemptions or exchanges of shares held less than one year. You may redeem
by writing or calling the Fund. If you wish to receive your redemption
proceeds via wire, there is a $5 wire service fee. For additional
information, please refer to "Transaction information -- Exchanging and
redeeming shares."

** Until December 31, 1997, the Adviser has agreed to waive a portion of its
investment management fee to the extent necessary so that the total
annualized expenses of the Fund do not exceed 1.50% of average daily net
assets. If the Adviser had not agreed to waive a portion of its fee,
annualized Fund expenses would have been: investment management fee .75%,
other expenses 1.86% and total operating expenses 2.61% for the fiscal
period ended August 31, 1996.

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
2
<PAGE>

- ----------------------------------
Financial highlights
- ----------------------------------
- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the audited
financial statements.

If you would like more detailed information concerning the Fund's performance, a
complete portfolio listing and audited financial statements are available in the
Fund's Annual Report dated August 31, 1997 and may be obtained without charge by
writing or calling Scudder Investor Services, Inc.

For the Period
October 6, 1995
(commencement
[TO BE UPDATED] of operations) to
August 31,
1997
- --------------------------------------------------------------------------------

Net asset value, beginning of period ........................... $ 12.00
Income from investment operations: ............................. .07
Net investment income
Net realized and unrealized gain on investment transactions .... 1.53
Total from investment operations ............................... 1.60
Less distributions from net investment income .................. (.05)
Redemption fees ................................................ .02
Net asset value, end of period ................................. $ 13.57
- --------------------------------------------------------------------------------
Total Return (%) (b) ........................................... 13.54(c)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ........................ 41
Ratio of operating expenses, net to average daily net
assets (%) ................................................... 1.50*
Ratio of operating expenses before expense reductions,
to average daily net assets (%) .............................. 2.61*
Ratio of net investment income to average daily net assets (%) . .67*
Portfolio turnover rate (%) .................................... 33.97*
Average commission rate paid ................................. $ .0364

(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

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
3
<PAGE>

- ----------------------------------
A message from Scudder's chairman
- ----------------------------------

[PHOTO]

Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. During the past year, Scudder entered into an alliance with Zurich
Insurance Company in which Zurich has acquired a majority interest in Scudder
and combined Scudder with Zurich Kemper Investments, Inc. Scudder's name has
been changed to Scudder Kemper Investments, Inc. Today, the combined forces of
Scudder Kemper manage in excess of $___ billion for many private accounts and
over __ mutual fund portfolios. We continue to manage the mutual funds in a
special program for the American Association of Retired Persons, as well as the
fund options available through Scudder Horizon Plan, a tax-advantaged variable
annuity. We also advise The Japan Fund and nine closed-end funds that invest in
countries around the world.

The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.

Services available to all shareholders include toll-free access to the
professional service representatives of Scudder Investor Relations, easy
exchange among funds, shareholder reports, informative newsletters and the
walk-in convenience of Scudder Investor Centers.

The funds of the Scudder Family of Funds are pure no-load(TM). This means you
pay no commissions to purchase or redeem your shares or to exchange from one
fund to another. There are no "12b-1" fees either, which many other funds now
charge to support their marketing efforts. All of your investment goes to work
for you. We look forward to welcoming you as a shareholder.

/s/ Daniel Pierce

- ----------------------------------
Scudder Small Company Value Fund
- ----------------------------------

Investment objective

o long-term growth of capital Investment characteristics

o a diversified, actively managed portfolio of domestic small capitalization
stocks

o a systematic, proprietary investment approach to uncovering potentially
undervalued small U.S. companies

o potential for above-average long-term growth with above-average stock
market risk

- ----------------------------------
Contents
- ----------------------------------

Investment objective and policies .......................................... 5
Why invest in the Fund? .................................................... 6
U.S. investment experience ................................................. 7
What are the Fund's special risks? ......................................... 7
Additional information about policies 8
and investments ......................................................... 10
Distribution and performance information ................................... 10
Fund organization .......................................................... 10
Transaction information .................................................... 13
Shareholder benefits ....................................................... 14
Purchases .................................................................. 15
Exchanges and redemptions .................................................. 20
Trustees and Officers ...................................................... 22
Investment products and services ........................................... 23
How to contact Scudder ..................................................... 25

- --------------------------------------------------------------------------------
4
<PAGE>

- ----------------------------------
Investment objective and policies
- ----------------------------------

Scudder Small Company Value Fund (the "Fund"), a diversified series of Scudder
Securities Trust, invests for long-term growth of capital by seeking out
undervalued stocks of small U.S. companies. The Fund's investment adviser,
Scudder Kemper Investments, Inc. (the "Adviser"), uses a systematic, proprietary
investment approach to identify small, domestic companies that, in the opinion
of the Adviser, are selling at prices that do not reflect adequately their
long-term business potential. These companies are often out of favor or not
closely followed by investors and, as a result, may offer substantial
appreciation potential over time.

The Fund is expected to provide little, if any, current income and is designed
for the aggressive portion of an investor's portfolio. Although the Fund
typically holds a large number of securities identified through a quantitative,
value-driven investment strategy, it does entail above-average investment risk
in comparison to larger stocks. Shares of the Fund should be purchased with a
long-term horizon in mind. To encourage long-term investment, a 1% redemption
and exchange fee, described more fully below, is payable to the Fund for the
benefit of remaining shareholders on shares held less than one year.

Investments

In pursuit of long-term growth of capital, the Fund invests, under normal
circumstances, at least 90% of its assets in the common stock of small U.S.
companies. The Fund will invest in securities of companies that are similar in
size to those in the Russell 2000(R) Index of small stocks and maintain a median
market capitalization (i.e., current stock price times shares outstanding) below
$500 million. On a temporary basis, the Fund may continue to hold securities of
companies that have grown in market capitalization above the maximum of the
Russell 2000 Index, but will not add to these holdings.

The Fund takes a diversified approach to investing in small capitalization
issues. It will not be unusual for the Fund to participate in more than one
hundred small companies, representing a variety of U.S. industries.

While the Fund invests predominantly in common stocks, it can purchase other
types of equity securities including preferred stocks (either convertible or
nonconvertible), rights, warrants and restricted securities. Securities may be
listed on national exchanges or, more commonly, traded over-the-counter. The
Fund also may invest up to 20% of its assets in U.S. Treasury, agency and
instrumentality obligations on a temporary basis, may enter into repurchase
agreements and reverse repurchase agreements and may engage in strategic
transactions, using such derivatives contracts as index options and futures, to
increase stock market participation, enhance liquidity and manage transaction
costs. In addition, the Fund may borrow from banks and other financial
institutions in an amount not exceeding the value of one-third of the Fund's
total assets. Reverse repurchase agreements are not subject to the one-third
asset coverage requirement. The Fund currently intends to borrow only for
temporary or emergency purposes, such as providing for redemptions or
distributions, and not for investment purposes.

- --------------------------------------------------------------------------------
5
<PAGE>

investment techniques is provided under "Additional information about policies
and investments."

Value investment approach

The Fund is actively managed using a disciplined, value-oriented investment
management approach. The Adviser uses a proprietary, computerized model to
identify for investment small public U.S. companies selling at prices that, in
the opinion of the Adviser, do not reflect adequately their long-term business
potential. Companies purchased for the Fund typically have the following
characteristics:

o Attractive valuations relative to the Russell 2000 Index -- a widely used
benchmark of small stock performance -- based on measures such as price to
earnings, price to book value and price to cash flow ratios.

o Favorable trends in earnings growth rates and stock price momentum.

The Fund's holdings are often out of favor or simply overlooked by investors.
Accordingly, their prices can rise either as a result of improved business
fundamentals, particularly when earnings grow faster than general expectations,
or as more investors come to recognize the full extent of a company's underlying
potential.

While the Fund involves above-average equity risk, the Fund's value-oriented,
systematic approach to investing is designed to mitigate volatility of the
Fund's share price relative to the small capitalization sector of the U.S. stock
market. This risk is further managed by purchasing a large number of stocks, and
employing specialized portfolio management techniques, such as portfolio
optimization.

- ----------------------------------
Why invest in the Fund?
- ----------------------------------

Scudder Small Company Value Fund combines the long-term growth potential of
small company stocks with the defensive nature of value investing. The Fund
focuses on U.S. small capitalization issues that may be out of favor or not
closely followed by investors, yet which, in the opinion of the Adviser, will
reward investors with substantial returns over time. U.S. small capitalization
stocks have outperformed large capitalization stocks over time, albeit with
greater volatility in returns. Since the Fund involves both above-average
performance opportunity and risk, it may be suitable for those individuals who
are investing for a long-term goal, such as accumulating assets for retirement,
funding a child's college education or building wealth for future generations.

While the Fund may invest in a broad range of industries, it is not, by itself,
a complete investment program. Nonetheless, it can help improve the
diversification of an investment portfolio already holding other types of stock
and fixed-income securities. Historically, the prices of value stocks, and in
particular small company value stocks, have not always moved in tandem with the
prices of either large company stocks or higher-risk small company "growth"
issues. Thus, Fund shares can add balance to a personal investment portfolio.

The Fund offers low-cost, convenient access to a sector of the U.S. stock market
in which investors might otherwise find it difficult to participate. On their
own, individual investors might find it a challenge to analyze data on hundreds
of small companies, receive complete, up-to-date financial information, and buy
and sell securities at favorable prices. The Fund's portfolio management team
assumes the burden of these varied responsibilities for investors.

In addition, the Fund offers all the benefits of the Scudder Family of Funds.
The Adviser manages a diverse family of pure no-load(TM) funds and provides a
wide range of services to help investors meet their investment needs. Please
refer to "Investment products and services" for additional information.

- --------------------------------------------------------------------------------
6
<PAGE>

- ----------------------------------
U.S. investment experience
- ----------------------------------

The Adviser is one of America's largest investment managers and has been
involved in U.S. stock investing since its founding over 75 years ago. As of
November 30, 1997, Scudder managed in excess of $___ billion in U.S. equity
securities, including over $__ billion in domestically-oriented growth mutual
funds. Among other funds, the Adviser manages Scudder Development Fund, one of
America's first small company mutual funds, Scudder Micro Cap Fund and Scudder
21st Century Growth Fund.

- ----------------------------------
What are the Fund's special risks?
- ----------------------------------

While historically small company stocks have outperformed the stocks of large
companies, the former have customarily involved more risk as well. Small
companies may have limited product lines, markets or financial resources; may
lack management depth or experience; and may be more vulnerable to adverse
general market or economic developments than large companies. The prices of
small company securities are often more volatile than prices associated with
large company issues, and can display abrupt or erratic movements at times, due
to limited trading volumes and less publicly available information.

Some of the companies in which the Fund may invest may distribute, sell or
produce products which have recently been brought to market and may be dependent
on key personnel.

The securities of small companies are often traded over-the-counter and may not
be traded in the volumes typical on a national securities exchange.
Consequently, in order to sell this type of holding, the Fund may need to
discount the securities from recent prices or dispose of the securities over a
long period of time.

- ----------------------------------
Additional information about
policies and investments
- ----------------------------------

Investment restrictions

The Fund has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to reduce the Fund's
investment risk.

As discussed in "Investment objective and policies - Investments" above, the
Fund may borrow money provided that the Fund maintain asset coverage of 300% for
all borrowings except for reverse repurchase agreements. The Fund may not make
loans except through the lending of portfolio securities, the purchase of debt
securities or through repurchase agreements.

The Fund may not invest more than 25% of its total assets in securities of
companies in the same industry.

A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Statement of Additional
Information.

Common stocks

Under normal circumstances, the Fund invests primarily in common stocks. Common
stock is issued by companies to raise cash for business purposes and represents
a proportionate interest in the issuing companies. Therefore, the Fund
participates in the success or failure of any company in which it holds stock.
The market values of equity securities can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest

- --------------------------------------------------------------------------------
7
<PAGE>

potential for gain on investment, compared to other classes of financial assets
such as bonds or cash equivalents.

Convertible securities

The convertible securities in which the Fund may invest consist of bonds, notes,
debentures and preferred stocks which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock.

Prior to their conversion, convertible securities may have characteristics
similar to nonconvertible securities of the same type.

Repurchase agreements

As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements with selected banks and broker/dealers. Under a
repurchase agreement, the Fund acquires securities, subject to the seller's
agreement to repurchase at a specified time and price.

The Fund may enter into repurchase commitments with any party deemed
creditworthy by the Adviser if the transaction is entered into for investment
purposes and the counterparty's creditworthiness is at least equal to that of
issuers of securities which the Fund may purchase.

Strategic Transactions and derivatives

The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks or to seek gain.
These strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.

Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities market fluctuations, to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, or to establish
a position in the derivatives markets as a temporary substitute for purchasing
or selling particular securities. Some Strategic Transactions may also be used
to enhance potential gain although no more than 5% of the Fund's assets will be
committed to Strategic Transactions entered into for non-hedging purposes. Any
or all of these investment techniques may be used at any time and in any
combination, and there is no particular strategy that dictates the use of one
technique rather than another, as use of any Strategic Transaction is a function
of numerous variables including market conditions. The ability of the Fund to
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The Fund
will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes. Please refer to "Risk factors -- Strategic
Transactions and derivatives" for more information.

Risk factors

The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the

- --------------------------------------------------------------------------------
8
<PAGE>

investments and techniques that the Fund may use from time to time.

Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted, or
the value of the securities may decline before the Fund is able to dispose of
them. In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the securities before repurchase of the securities
under a repurchase agreement, the Fund may encounter delay and incur costs,
including a decline in the value of the securities, before being able to sell
the securities. Some repurchase commitment transactions may not provide the Fund
with collateral marked-to-market during the term of the commitment.

Convertible securities. While convertible securities generally offer lower
yields than nonconvertible debt securities of similar quality, their prices may
reflect changes in the value of the underlying common stock. Convertible
securities entail less credit risk than the issuer's common stock.

Illiquid or restricted investments. The absence of a trading market can make it
difficult to ascertain a market value for illiquid or restricted investments.
Disposing of illiquid or restricted investments may involve time-consuming
negotiation and legal expenses, and it may be difficult or impossible for the
Fund to sell them promptly at an acceptable price.

Borrowing. Although the principal of the Fund's borrowing will be fixed, the
Fund's assets may change in value during the time a borrowing is outstanding,
increasing exposure to capital risk.

Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of the Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. In
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
markets, the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures contracts and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Fund's Statement of
Additional Information.

- --------------------------------------------------------------------------------
9
<PAGE>

- ----------------------------------
Distribution and performance
information
- ----------------------------------

Dividends and capital gains distributions

The Fund intends to distribute any dividends from net investment income and any
net realized capital gains after utilization of capital loss carryforwards, if
any, in November or December, although an additional distribution may be made if
necessary. Any dividends or capital gains distributions declared in October,
November or December with a record date in such a month and paid the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared. According to preference,
shareholders may receive distributions in cash or have them reinvested in
additional shares of the Fund. If an investment is in the form of a retirement
plan, all dividends and capital gains distributions must be reinvested into the
shareholder's account.

Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable as
long-term capital gains regardless of the length of time shareholders have owned
their shares. Short-term capital gains and any other taxable income
distributions are taxable as ordinary income. A portion of such dividends from
net investment income may qualify for the dividends-received deduction for
corporations.

The Fund sends detailed tax information to shareholders about the amount and
type of its distributions by January 31 of the following year.

Under normal investment conditions, it is anticipated that the Fund's portfolio
turnover rate will not exceed 75% per year. However, economic and market
conditions may necessitate more active trading, resulting in a higher portfolio
turnover rate. A higher rate involves greater brokerage expenses to the Fund and
may result in the realization of net capital gains, which would be taxable to
shareholders when distributed.

Performance information

From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. "Total return" is the change in value
of an investment in the Fund for a specified period. The "average annual total
return" of the Fund is the average annual compound rate of return of an
investment in the Fund assuming the investment has been held for one year and
the life of the Fund as of a stated ending date. "Cumulative total return"
represents the cumulative change in value of an investment in the Fund for
various periods. All types of total return calculations assume that all
dividends and capital gains distributions during the period were reinvested in
shares of the Fund. Performance will vary based upon, among other things,
changes in market conditions and the level of the Fund's expenses.

- ----------------------------------
Fund organization
- ----------------------------------

Scudder Small Company Value Fund is a diversified series of Scudder Securities
Trust (the "Trust"), formerly Scudder Development Fund, an open-end, management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). The Trust was organized as a Massachusetts business trust in
October 1985 and on December 31, 1985 assumed the business of its predecessor.
Its predecessor was organized as a Delaware corporation in February 1970.

- --------------------------------------------------------------------------------
10
<PAGE>

special meetings may be called for purposes such as electing or removing
Trustees, changing fundamental investment policies or approving an investment
management agreement. Shareholders will be assisted in communicating with other
shareholders in connection with removing a Trustee as if Section 16(c) of the
1940 Act were applicable.

Investment adviser

The Fund retains the investment management firm of Scudder Kemper Investments,
Inc., a Delaware corporation, to manage its daily investment and business
affairs subject to the policies established by the Board of Trustees. The
Trustees have overall responsibility for the management of the Fund under
Massachusetts law.

The Fund pays the Adviser an annual fee of 0.75% of the Fund's average daily net
assets. The fee is payable monthly, provided that the Fund will make such
interim payments as may be requested by the Adviser not to exceed 75% of the
amount of the fee then accrued on the books of the Fund and unpaid. The fee is
higher than the average management fee, but not necessarily higher than that
charged by funds with a similar investment objective.

The Adviser has agreed to maintain the annualized expenses of the Fund at no
more than 1.50% of the average daily net assets of the Fund until December ____.

Under the Investment Management Agreement with the Adviser, the Fund is
responsible for all of its expenses, including fees and expenses incurred in
connection with membership in investment company organizations; fees and
expenses of the Fund's accounting agent; brokers' commissions; legal, auditing
and accounting expenses; taxes and governmental fees; the fees and expenses of
the transfer agent; the expenses of and the fees for registering or qualifying
securities for sale; the fees and expenses of Trustees, officers and employees
of the Trust who are not affiliated with the Adviser; the cost of printing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians.

All of the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.

Scudder Kemper Investments, Inc., is located at 345 Park Avenue, New York, New
York 10154-0010.

Transfer agent

Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Fund.

Underwriter

Scudder Investor Services, Inc., a subsidiary of the Adviser, is the Fund's
principal underwriter. Scudder Investor Services, Inc. confirms, as agent, all
purchases of shares of the Fund. Scudder Investor Relations is a telephone
information service provided by Scudder Investor Services, Inc.

Fund accounting agent

Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.

Custodian

State Street Bank and Trust Company is the Fund's custodian.

- ----------------------------------
Transaction information
- ----------------------------------

Purchasing shares

Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent receives the purchase request in good order.

Purchases are made in full and fractional shares. (See "Share price.")

- --------------------------------------------------------------------------------
11
<PAGE>

By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
requests by telephone prior to the expiration of the seven-day period will not
be accepted.

By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent. Accounts cannot be opened
without a completed, signed application and a Scudder fund account number.
Contact your bank to arrange a wire transfer to:

The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552

Your wire instructions must also include:

- -- the name of the fund in which the money is to be invested,

- -- the account number of the fund, and

- -- the name(s) of the account holder(s).

The account will be established once the application and money order are
received in good order.

You may also make additional investments of $100 or more to your existing
account by wire.

By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation and the shareholder will be
responsible for any loss to the Fund resulting from this cancellation. Telephone
orders are not available for shares held in Scudder IRA accounts and most other
Scudder retirement plan accounts.

By "QuickBuy." If you elected "QuickBuy" for your account, you can call
toll-free to purchase shares. The money will be automatically transferred from
your predesignated bank checking account. Your bank must be a member of the
Automated Clearing House for you to use this service. If you did not elect
"QuickBuy," call 1-800-225-5163 for more information.

To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "QuickBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.

If you purchase shares by "QuickBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "QuickBuy" transactions are not
available for most retirement plan accounts. However, "QuickBuy"

- --------------------------------------------------------------------------------
12
<PAGE>

transactions are available for Scudder IRA accounts.

Exchanging and redeeming shares

Upon the redemption or exchange of shares held less than one year, a fee of 1%
of the current net asset value of the shares will be assessed and retained by
the Fund for the benefit of the remaining shareholders. The fee is waived for
all shares purchased through certain Scudder retirement plans, including 401(k)
plans, 403(b) plans, 457 plans, Keogh accounts, and Profit Sharing and Money
Purchase Pension Plans. However, if such shares are purchased through a broker,
financial institution or recordkeeper maintaining an omnibus account for the
shares, such waiver may not apply. (Before purchasing shares, please check with
your account representative concerning the availability of the fee waiver.) In
addition, this waiver does not apply to IRA and SEP-IRA accounts. This fee is
intended to encourage long-term investment in the Fund, to avoid transaction and
other expenses caused by early redemptions, and to facilitate portfolio
management. The fee is not a deferred sales charge, is not a commission paid to
the Adviser or its subsidiaries, and does not benefit the Adviser in any way.
The Fund reserves the right to modify the terms of or terminate this fee at any
time.

The fee applies to redemptions from the Fund and exchanges to other Scudder
funds, but not to dividend or capital gains distributions which have been
automatically reinvested in the Fund.

The fee is applied to the shares being redeemed or exchanged in the order in
which they were purchased. See "Exchanges and Redemptions" in the Fund's
Statement of Additional Information for a more detailed description of the
redemption fee.

By exchange. The Fund may be exchanged for shares of other funds in the Scudder
Family of Funds unless otherwise determined by the Board of Trustees. Your new
account will have the same registration and address as your existing account.

The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.

You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.

Redeeming shares

The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.

By telephone. This is the quickest and easiest way to sell Fund shares. If you
provided your banking information on your application, you can call to request
that federal funds be sent to your authorized bank account. If you did not
include your banking information on your application, call 1-800-225-5163 for
more information.

Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.

You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.

If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.

In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.

- --------------------------------------------------------------------------------
13
<PAGE>

Automated Clearing House for you to use this service. If you did not elect
"QuickSell," call 1-800-225-5163 for more information.

To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
redeemed at the net asset value per share calculated at the close of trading on
the day of your call. "QuickSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.

"QuickSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.

Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.

Telephone transactions

Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $100,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.

Share price

Purchases and redemptions, including exchanges, are made at net asset value.
There is a 1% fee payable to the Fund for exchanges or redemptions of shares
held less than one year. Scudder Fund Accounting Corporation determines net
asset value per share as of the close of regular trading on the Exchange,
normally 4 p.m. eastern time, on each day the Exchange is open for trading. Net
asset value per share is calculated by dividing the value of total Fund assets,
less all liabilities, by the total number of shares outstanding.

Processing time

All purchase and redemption requests must be received in good order by the
Fund's transfer agent. Those requests received by the close of regular trading
on the Exchange are executed at the net asset value per share calculated at the
close of regular trading that day.

Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.

- --------------------------------------------------------------------------------
14
<PAGE>

If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.

The Fund will normally send your redemption proceeds within one business day
following the redemption request, but may take up to seven business days (or
longer in the case of shares recently purchased by check).

Purchase restrictions

Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of Fund shares (including exchanges) for any reason including when a
pattern of frequent purchases and sales made in response to short-term
fluctuations in the Fund's share price appears evident.

Tax information

A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.

Tax identification number

Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a correct certified Social Security or tax identification number and
certain other certified information or upon notification from the IRS or a
broker that withholding is required. The Fund reserves the right to reject new
account applications without a correct certified Social Security or tax
identification number. The Fund also reserves the right, following 30 days'
notice, to redeem all shares in accounts without a correct certified Social
Security or tax identification number. A shareholder may avoid involuntary
redemption by providing the Fund with a tax identification number during the
30-day notice period. Redemptions for failure to provide a tax identification
number are not subject to the 1% redemption fee.

Minimum balances

Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Trustees. Scudder retirement plans and certain
other accounts have similar or lower minimum share balance requirements. A
shareholder may open an account with at least $1,000, if an automatic investment
plan of $100/month is established.

Shareholders who maintain a non-fiduciary account balance of less than $2,500 in
the Fund, without establishing an automatic investment plan, will be assessed an
annual $10.00 per fund charge with the fee to be paid to the Fund. The $10.00
charge will not apply to shareholders with a combined household account balance
in any of the Scudder Funds of $25,000 or more. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. The Fund
will mail the proceeds of the redeemed account to the shareholder. Reductions in
value that result solely from market activity will not trigger an involuntary
redemption. Retirement accounts and certain other accounts will not be assessed
the $10.00 charge or be subject to automatic liquidation. Please refer to
"Exchanges and Redemptions -- Other information" in the Fund's Statement of
Additional Information for more information.

Third party transactions

If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member

- --------------------------------------------------------------------------------
15
<PAGE>

may, at its discretion, charge a fee for that service.

Redemption-in-kind

The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities to cash. The Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, as a result
of which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.

- ----------------------------------
Shareholder benefits
- ----------------------------------

Experienced professional management

Scudder, Stevens & Clark, Inc., one of the nation's most experienced investment
management firms, actively manages your Scudder fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.

A team approach to investing

Scudder Small Company Value 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. Scudder believes its team approach benefits
Fund investors by bringing together many disciplines and leveraging Scudder's
extensive resources.

Philip S. Fortuna, Lead 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. James M.
Eysenbach, 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 ten years investment research and management experience.

SAIL(TM) -- Scudder Automated Information Line

For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such an
event you should write to the Fund; please see "How to contact Scudder" for the
address.

Investment flexibility

Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. (The exchange
privilege may not be available for certain Scudder funds. For more information,
please call 1-800-225-5163.) Telephone and fax redemptions and exchanges are
subject to termination and their terms are subject to change at any time by the
Fund or the transfer agent. In some cases, the transfer agent or Scudder
Investor Services, Inc. may impose additional conditions on telephone
transactions.

Personal Counsel(SM) -- A Managed Fund Portfolio Program

If you would like to receive direct guidance and management of your overall
mutual fund

- --------------------------------------------------------------------------------
16
<PAGE>

portfolio to help you pursue your investment goals, you may be interested in
Personal Counsel from Scudder. Personal Counsel, a program of Scudder Investor
Services, Inc., a registered investment adviser and a subsidiary of Scudder,
Stevens & Clark, Inc., combines the benefits of a customized portfolio of pure
no-load Scudder Funds with ongoing portfolio monitoring and individualized
service, for an annual fee of generally 1% or less of assets (with a $1,000
minimum). In addition, it draws upon Scudder's more than 75-year heritage of
providing investment counsel to large corporate and private clients. If you have
$100,000 or more to invest initially and would like more information about
Personal Counsel, please call 1-800-700-0183.

Dividend reinvestment plan

You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.

Shareholder statements

You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.

Shareholder reports

In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.

To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.

Newsletters

Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.

Scudder Investor Centers

As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Investor Centers in Boca Raton, Boston,
Chicago, New York and San Francisco.

T.D.D. service for the hearing impaired

Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.

- --------------------------------------------------------------------------------
17
<PAGE>

- ----------------------------------
Purchases
- ----------------------------------

- --------------------------------------------------------------------------------
Opening Minimum initial investment: $2,500; IRAs $1,000
an account Group retirement plans (401(k), 403(b), etc.) have similar
or lower minimums. See appropriate plan literature.

Make checks o By Mail Send your completed and signed application
payable to "The and check
Scudder Funds."
by regular mail to: or by express, registered,
or certified mail to:

The Scudder Funds Scudder Shareholder
P.O. Box 2291 Service Center
Boston, MA 42 Longwater Drive
02107-2291 Norwell, MA
02061-1612

o By Wire Please see Transaction information --
Purchasing shares -- By wire for details,
including the ABA wire transfer number. Then
call 1-800-225-5163 for instructions.

o In Person Visit one of our Investor Centers to complete
your application with the help of a Scudder
representative. Investor Center locations are
listed under Shareholder benefits.

- --------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional Group retirement plans (401(k), 403(b), etc.) have similar or
shares lower minimums.
See appropriate plan literature.

Make checks o By Mail Send a check with a Scudder investment slip, or
payable to "The with a letter of instruction including your
Scudder Funds." account number and the complete Fund name, to
the appropriate address listed above.

o By Wire Please see Transaction information --
Purchasing shares -- By wire for details,
including the ABA wire transfer number.

o In Person Visit one of our Investor Centers to make an
additional investment in your Scudder fund
account. Investor Center locations are listed
under Shareholder benefits.

o By Please see Transaction information --
Telephone Purchasing shares -- By QuickBuy or By
telephone order for more details.

o By You may arrange to make investments on a
Automatic regular basis through automatic deductions from
Investment your bank checking account. Please call
Plan ($50 1-800-225-5163 for more information and an
minimum) enrollment form.

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
18
<PAGE>

- ----------------------------------
Exchanges and redemptions
- ----------------------------------
- --------------------------------------------------------------------------------
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts

o By To speak with a service representative, call
Telephone 1-800-225-5163 from 8 a.m. to 8 p.m. eastern
time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours
a day).

There may be o By Mail Print or type your instructions and include:
a 1% fee or Fax - the name of the Fund and the account
payable to the number you are exchanging from;
Fund for - your name(s) and address as they appear on
exchanges of your account;
shares held - the dollar amount or number of shares you
less than one wish to exchange;
year - the name of the Fund you are exchanging
into;
- your signature(s) as it appears on your
account; and
- a daytime telephone number.

Send your instructions

by regular mail to: or by express, registered, or by fax to:
or certified mail to:

The Scudder Funds Scudder Shareholder 1-800-821-6234
P.O. Box 2291 Service Center
Boston, MA 42 Longwater Drive
02107-2291 Norwell, MA
02061-1612
- --------------------------------------------------------------------------------
Redeeming shares o By To speak with a service representative, call
Telephone 1-800-225-5163 from 8 a.m. to 8 p.m. eastern
time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours
a day). You may have redemption proceeds sent
to your predesignated bank account, or
redemption proceeds of up to $100,000 sent to
your address of record.

There may be o By Mail Send your instructions for redemption to the
a 1% fee or Fax appropriate address or fax number above and
payable to the include:
Fund for red - the name of the Fund and account number
emption of you are redeeming from;
shares held - your name(s) and address as they appear on
less than one your account;
year - the dollar amount or number of shares you
wish to redeem;
- your signature(s) as it appears on your
account; and
- a daytime telephone number.

A signature guarantee is required for
redemptions over $50,000. See Transaction
information -- Redeeming shares.

o By You may arrange to receive automatic cash
Automatic payments periodically. Call 1-800-225-5163 for
Withdrawal more information and an enrollment form.
Plan

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
19
<PAGE>

- ----------------------------------
Scudder tax-advantaged
retirement plans
- ----------------------------------

Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.

o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of up to $2,000 per person for anyone with earned income (up
to $2,000 per individual for married couples if only one spouse has earned
income). Many people can deduct all or part of their contributions from
their taxable income, and all investment earnings accrue on a tax-deferred
basis. The Scudder No-Fee IRA charges you no annual custodial fee. 401(k)
Plans.

o 401(k) plans allow employers and employees to make tax-deductible
retirement contributions. Scudder offers a full service program that
includes recordkeeping, prototype plan, employee communications and
trustee services, as well as investment options.

o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make
annual, tax-deductible contributions of up to $30,000 for each person
covered by the plans. Plans may be adopted individually or paired to
maximize contributions. These are sometimes known as Keogh plans. The
Scudder Keogh charges you no annual custodial fee.

o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.

o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation. The Scudder SEP-IRA charges
you no annual custodial fee.

o Scudder Horizon Plan. A no-load variable annuity that lets you build
assets by deferring taxes on your investment earnings. You can start with
$2,500 or more.

Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA, Profit Sharing
or Pension Plan accounts, call 1-800-225-5163.

The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State, Nevada
and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is the
Principal Underwriter. Scudder Horizon Plan is not available in all states.

Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.

- --------------------------------------------------------------------------------
20
<PAGE>

- ----------------------------------
Trustees and Officers
- ----------------------------------

Daniel Pierce*
President and Trustee

Paul Bancroft III
Trustee; Venture Capitalist and Consultant

Sheryle J. Bolton
Trustee; Chief Executive Officer, Scientific
Learning Corporation

William T. Burgin
Trustee; General Partner, Bessemer Venture
Partners

Thomas J. Devine
Trustee; Consultant

Keith R. Fox
Trustee; President, Exeter Capital
Management Corporation

Dr. Wilson Nolen
Trustee; Consultant

Kathryn L. Quirk*
Trustee

Robert W. Lear
Honorary Trustee; Executive-in-Residence,
Visiting Professor, Columbia University
Graduate School of Business

William H. Luers
Trustee; President, The Metropolitan Museum
of Art

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

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

Richard W. Desmond*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.

- --------------------------------------------------------------------------------
21
<PAGE>

- ----------------------------------
Investment products and services
- ----------------------------------

The Scudder Family of Funds+
- --------------------------------------------------------------------------------
Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Sales*
Managed Shares*
Scudder Government Money Market
Series -- Managed Shares*

Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder Tax Free Money Market
Series -- Managed Shares*
Scudder California Tax Free Money
Fund*
Scudder New York Tax Free Money
Fund*

Tax Free+
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited
Term Tax Free Fund**
Scudder Massachusetts Tax Free
Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**

U.S. Income
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund

Global Income
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income
Fund

Asset Allocation
Scudder Pathway Conservative
Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International
Portfolio

U.S. Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund

U.S. Growth
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund

Growth
Scudder Classic Growth Fund
Scudder Large Company Growth
Fund
Scudder Development Fund
Scudder 21st Century Growth Fund

Global Growth
Worldwide
Scudder Global Fund
Scudder International Growth and
Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Market Growth
Fund
Scudder Gold Fund

Regional
Scudder Greater Europe Growth
Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.

Retirement Programs
IRA
SEPIRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan **++
(a variable annuity)

Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentiana Fund, Inc.
The Brazil 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 Funds, Inc.
Scudder Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.

For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. *A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. #A class of shares of Fund. **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.

- --------------------------------------------------------------------------------
22
<PAGE>

- ----------------------------------
How to contact Scudder
- ----------------------------------

Account Service and Information:

For existing account service and transactions
Scudder Investor Relations -- 1-800-225-5163

For 24 hour account information, fund information, exchanges, and an
overview of all of the services available to you Scudder Electronic Account
Services -- http://funds.scudder.com

For personalized information about your Scudder accounts, exchanges and
redemptions Scudder Automated Information Line (SAIL) -- 1-800-343-2890

Investment Information:

For information about the Scudder funds, including additional applications
and prospectuses, or for answers to investment questions

Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://scudder.com

For establishing 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105

Scudder Brokerage Services:

To receive information about this discount brokerage service and to obtain an
application
Scudder Brokerage Services* -- 1-800-700-0820

Personal Counsel(SM) -- A Managed Fund Portfolio Program:

To receive information about this mutual fund portfolio guidance and
management program
Personal Counsel from Scudder -- 1-800-700-0183

Please address all correspondence to:

The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291

Or Stop by a Scudder Investor Center:

Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Investor Center you -- they can be found in
the following cities:

Boca Raton Chicago San Francisco
Boston New York

Scudder Investor Relations and Scudder Investor Centers are services provided
through Scudder Investor Services, Inc., Distributor.

* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061 -- Member NSAD/SIPC.

- --------------------------------------------------------------------------------
23

<PAGE>

This prospectus sets forth concisely the information about Scudder Micro Cap
Fund, a series of Scudder Securities Trust, an open-end management investment
company, that a prospective investor should know before investing. Please retain
it for future reference.

Contents -- see page 3.

[LOGO] Printed on recycled paper

SCUDDER [LOGO]

Scudder
Micro Cap
Fund

Prospectus
January 1, 1998

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.

Due to investment considerations, Scudder Micro Cap Fund is presently closed to
new individual investors.

<PAGE>

- ----------------------------------
Expense information
- ----------------------------------

- --------------------------------------------------------------------------------
How to compare a Scudder pure no-load(TM) fund

This information is designed to help you understand the various costs and
expenses of investing in Scudder Micro Cap Fund (the "Fund"). By reviewing this
table and those in other mutual funds' prospectuses, you can compare the Fund's
fees and expenses with those of other funds. With Scudder's pure no-load(TM)
funds, you pay no commissions to purchase or redeem shares, or to exchange from
one fund to another. As a result, all of your investment goes to work for you.

1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.

2) Annual Fund operating expenses: Estimated expenses paid by the Fund before
it distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended August 31, 1997.

Investment management fee (after waiver) 0.64%**
12b-1 fees NONE
Other expenses 1.11%
-----
Total Fund operating expenses (after waiver) 1.75%**
=====
Example

Based on the estimated level of total Fund operating expenses listed above, the
total expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to shareholders.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$ $ $ $

* There is a 1% fee retained by the Fund which is imposed only on redemptions
or exchanges of shares held less than one year. You may redeem by writing
or calling the Fund. If you wish to receive your redemption proceeds via
wire, there is a $5 wire service fee. For additional information, please
refer to "Transaction information -- Exchanging and redeeming shares."

** Until ___________, the Adviser and certain of its subsidiaries have agreed
to waive all or portions of their fees payable by the Fund to the extent
necessary so that the total annualized expenses of the Fund do not exceed
1.75% of average daily net assets. If the Adviser and its subsidiaries had
not agreed to waive all or portions of their fees, it is estimated that
annualized Fund expenses would be: investment management fee 0.75%, other
expenses 1.11% and total operating expenses 1.86% for the initial year of
operation. To the extent that expenses fall below the current expense
limitation, the Adviser and its subsidiaries reserve the right to recoup,
during the fiscal year incurred, amounts waived during the period, but only
to the extent that the Fund's expenses do not exceed 1.75%.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
2
<PAGE>

- ----------------------------------
Financial highlights
- ----------------------------------

- --------------------------------------------------------------------------------
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the audited
financial statements.

<TABLE>
<CAPTION>
For the Period
August 12, 1996
Year Ended (commencement of
August 31, operations) to
1997 August 31, 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period ................................ $ 12.07 $ 12.00
---------------------------
Income from investment operations: .................................. (.03) .01

Net investment income (loss)

Net realized and unrealized gain on investments ..................... 4.74 .06
---------------------------
Total from investment operations .................................... 4.71 .07
---------------------------
Less distributions from net investment income ....................... (.02) --
Redemption fees ..................................................... .01 --
---------------------------
Net asset value, end of period ...................................... $ 16.77 $ 12.07
- --------------------------------------------------------------------------------------------------
Total Return (%) (b) ................................................ 39.10(c) .58(c)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .............................. 92 8
Ratio of operating expenses, net to average daily net assets (%) .... 1.75 1.75*
Ratio of operating expenses before expense reductions, to average
daily net assets (%) .............................................. 2.19 22.06*
Ratio of net investment income (loss) to average daily net assets (%) (.21) 2.58*
Portfolio turnover rate (%) ......................................... 17.13 None
Average commission rate paid ........................................ $ .0318 $ .0323
</TABLE>

(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Total return does not reflect the effect to the shareholder of the 1%
redemption fee on shares held less than one year.
* Annualized
** Not annualized
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
3
<PAGE>

- ----------------------------------
A message from Scudder's chairman
- ----------------------------------

/s/ Daniel Pierce

- ----------------------------------
Scudder Micro Cap Fund
- ----------------------------------

Investment objective

o long-term growth of capital by investing primarily in a diversified
portfolio of U.S. micro-cap stocks

Investment characteristics

o a diversified, actively managed portfolio of domestic micro-capitalization
stocks

o designed as a long-term investment for above-average growth potential and
enhanced investor portfolio diversification

o a pure no-load(TM) fund with no sales charges, commissions or 12b-1 fees

o a 1% redemption and exchange fee on shares held less than one year,
retained by the Fund for the benefit of remaining shareholders

- ----------------------------------
Contents
- ----------------------------------

Investment objective and policies ....................................... 7
Why invest in the Fund? ................................................. 8
U.S. investment experience .............................................. 9
What are the Fund's special risks? ...................................... 9
Additional information about policies
and investments ...................................................... 9
Distribution and performance information ................................ 12
Fund organization ....................................................... 13
Transaction information ................................................. 14
Shareholder benefits .................................................... 19
Purchases ............................................................... 21
Exchanges and redemptions ............................................... 22
Trustees and Officers ................................................... 25
Investment products and services
How to contact Scudder

- --------------------------------------------------------------------------------
4
<PAGE>

- ----------------------------------
Investment objective and policies
- ----------------------------------

Scudder Micro Cap Fund (the "Fund"), a diversified series of Scudder Securities
Trust, seeks long-term growth of capital. The Fund pursues its investment
objective by investing primarily in a diversified portfolio of U.S.
micro-capitalization ("micro-cap") common stocks. These domestic emerging growth
securities provide little or no current income but, in the opinion of the Fund's
investment adviser, Scudder Kemper Investments, Inc. (the "Adviser"), offer
substantial long-term appreciation potential as well as the opportunity to
enhance the overall diversification of an investor's portfolio.

Due to the inherent business characteristics and risks of small companies, along
with the relatively limited trading market for micro-cap stocks, the Fund's
share price can experience periods of significant volatility. As a result, the
Fund should be considered a long-term investment and only one part of a
well-diversified personal investment portfolio. To encourage a long-term
investment holding period and to facilitate portfolio management, a 1%
redemption and exchange fee, described in greater detail below, is payable to
the Fund for the benefit of remaining shareholders on shares held less than one
year.

Due to investment considerations, the Fund is presently closed to new individual
investors. Current individual shareholders of the Fund are able to continue to
invest in the Fund. Further, the Fund remains open to investment through
qualified retirement plans.

The Trustees may determine to reopen the Fund at some point based on market
conditions and other factors.

Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. Shareholders
will receive written notice of any changes in the Fund's investment objective.
If there is a change in investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. There can be no assurance that the Fund's
objective will be met.

Investments

The Fund seeks to provide long-term growth of capital by investing, under normal
market conditions, at least 80% of its assets in common stocks issued by U.S.
micro-cap companies. The Fund will typically invest in companies that, at the
time of purchase, are smaller than the smallest stocks in the Russell 2000 Index
at its annual reconstitution. The median market capitalization (i.e., current
stock price times shares outstanding) of the portfolio is not expected to exceed
$125 million.

While the Fund invests predominantly in common stocks, it can purchase other
types of securities, including preferred stocks, convertible or non-convertible
securities, rights and warrants. Securities may be listed on national exchanges
or traded over-the-counter. The Fund may invest up to 20% of its assets in U.S.
Treasuries, agency and instrumentality obligations, may enter into repurchase
agreements and reverse repurchase agreements and may engage in strategic
transactions to increase stock market participation, enhance liquidity and
manage transaction costs. In addition, the Fund may borrow from banks and other
financial institutions in an amount not exceeding the value of one-third of the
Fund's total assets. Reverse repurchase agreements are not subject to the
one-third asset coverage requirement. The Fund currently intends to borrow only
for temporary or emergency purposes, such as providing for redemptions or
distributions and not for investment purposes.

For temporary defensive purposes, the Fund may invest without limit in cash and
cash equivalents when the Adviser deems such a position

- --------------------------------------------------------------------------------
5
<PAGE>

advisable in light of economic or market conditions. More information about
these investment techniques is provided under "Additional information about
policies and investments."

Systematic investment approach

The Fund is actively managed using a quantitative, value-oriented investment
approach. The Adviser selects investments from among the more than 4,000
publicly-traded U.S. micro-cap stocks based on a proprietary, quantitative
investment strategy. Using this approach, the Adviser looks for companies
selling at a discount to estimated fair value. Because of their small size, and
less frequent trading activity, the companies represented in the Fund are often
overlooked or not closely followed by investors. Accordingly, their prices can
rise either as a result of improved business fundamentals, particularly when
earnings grow faster than general expectations, or as more investors appreciate
the full extent of a company's underlying business potential. The Fund seeks to
avoid what are judged in the opinion of the Fund's Adviser to be overpriced
companies with high investment risk and deteriorating fundamentals.

Portfolio diversification is an important component of the investment management
process. To help manage the Fund's above-average investment risk and improve
liquidity, the Adviser expects to invest in hundreds of small, publicly-traded
companies, representing a broad cross-section of U.S. industries. The Fund's
systematic, value-oriented approach to investing is designed to mitigate
volatility of the Fund's share price relative to the micro-capitalization sector
of the U.S. stock market. Risk is further managed by employing specialized
portfolio management and trading techniques. Despite these techniques, the
Fund's share price can move up and down significantly, even over short periods
of time.

- ----------------------------------
Why invest in the Fund?
- ----------------------------------

Scudder Micro Cap Fund invests in some of America's smallest, most dynamic
publicly-traded companies. These emerging growth companies are typically in the
early stages of a long-term development cycle. In many cases, these companies
offer unique products, services or technologies and often serve special or
expanding market niches. Despite these benefits, these firms are often
overlooked or under-appreciated, thus in the opinion of the Fund's Adviser,
they offer substantial appreciation potential for meeting retirement and other
long-term goals.

While there are special risks associated with micro-cap investing, an investment
in the Fund can improve the diversification of a personal investment portfolio
already holding other types of securities, including other types of U.S. stocks
or stock mutual funds. Historically, the prices of U.S. micro-cap stocks have
had relatively low correlation with the prices of mid-cap or large-cap stocks.
Thus, Fund shares can add balance to a personal investment portfolio.

The Fund offers professional investment management and recordkeeping
convenience, which may be particularly valuable in the smaller sectors of the
U.S. stock market. Investors interested in buying and selling micro-cap issues
directly may find it a challenge to collect and process data on these companies,
receive up-to-date financial information, and transact in securities at
favorable prices. The Adviser assumes these varied responsibilities on behalf of
shareholders.

- --------------------------------------------------------------------------------
6
<PAGE>

- ----------------------------------
U.S. investment experience
- ----------------------------------

The Adviser is one of America's largest investment managers and has been
involved in U.S. stock investing since its founding over 75 years ago. As of
November 30, 1997, Scudder managed in excess of $__ billion in U.S. equity
securities, including over $__ billion in domestically-oriented growth mutual
funds. Among other funds, the Adviser manages Scudder Development Fund, one of
America's first small company mutual funds, and Scudder Small Company Value
Fund.

- ----------------------------------
What are the Fund's special risks?
- ----------------------------------

While historically micro-cap company stocks have outperformed the stocks of
large companies, the former have customarily involved more investment risk as
well. Micro-cap companies may have limited product lines, markets or financial
resources; may lack management depth or experience; and may be more vulnerable
to adverse general market or economic developments than large companies. Some of
the companies in which the Fund may invest may distribute, sell or produce
products which have recently been brought to market and may be dependent on key
personnel.

The prices of small company securities are often more volatile than prices
associated with large company issues, and can display abrupt or erratic
movements at times, due to limited trading volumes and less publicly available
information.

Also, because micro-cap companies normally have fewer shares outstanding and
these shares trade less frequently than large companies, it may be more
difficult for the Fund to buy and sell significant amounts of such shares
without an unfavorable impact on prevailing market prices.

- ----------------------------------
Additional information about
policies and investments
- ----------------------------------

Investment restrictions

The Fund has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to reduce the Fund's
investment risk.

As discussed in "Investment objective and policies - Investments" above, the
Fund may borrow money provided that the Fund maintain asset coverage of 300% for
all borrowings except for reverse repurchase agreements and may not make loans
except through the lending of portfolio securities, the purchase of debt
securities or through repurchase agreements.

A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Statement of Additional
Information.

Common stocks

Under normal circumstances, the Fund invests at least 80% of its assets in
common stocks issued by U.S. micro-cap companies. Common stock is issued by
companies to raise cash for business purposes and represents a proportionate
interest in the issuing companies. Therefore, the Fund participates in the
success or failure of any company in which it holds stock. The market values of
equity securities can fluctuate significantly, reflecting the business
performance of the issuing company, investor perception and general economic or
financial market movements. Smaller companies are especially sensitive to these
factors and may even become valueless. Despite the risk of price volatility,
however, common stocks also offer the greatest

- --------------------------------------------------------------------------------
7
<PAGE>

potential for gain on investment, compared to other classes of financial assets
such as bonds or cash equivalents.

Debt securities

Consistent with the Fund's investment objective of long-term capital growth, the
Fund may purchase investment-grade debt securities, which are those rated Aaa,
Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's"), or AAA, AA, A or
BBB by Standard & Poor's ("S&P") or, if unrated, of equivalent quality as
determined by the Adviser. Receipt of income from debt securities is incidental
to the Fund's objective of long-term growth of capital. (See "Risk factors.")

Convertible securities

Prior to their conversion, convertible securities may have characteristics
similar to nonconvertible securities of the same type.

Repurchase agreements

Strategic Transactions and derivatives

- --------------------------------------------------------------------------------
8
<PAGE>

factors -- Strategic Transactions and derivatives" for more information.

Risk factors

The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Fund may use from time to time.

Illiquid investments. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of illiquid
investments may involve time-consuming negotiation and legal expenses, and it
may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.

- --------------------------------------------------------------------------------
9
<PAGE>

- ----------------------------------
Distribution and performance
information
- ----------------------------------

Dividends and capital gains distributions

The Fund intends to distribute any dividends from its net investment income and
any net realized capital gains after utilization of capital loss carryforwards,
if any, in November or December, although an additional distribution may be made
if necessary. Any dividends or capital gains distributions declared in October,
November or December with a record date in such a month and paid the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared. According to preference,
shareholders may receive distributions in cash or have them reinvested in
additional shares of the Fund. If an investment is in the form of a retirement
plan, all dividends and capital gains distributions must be reinvested into the
shareholder's account. The reinvestment of dividends or capital gains will not
be restricted during periods when the Fund is closed.

The Fund sends detailed tax information to shareholders about the amount and
type of its distributions by January 31 of the following year.

Under normal investment conditions, it is anticipated that the Fund's portfolio
turnover rate will not exceed 75% for the initial fiscal year. However, economic
and market conditions may necessitate more active trading, resulting in a higher
portfolio turnover rate. A higher rate involves greater brokerage expenses to
the Fund and may result in the realization of net capital gains, which would be
taxable to shareholders when distributed.

Performance information

From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. "Total return" is the change in value
of an investment in the Fund for a specified period. The "average annual total
return" of the Fund is the average annual compound rate of return of an
investment in the Fund assuming the investment has been held for the life of the
Fund as of a stated ending date. "Cumulative total return" represents the
cumulative change in value of an investment in the Fund for various periods. All
types of total return calculations assume that all dividends and capital gains
distributions during the period were reinvested in shares of the Fund.
Performance will vary based upon, among other things, changes in market
conditions and the level of the Fund's expenses.

- ----------------------------------
Fund organization
- ----------------------------------

Scudder Micro Cap Fund is a diversified series of Scudder Securities Trust (the
"Trust"), formerly known as Scudder Development Fund, an open-end, management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act"). The Trust was organized as a Massachusetts business trust in
October 1985 and on December 31, 1985 assumed the business of its predecessor.
Its predecessor was organized as a Delaware corporation in February 1970.

- --------------------------------------------------------------------------------
10
<PAGE>

Investment adviser

The Adviser has agreed to maintain the annualized expenses of the Fund at no
more than 1.75% of the average daily net assets of the Fund until _____________.

All of the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.

Scudder Kemper Investments, Inc. is located at 345 Park Avenue, New York, New
York 10154-0010.

Transfer agent

Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Fund.

Underwriter

Custodian

State Street Bank and Trust Company is the Fund's custodian.

Fund accounting agent

Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.

- ----------------------------------
Transaction information
- ----------------------------------

Purchasing shares

Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent receives the purchase request in good order. Purchases
are made in full and fractional shares. (See "Share price.")

By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or

- --------------------------------------------------------------------------------
11
<PAGE>

fees incurred in the transaction. Checks must be drawn on or payable through a
U.S. bank. If you purchase shares by check and redeem them within seven business
days of purchase, the Fund may hold redemption proceeds until the purchase check
has cleared. If you purchase shares by federal funds wire, you may avoid this
delay. Redemption requests by telephone prior to the expiration of the seven-day
period will not be accepted.

Contact your bank to arrange a wire transfer to:

The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552

Your wire instructions must also include:

- -- the name of the fund in which the money is to be invested,

- -- the account number of the fund, and

- -- the name(s) of the account holder(s).

The account will be established once the application and money order are
received in good order.

You may also make additional investments of $100 or more to your existing
account by wire.

By "AutoBuy." If you elected "AutoBuy" for your account, you can call toll-free
to purchase shares. The money will be automatically transferred from your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoBuy," call
1-800-225-5163 for more information.

To purchase additional shares, call 1-800-225-5163. Purchases must be for at
least $250 but not more than $250,000. Proceeds in the amount of your purchase
will be transferred from your bank checking account in two or three business
days following your call. For requests received by the close of regular trading
on the Exchange, shares will be purchased at the net asset value per share
calculated at the close of trading on the day of your call. "AutoBuy" requests
received after the close of regular trading on the Exchange will begin their
processing and be purchased at the net asset value calculated the following
business day.

If you purchase shares by "AutoBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "AutoBuy" transactions are not
available for Scudder IRA accounts and most other retirement plan accounts.

- --------------------------------------------------------------------------------
12
<PAGE>

Exchanging and redeeming shares

Upon the redemption or exchange of shares held less than one year, a fee of 1%
of the current net asset value of the shares will be assessed and retained by
the Fund for the benefit of the remaining shareholders. The fee is waived for
all shares purchased through certain retirement plans, including 401(k) plans,
403(b) plans, 457 plans, Keogh accounts, and Profit Sharing and Money Purchase
Pension Plans. However, if such shares are purchased through a broker, financial
institution or recordkeeper maintaining an omnibus account for the shares, such
waiver may not apply. (Before purchasing shares, please check with your account
representative concerning the availability of the fee waiver.) In addition, this
waiver does not apply to IRA and SEP-IRA accounts. This fee is intended to
encourage long-term investment in the Fund, to avoid transaction and other
expenses caused by early redemptions, and to facilitate portfolio management.
The fee is not a deferred sales charge, is not a commission paid to the Adviser
or its subsidiaries, and does not benefit the Adviser in any way. The Fund
reserves the right to modify the terms of or terminate this fee at any time.

The fee applies to redemptions from the Fund and exchanges to other Scudder
funds, but not to dividend or capital gains distributions which have been
automatically reinvested in the Fund. The fee is applied to the shares being
redeemed or exchanged in the order in which they were purchased. See "Exchanges
and Redemptions" in the Fund's Statement of Additional Information for a more
detailed description of the redemption fee.

Exchanges. Your new account will have the same registration and address as your
existing account.

The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts.

Please call 1-800-225-5163 for more information, including information about the
transfer of special account features.

You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.

Redemptions by telephone. This is the quickest and easiest way to sell Fund
shares. If you elected telephone redemption to your bank on your application,
you can call to request that federal funds be sent to your authorized bank
account. If you did not elect telephone redemption to your bank on your
application, call 1-800-225-5163 for more information.

You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.

In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.

By "AutoSell." If you elected "AutoSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "AutoSell,"
call 1-800-225-5163 for more information.

To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds

- --------------------------------------------------------------------------------
13
<PAGE>

in the amount of your redemption will be transferred to your bank checking
account in two or three business days following your call. For requests received
by the close of regular trading on the Exchange, shares will be redeemed at the
net asset value per share calculated at the close of trading on the day of your
call. "AutoSell" requests received after the close of regular trading on the
Exchange will begin their processing and be redeemed at the net asset value
calculated the following business day.

"AutoSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.

For more information, please call 1-800-225-5163.

Telephone transactions

Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $50,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.

Share price

Processing time

Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.

If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.

Short-term trading

Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to

- --------------------------------------------------------------------------------
14
<PAGE>

restrict purchases of Fund shares (including exchanges) when a pattern of
frequent purchases and sales made in response to short-term fluctuations in the
Fund's share price appears evident.

Tax information

A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.

Tax identification number

Minimum balances

Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Trustees. Scudder retirement plans and certain
other accounts have similar or lower minimum balance requirements. A shareholder
may open an account with at least $1,000, if an automatic investment plan (AIP)
of $100/month is established.

Shareholders who maintain a non-fiduciary account balance of less than $2,500 in
the Fund, without establishing an AIP, will be assessed an annual $10.00 per
fund charge with the fee to be paid to the Fund. The $10.00 charge will not
apply to shareholders with a combined household account balance in any of the
Scudder Funds of $25,000 or more. The Fund reserves the right, following 60
days' written notice to shareholders, to redeem all shares in accounts below
$250, including accounts of new investors, where a reduction in value has
occurred due to a redemption or exchange out of the account. The Fund will mail
the proceeds of the redeemed account to the shareholder. Reductions in value
that result solely from market activity will not trigger an involuntary
redemption. Retirement accounts and certain other accounts will not be assessed
the $10.00 charge or be subject to automatic liquidation. Please refer to
"Exchanges and Redemptions -- Other information" in the Fund's Statement of
Additional Information for more information.

Third party transactions

Redemption-in-kind

- --------------------------------------------------------------------------------
15
<PAGE>

obligated to redeem shares, with respect to any one shareholder during any
90-day period, solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund at the beginning of the period.

- ----------------------------------
Shareholder benefits
- ----------------------------------

Experienced professional management

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.

SAIL(TM) -- Scudder Automated Information Line

Investment flexibility

Personal Counsel(SM) -- A Managed Fund Portfolio Program

If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder, Stevens & Clark, Inc., combines the benefits of a
customized portfolio of pure no-load Scudder Funds with ongoing portfolio
monitoring and individualized service, for an annual fee of generally 1% or less
of assets (with a $1,000 minimum). In addition, it draws upon Scudder's

- --------------------------------------------------------------------------------
16
<PAGE>

more than 75-year heritage of providing investment counsel to large corporate
and private clients. If you have $100,000 or more to invest initially and would
like more information about Personal Counsel, please call 1-800-700-0183.

Dividend reinvestment plan

You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.

Shareholder statements

Shareholder reports

In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.

Newsletters

Scudder Investor Centers

As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Investor Centers in Boca Raton, Boston,
Chicago, New York and San Francisco.

T.D.D. service for the hearing impaired

- --------------------------------------------------------------------------------
17
<PAGE>

- ----------------------------------
Purchases
- ----------------------------------

- --------------------------------------------------------------------------------
Opening
an account Minimum initial investment: $2,500; IRAs $1,000 Group
retirement plans (401(k), 403(b), etc.) have similar or
lower minimums. See appropriate plan literature.

Make checks o By Mail Send your completed and signed
payable to "The application and check
Scudder Funds."

by regular mail to: or by express, registered,
or certified mail to:

The Scudder Funds Scudder Shareholder
P.O. Box 2291 Service Center
Boston, MA 42 Longwater Drive
02107-2291 Norwell, MA
02061-1612

o By Wire Please see Transaction
information -- Purchasing shares -- By
wire for details, including the ABA wire
transfer number. Then call
1-800-225-5163 for instructions.

o In Person Visit one of our Investor Centers to
complete your application with the help
of a Scudder representative. Investor
Center locations are listed under
Shareholder benefits.

Due to investment considerations, Scudder Micro Cap Fund is
presently closed to new individual investors.

- --------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50 Group
additional retirement plans (401(k), 403(b), etc.) have similar or
shares lower minimums. See appropriate plan literature.

Make checks o By Mail Send a check with a Scudder investment
payable to "The slip, or with a letter of instruction
Scudder Funds." including your account number and the
complete Fund name, to the appropriate
address listed above.

o By Wire Please see Transaction
information -- Purchasing shares -- By
wire for details, including the ABA wire
transfer number.

o In Person Visit one of our Investor Centers to
make an additional investment in your
Scudder fund account. Investor Center
locations are listed under Shareholder
benefits.

o By Telephone Please see Transaction
information -- Purchasing shares -- By
QuickBuy or By telephone order for more
details.

o By Automatic You may arrange to make investments on a
Investment Plan regular basis through automatic
($50 minimum) deductions from your bank checking
account. Please call 1-800-225-5163 for
more information and an enrollment form.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
18
<PAGE>

- ----------------------------------
Exchanges and redemptions
- ----------------------------------

- --------------------------------------------------------------------------------
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts

o By Telephone To speak with a service representative, call
1-800-225-5163 from 8 a.m. to 8 p.m. eastern
time or to access SAIL(TM), Scudder's
Automated Information Line, call
1-800-343-2890 (24 hours a day).

There is a 1% o By Mail Print or type your instructions and include:
fee payable to or Fax - the name of the Fund and the account
the Fund for number you are exchanging from;
exchanges of - your name(s) and address as they appear
shares held less on your account;
than one year. - the dollar amount or number of shares you
wish to exchange;
- the name of the Fund you are exchanging
into; and
- your signature(s) as it appears on your
account and a daytime telephone number.

Send your instructions
by regular mail to: or

The Scudder Funds
P.O. Box 2291
Boston, MA 02107-2291

by express, registered, or by fax to:
or certified mail to:

Scudder Shareholder Service 1-800-821-6234
Center
42 Longwater Drive
Norwell, MA
02061-1612
- --------------------------------------------------------------------------------

Redeeming o By Telephone To speak with a service representative, call
shares 1-800-225-5163 from 8 a.m. to 8 p.m. eastern
time or to access SAIL(TM), Scudder's
Automated Information Line, call
1-800-343-2890 (24 hours a day). You may
have redemption proceeds sent to your
predesignated bank account, or redemption
proceeds of up to $100,000 sent to your
address of record.

There is a 1% o By Mail Send your instructions for redemption to the
fee payable to or Fax appropriate address or fax number above and
the Fund for include:
redemption of - the name of the Fund and account number
shares held less you are redeeming from;
than one year. - your name(s) and address as they appear
on your account;
- the dollar amount or number of shares you
wish to redeem; and
- your signature(s) as it appears on your
account and a daytime telephone number.

A signature guarantee is required for
redemptions over $100,000. See Transaction
information -- Redeeming shares following
these tables.

o By Automatic You may arrange to receive automatic cash
Withdrawal payments periodically. Call 1-800-225-5163
Plan for more information and an enrollment form.

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
19
<PAGE>

- ----------------------------------
Scudder tax-advantaged
retirement plans
- ----------------------------------

o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of $2,000 per person for anyone with earned income (up to
$2,000 per individual for married couples if only one spouse has earned
income). Many people can deduct all or part of their contributions from
their taxable income, and all investment earnings accrue on a tax deferred
basis. The Scudder No-Fee IRA charges no annual custodial fee.

o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.

o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make annual,
tax-deductible contributions of up to $30,000 for each person covered by
the plans. Plans may be adopted individually or paired to maximize
contributions. These are sometimes known as Keogh plans.

o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.

o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation.

o Scudder Horizon Plan. A no-load variable annuity that lets you build assets
by deferring taxes on your investment earnings. You can start with $2,500
or more.

- --------------------------------------------------------------------------------
20
<PAGE>

- --------------------------------------------------------------------------------
Trustees and Officers
- --------------------------------------------------------------------------------

Daniel Pierce*
President and Trustee

Paul Bancroft III
Trustee; Venture Capitalist and Consultant

Sheryle J. Bolton
Trustee; Chief Executive Officer, Scientific Learning Corporation

William T. Burgin
Trustee; General Partner, Bessemer Venture Partners

Thomas J. Devine
Trustee; Consultant

Keith R. Fox
Trustee; President, Exeter Capital Management Corporation

Dr. Wilson Nolen
Trustee; Consultant

Juris Padegs*
Trustee

Robert W. Lear
Honorary Trustee; Executive-in-Residence, Visiting Professor, Columbia
University Graduate School of Business

William H. Luers
Trustee; President, The Metropolitan Museum of Art

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

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

*Scudder, Stevens & Clark, Inc.

- --------------------------------------------------------------------------------
21
<PAGE>

This prospectus sets forth concisely the information about Scudder 21st Century
Growth Fund, a series of Scudder Securities Trust, an open-end management
investment company, that a prospective investor should know before investing.
Please retain it for future reference.

Contents--see page 4.

- ----------------------------
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
- ----------------------------

[LOGO] Printed on recycled paper
SCUDDER [LOGO]

Scudder
21st Century
Growth Fund

Prospectus
January 1, 1998

A pure no-load(TM) (no sales charges) mutual fund which seeks long-term growth
of capital by investing primarily in securities of emerging growth companies
poised to be leaders in the 21st century.
<PAGE>

- ---------------------------------------
Expense information
- ---------------------------------------

- --------------------------------------------------------------------------------
How to compare a Scudder pure no-load(TM) fund

This information is designed to help you understand the various costs and
expenses of investing in Scudder 21st Century Growth Fund (the "Fund"). By
reviewing this table and those in other mutual funds' prospectuses, you can
compare the Fund's fees and expenses with those of other funds. With Scudder's
pure no-load(TM) funds, you pay no commissions to purchase or redeem shares, or
to exchange from one fund to another. As a result, all of your investment goes
to work for you.

1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.

Investment management fee (after waiver) ____%**
12b-1 fees NONE
Other expenses ____%
Total Fund operating expenses (after waiver) ____%**

Example

1 Year 3 Years
------ -------
$-- $--

** Until _________________, the Adviser and certain of its subsidiaries have
agreed to waive all or portions of their fees payable by the Fund to the
extent necessary so that the total annualized expenses of the Fund do not
exceed 1.75% of average daily net assets. If the Adviser and its
subsidiaries had not agreed to waive all or portions of their fees, it is
estimated that annualized Fund expenses would be: investment management
fee ____%, other expenses ____% and total operating expenses ____% for the
initial fiscal year. To the extent that expenses fall below the current
expense limitation, the Adviser and its subsidiaries reserve the right to
recoup, during the fiscal year incurred, amounts waived during the period,
but only to the extent that the Fund's expenses do not exceed 1.75%.
- --------------------------------------------------------------------------------

2
<PAGE>

- ---------------------------------------
Financial highlights
- ---------------------------------------

<TABLE>
<CAPTION>
For the Period
September 9, 1996
(commencement)
of operations) to
August 31, 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C>
------------------
Net asset value, beginning of period ................................................. $12.00
------------------
Income from investment operations: ................................................... (.15)
Net investment loss
Net realized and unrealized gain on investments ...................................... 1.25
------------------
Total from investment operations ..................................................... 1.10
------------------
Redemption fees ...................................................................... .01
------------------
Net asset value, end of period ....................................................... $13.11
------------------
- ------------------------------------------------------------------------------------------------------------
Total Return (%) (b) ................................................................. 9.25(c)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................... 23
Ratio of operating expenses, net to average daily net assets (%) ..................... 1.75*
Ratio of operating expenses before expense reductions, to average daily net .......... 3.52*
assets (%)
Ratio of net investment loss to average daily net assets (%) ......................... (1.27)*
Portfolio turnover rate (%) .......................................................... 92.0*
Average commission rate paid ......................................................... $.0405
</TABLE>

- --------------------------------------------------------------------------------
3
<PAGE>

- ---------------------------------------
A message from Scudder's chairman
- ---------------------------------------

[PHOTO]

Daniel Pierce, Chairman,
Scudder, Stevens & Clark, Inc.

Scudder Kemper Investments Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. During the past year, Scudder entered into an alliance with Zurich
Insurance Company in which Zurich has acquired a majority interest in Scudder
and combined Scudder with Zurich Kemper Investments, Inc. Scudder's name has
been changed to Scudder Kemper Investments, Inc. Today, the combined forces of
Scudder Kemper manage in excess of $___ billion for many private accounts and
over ___ mutual fund portfolios. We continue to manage the mutual funds in a
special program for the American Association of Retired Persons, as well as the
fund options available through Scudder Horizon Plan, a tax-advantaged variable
annuity. We also advise The Japan Fund and nine closed-end funds that invest in
countries around the world.

/s/ Daniel Pierce

- ---------------------------------------
Scudder 21st Century Growth Fund
- ---------------------------------------

Investment objective

o long-term growth of capital by investing primarily in securities of
emerging growth companies poised to be leaders in the 21st century

Investment characteristics

o a diversified, actively managed portfolio of emerging growth stocks

o potential for above-average long-term growth with above-average stock
market risk

o a pure no-load(TM) fund with no sales charges, commissions or 12b-1 fees

o a 1% redemption and exchange fee on shares held less than one year,
retained by the Fund for the benefit of remaining shareholders

- ---------------------------------------
Contents
- ---------------------------------------

Investment objective and policies ................ 6
Why invest in the Fund? .......................... 7
U.S. investment experience ....................... 7
What are the Fund's special risks? ............... 8
Additional information about policies
and investments ............................... 8
Distribution and performance information ......... 11
Fund organization ................................ 12
Transaction information .......................... 13
Shareholder benefits ............................. 18
Purchases ........................................ 21
Exchanges and redemptions ........................ 23
Trustees and Officers ............................ 26
Investment products and services
How to contact Scudder ........................... 32

- --------------------------------------------------------------------------------
4
<PAGE>

- ---------------------------------------
Investment objective and policies
- ---------------------------------------

The Scudder 21st Century Growth Fund (the "Fund"), a diversified series of
Scudder Securities Trust, seeks long-term growth of capital by investing
primarily in the securities of emerging growth companies poised to be leaders in
the 21st century. The Fund is designed for investors in search of substantial
long-term growth who can accept above-average stock market risk and little or no
current income.

Due to the business characteristics and risks of emerging growth companies, the
Fund's share price can experience periods of volatility. As a result, the Fund
should be considered a long-term investment and only one part of a
well-diversified personal investment portfolio. To encourage a long-term holding
period and to facilitate portfolio management, a 1% redemption and exchange fee,
described in greater detail below, is payable to the Fund for the benefit of
remaining shareholders on shares held less than one year. This fee is described
more fully under "Transaction information--Exchanging and redeeming shares."

Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. Shareholders
will receive written notice of any change in the Fund's investment objective. If
there is a change in investment objective, shareholders should consider whether
the Fund remains an appropriate investment in light of their then current
financial position and needs. There can be no assurance that the Fund's
objective will be met.

Investments

The Fund generally invests in equity securities, including common stocks and
convertible securities, of relatively small or little-known companies, commonly
referred to as emerging growth companies, with market capitalization typically
below $750 million. The Fund may continue to hold securities of companies that
have grown in market capitalization above $750 million, but will generally not
add to these holdings. The Fund's investment adviser, Scudder Kemper
Investments, Inc. (the "Adviser"), believes these companies are well-positioned
for above-average earnings growth and/or greater market recognition. Such
favorable prospects may be a result of new or innovative products or services a
given company is developing or provides, products or services that have the
potential to impact significantly the industry in which the company competes or
to change dramatically customer behavior into the 21st century. The
above-average earnings growth potential and/or greater market recognition
expected are factors believed to offer significant opportunity for capital
appreciation, and the Adviser will attempt to identify these opportunities
before their potential is recognized by investors in general.

To help reduce risk in its search for high quality emerging growth companies,
the Adviser allocates the Fund's investments among many companies and different
industries in the U.S. and, where opportunity warrants, abroad as well. The
Adviser seeks companies that, in the Adviser's opinion, have excellent
management which own a significant stake in the company, clean balance sheets,
conservative accounting, and either a commanding position in a growing market or
the real possibility of building a commanding position as the 21st century
approaches. Emerging growth companies are those with the ability, in the
Adviser's opinion, to expand earnings per share by at least 15% per annum over
the next three to five years at a minimum. In selecting specific industries and
companies for investment, the Adviser will make full use of its extensive
fundamental and field research capabilities in taking into account such other
factors as overall growth prospects and financial condition, competitive
situation, technology, research and development activities, productivity, labor
costs, raw material costs and

- --------------------------------------------------------------------------------
5
<PAGE>

sources, profit margins, return on investment, structural changes in local
economies, capital resources, the degree of governmental regulation or
deregulation facing a company, and quality and experience of management.

For temporary defensive purposes the Fund may vary from its investment policy
during periods in which conditions in securities markets or other economic or
political conditions warrant. In such cases, the Fund may hold without limit,
cash, high quality debt securities, without equity features, which are rated
Aaa, Aa or A by Moody's Investor Services ("Moody's") or AAA, AA or A by
Standard & Poor's Corporation ("S&P"), or, if unrated, are deemed by the Adviser
to be of equivalent quality, U.S. Government securities and invest in money
market instruments which are rated in the two highest categories by Moody's or
S&P or, if unrated, are deemed by the Adviser to be of equivalent quality.

In addition, the Fund may invest in preferred stocks when management anticipates
that the capital appreciation is likely to equal or exceed that of common stocks
over a selected time. The Fund may enter into repurchase agreements and may
engage in strategic transactions. More information about these investment
techniques is provided under "Additional information about policies and
investments."

- ---------------------------------------
Why invest in the Fund?
- ---------------------------------------

Scudder 21st Century Growth Fund offers participation in the potential growth of
emerging growth companies that may be destined to become leading companies in
the 21st century. The Fund offers the benefit of professional management to
identify investments in emerging growth companies with the greatest potential,
in the Adviser's opinion, to have a profound and positive impact on the lives of
consumers and businesses as we enter the 21st century. The Adviser anticipates
finding these companies in many rapidly changing sectors of the economy.
Examples include innovative retailing concepts, the on-going U.S. transition to
an increasingly service-based economy, advances in health care in areas such as
biotechnology, and the tremendous, rapid advances occurring in communications,
computing, software and technology generally. In return for accepting
above-average market risk, investors gain access to a broadly diversified
portfolio designed for above-average capital appreciation compared to that
available from larger companies such as those in the Standard & Poor's 500 Stock
Index.

In addition, the Fund offers all the benefits of the Scudder Family of Funds.
Scudder, Stevens & Clark, Inc. manages a diversified portfolio of pure
no-load(TM) funds and provides a wide range of services to help investors meet
their investment needs. Please refer to "Investment products and services" for
additional information.

- ---------------------------------------
U.S. investment experience
- ---------------------------------------

The Adviser is one of America's largest independent investment managers and has
been involved in U.S. stock investing since its founding over 75 years ago. As
of December 15, 1997, Scudder managed in excess of $__ billion in U.S. equity
securities, including over $__ billion in domestically-oriented growth mutual
funds. Among other funds, the Adviser manages Scudder Development Fund, one of
America's first small company mutual funds, Scudder Small Company Value Fund,
and Scudder Micro Cap Fund.

- ---------------------------------------
What are the Fund's special risks?
- ---------------------------------------

While historically small company stocks have outperformed the stocks of large
companies, the former have customarily involved more investment risk as well.
Small companies may have limited product lines, markets or financial

- --------------------------------------------------------------------------------
6
<PAGE>

resources; may lack management depth or experience; and may be more vulnerable
to adverse general market or economic developments than large companies. Some of
the companies in which the Fund may invest may distribute, sell or produce
products which have recently been brought to market and may be dependent on key
personnel. The prices of small company securities are often more volatile than
prices associated with large company issues, and can display abrupt or erratic
movements at times, due to limited trading volumes and less publicly available
information.

- ---------------------------------------
Additional information about
policies and investments
- ---------------------------------------

Investment restrictions

The Fund has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to reduce the Fund's
investment risk.

The Fund may not borrow money except as permitted under the Investment Company
Act of 1940, as amended (the "1940 Act"), and as interpreted or modified by
regulatory authority having jurisdiction, from time to time, and may not make
loans except through the lending of portfolio securities, the purchase of debt
securities or interests in indebtedness in accordance with the Fund's investment
objective and policies, or through repurchase agreements.

The Fund may not invest more than 25% of its total assets in securities of
companies in the same industry.

In addition, as a matter of nonfundamental policy, the Fund may not invest more
than 15% of its net assets in illiquid securities. The Fund's Board of Trustees
has delegated to the Adviser the authority to determine the liquidity of
restricted securities that can be resold to institutional investors ("Rule 144A
Securities") and privately placed commercial paper pursuant to guidelines
approved by the Board of Trustees.

A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Statement of Additional
Information.

Common stocks

Under normal circumstances, the Fund invests at least 80% of its assets in
common stocks. Common stock is issued by companies to raise cash for business
purposes and represents a proportionate interest in the issuing companies.
Therefore, the Fund participates in the success or failure of any company in
which it holds stock. The market values of equity securities can fluctuate
significantly, reflecting the business performance of the issuing company,
investor perception and general economic or financial market movements. Smaller
companies are especially sensitive to these factors and may even become
valueless. Despite the risk of price volatility, however, common stocks also
offer the greatest potential for gain on investment, compared to other classes
of financial assets such as bonds or cash equivalents.

Convertible securities

- --------------------------------------------------------------------------------
7
<PAGE>

Prior to their conversion, convertible securities may have characteristics
similar to nonconvertible securities of the same type.

Repurchase agreements

Illiquid securities

The Fund may invest a portion of its assets in securities for which there is not
an active trading market, or which have resale restrictions. Such securities may
have been acquired through private placements (transactions in which the
securities acquired have not been registered with the SEC). These illiquid
securities generally offer a higher return than more readily marketable
securities, but carry the risk that the Fund may not be able to dispose of them
at an advantageous time or price. Some restricted securities purchased by the
Fund, however, may be considered liquid despite resale restrictions, since they
can be sold to other qualified institutional buyers under Rule 144A of the
Securities and Exchange Commission. The Fund's Board of Trustees has delegated
to the Adviser the authority to determine those Rule 144A securities that will
be considered liquid.

Foreign securities

In addition to investments in companies domiciled in the U.S., the Fund may
invest in listed and unlisted foreign securities that meet the same criteria as
the Fund's domestic holdings. The Fund may invest in foreign securities when the
anticipated performance of foreign securities is believed by the Adviser to
offer more potential than domestic alternatives in keeping with the investment
objectives of the Fund.

Strategic Transactions and derivatives

- --------------------------------------------------------------------------------
8
<PAGE>

Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not for
speculative purposes. Please refer to "Risk factors -- Strategic Transactions
and derivatives" for more information.

Risk factors

Foreign securities. Investments in foreign securities involve special
considerations, due to more limited information, higher brokerage costs and
different accounting standards. They may also entail certain risks, such as
possible imposition of dividend or interest withholding or confiscatory taxes,
possible currency blockages or transfer restrictions, expropriation,
nationalization or other adverse political or economic developments and the
difficulty of enforcing obligations in other countries. Foreign securities may
be less liquid and more volatile than comparable domestic securities, and there
is less government regulation of stock exchanges, brokers, listed companies and
banks than in the U.S. Purchases of foreign securities are usually made in
foreign currencies and, as a result, the Fund may incur currency conversion
costs and may be affected favorably or unfavorably by changes in the value of
foreign currencies against the U.S. dollar.

Illiquid securities. The absence of a trading market can make it difficult to
ascertain a market value for illiquid investments. Disposing of illiquid
investments may involve time- consuming negotiation and legal expenses, and it
may be difficult or impossible for the Fund to sell them promptly at an
acceptable price.

Borrowing. Although the principal of the Fund's borrowing will be fixed, the
Fund's assets may change in value during the time a borrowing is outstanding,
increasing exposure to capital risk.

- --------------------------------------------------------------------------------
9
<PAGE>

sell. The use of options and futures transactions entails certain other risks.
In particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures contracts and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized. The Strategic Transactions that the Fund may
use and some of their risks are described more fully in the Fund's Statement of
Additional Information.

- ---------------------------------------
Distribution and performance
information
- ---------------------------------------

Dividends and capital gains distributions

The Fund sends detailed tax information to shareholders about the amount and
type of its distributions by January 31 of the following year.

Under normal investment conditions, it is anticipated that the Fund's portfolio
turnover rate will not exceed 100% for the initial fiscal year. However,
economic and market conditions may necessitate more active trading, resulting in
a higher portfolio turnover rate. A higher rate involves greater brokerage
expenses to the Fund and may result in the realization of net capital gains,
which would be taxable to shareholders when distributed.

Performance information

- --------------------------------------------------------------------------------
10
<PAGE>

investment in the Fund assuming the investment has been held for the life of the
Fund as of a stated ending date. "Cumulative total return" represents the
cumulative change in value of an investment in the Fund for various periods. All
types of total return calculations assume that all dividends and capital gains
distributions during the period were reinvested in shares of the Fund.

- ---------------------------------------
Fund organization
- ---------------------------------------

Scudder 21st Century Growth Fund is a diversified series of Scudder Securities
Trust (the "Trust"), an open-end, management investment company registered under
the Investment Company Act of 1940 (the "1940 Act"). The Trust, formerly known
as Scudder Development Fund, was organized as a Massachusetts business trust in
October 1985 and on December 31, 1985 assumed the business of its predecessor.
Its predecessor was organized as a Delaware corporation in February 1970.

The Fund's activities are supervised by the Trust's Board of Trustees.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Trust is not required to and has no current intention of
holding annual shareholder meetings, although special meetings may be called for
purposes such as electing or removing Trustees, changing fundamental investment
policies or approving an investment management agreement. Shareholders will be
assisted in communicating with other shareholders in connection with removing a
Trustee as if Section 16(c) of the 1940 Act were applicable.

Investment adviser

The Trustees have overall responsibility for the management of the Fund under
Massachusetts law.

The Fund pays the Adviser an annual fee of 1.00% of the Fund's average daily net
assets. The fee is payable monthly, provided that the Fund will make such
interim payments as may be requested by the Adviser not to exceed 75% of the
amount of the fee then accrued on the books of the Fund and unpaid. The fee is
higher than the average management fee, but not necessarily higher than that
charged by funds with a similar investment objective.

The Adviser has agreed to maintain the annualized expenses of the Fund at no
more than 1.75% of the average daily net assets of the Fund until
___________________.

All of the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.

Scudder Kemper Investments, Inc. is located at 345 Park Avenue, New York, New
York.

Transfer agent

Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary

- --------------------------------------------------------------------------------
11
<PAGE>

of the Adviser, is the transfer, shareholder servicing and dividend-paying agent
for the Fund.

Underwriter

Fund accounting agent

Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.

Custodian

State Street Bank and Trust Company is the Fund's custodian.

- ---------------------------------------
Transaction information
- ---------------------------------------

Purchasing shares

The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552

Your wire instructions must also include:

- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).

The account will be established once the application and money order are
received in good order.

You may also make additional investments of $100 or more to your existing
account by wire.

By "QuickBuy." If you elected "QuickBuy" for your account, you can call
toll-free to purchase shares. The money will be automatically

- --------------------------------------------------------------------------------
12
<PAGE>

transferred from your predesignated bank checking account. Your bank must be a
member of the Automated Clearing House for you to use this service. If you did
not elect "QuickBuy," call 1-800-225-5163 for more information.

Exchanging and redeeming shares

Upon the redemption or exchange of shares held less than one year, a fee of 1%
of the current net asset value of the shares will be assessed and retained by
the Fund for the benefit of the remaining shareholders. The fee is waived for
all shares purchased through certain retirement plans, including 401(k) plans,
403(b) plans, 457 plans, Keogh accounts, and Profit Sharing and Money Purchase
Pension Plans. However, if such shares are purchased through a broker, financial
institution or recordkeeper maintaining an omnibus account for the shares, such
waiver may not apply. (Before purchasing shares, please check with your account
representative concerning the availability of the fee waiver.) In addition, this
waiver does not apply to IRA and SEP-IRA accounts. This fee is intended to
encourage long-term investment in the Fund, to avoid transaction and other
expenses caused by early redemptions, and to facilitate portfolio management.
The fee is not a deferred sales charge, is not a commission paid to the Adviser
or its subsidiaries, and does not benefit the Adviser in any way. The Fund
reserves the right to modify the terms of or terminate this fee at any time.

You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.

Redemptions by telephone. This is the quickest and easiest way to sell Fund
shares. If you provided your banking information on your application, you can
call to request that federal funds be sent to your authorized bank account. If

- --------------------------------------------------------------------------------
13
<PAGE>

you did not include banking information on your application, call 1-800-225-5163
for more information.

You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.

In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.

By "QuickSell." If you elected "QuickSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "QuickSell,"
call 1-800-225-5163 for more information.

"QuickSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.

Telephone transactions

- --------------------------------------------------------------------------------
14
<PAGE>

Share price

Processing time

All purchase and redemption requests received in good order by the Fund's
transfer agent by the close of regular trading on the Exchange are executed at
the net asset value per share calculated at the close of regular trading that
day.

Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.

If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.

Short-term trading

Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to restrict
purchases of Fund shares (including exchanges) when a pattern of frequent
purchases and sales made in response to short-term fluctuations in the Fund's
share price appears evident.

Tax information

A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.

Tax identification number

Minimum balances

Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Trustees. Scudder retirement plans and certain
other accounts have similar or lower minimum balance requirements. A shareholder
may open an account with at least $1,000, if an automatic investment plan of
$100/month is established.

- --------------------------------------------------------------------------------
15
<PAGE>

investors, where a reduction in value has occurred due to a redemption or
exchange out of the account. The Fund will mail the proceeds of the redeemed
account to the shareholder. Reductions in value that result solely from market
activity will not trigger an involuntary redemption. Retirement accounts and
certain other accounts will not be assessed the $10.00 charge or be subject to
automatic liquidation. Please refer to "Exchanges and Redemptions -- Other
information" in the Fund's Statement of Additional Information for more
information.

Third party transactions

Redemption-in-kind

- ---------------------------------------
Shareholder benefits
- ---------------------------------------

Experienced professional management

Scudder Kemper Investments, Inc., one of the nation's most experienced
investment management firms, actively manages your Scudder fund investment.
Professional management is an important advantage for investors who do not have
the time or expertise to invest directly in individual securities.

A team approach to investing

Scudder 21st Century Growth 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 economists, research 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.

Lead Portfolio Manager Peter Chin has responsibility for the Fund's day-to-day
management and investment strategies. Mr. Chin has 23 years of research and
portfolio management experience, primarily in small company growth stocks. Roy
C. McKay, Portfolio Manager, has 29 years of investment experience, with 20
years specializing in small company growth stocks.

SAIL(TM)--Scudder Automated Information Line

- --------------------------------------------------------------------------------
16
<PAGE>

telephone transactions in your account. In such an event you should write to the
Fund; please see "How to contact Scudder" for the address.

Investment flexibility

Personal Counsel(SM) -- A Managed Fund Portfolio Program

Dividend reinvestment plan

You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.

Shareholder statements

Shareholder reports

In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.

Newsletters

Scudder Investor Centers

As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Investor Centers in Boca Raton, Boston,
Chicago, New York and San Francisco.

T.D.D. service for the hearing impaired

- --------------------------------------------------------------------------------
17
<PAGE>

- ---------------------------------------
Purchases
- ---------------------------------------

- --------------------------------------------------------------------------------
Opening Minimum initial investment: $2,500; IRAs $1,000 Group
an account retirement plans (401(k), 403(b), etc.) have similar or
lower minimums. See appropriate plan literature.

Make checks o By Mail Send your completed and signed
payable to "The application and check
Scudder Funds."
by regular mail to:

The Scudder Funds
P.O. Box 2291
Boston, MA
02107-2291

or by express, registered,
or certified mail to:

Scudder Shareholder
Service Center
42 Longwater Drive
Norwell, MA
02061-1612

o By Wire Please see Transaction
information--Purchasing shares--By
wire for details, including the ABA
wire transfer number. Then call
1-800-225-5163 for instructions.

o In Person Visit one of our Funds Centers to
complete your application with the help
of a Scudder representative. Funds Center
locations are listed under Shareholder
benefits.
- -----------------------------------------------------------------------------
Purchasing
additional Minimum additional investment: $100; IRAs $50
shares Group retirement plans (401(k), 403(b), etc.) have similar
or lower minimums. See appropriate plan literature.

o By Wire Please see Transaction
information--Purchasing shares-- By wire
for details, including the ABA wire
transfer number.

o In Person Visit one of our Funds Centers to make an
additional investment in your Scudder
fund account. Funds Center locations are
listed under Shareholder benefits.

o By Telephone Please see Transaction
information--Purchasing shares-- By
QuickBuy or By telephone order for more
details.

- --------------------------------------------------------------------------------
18
<PAGE>

- ---------------------------------------
Exchanges and redemptions
- ---------------------------------------

- --------------------------------------------------------------------------------
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts

There is a 1% o By Mail Print or type your instructions and include:
fee payable to or Fax - the name of the Fund and the account
the Fund for number you are exchanging from;
exchanges of - your name(s) and address as they appear on
shares held less your account;
than one year. - the dollar amount or number of shares you
wish to exchange;
- the name of the Fund you are exchanging
into;
- your signature(s) as it appears on your
account and a daytime telephone number.

Send your instructions
by regular mail to:

The Scudder Funds
P.O. Box 2291
Boston, MA 02107-2291

or by express, registered,
or certified mail to:
Scudder Shareholder
Service Center
42 Longwater Drive
Norwell, MA
02061-1612

or by fax to:
1-800-821-6234
- --------------------------------------------------------------------------------
Redeeming o By Telephone To speak with a service representative, call
shares 1-800-225-5163 from 8 a.m. to 8 p.m. eastern
time or to access SAIL(TM), Scudder's
Automated Information Line, call
1-800-343-2890 (24 hours a day). You may have
redemption proceeds sent to your
predesignated bank account, or redemption
proceeds of up to $50,000 sent to your
address of record.

There is a 1% o By Mail Send your instructions for redemption to the
fee payable to or Fax appropriate address or fax number above and
the Fund for include:
redemption of - the name of the Fund and account number
shares held less you are redeeming from;
than one year. - your name(s) and address as they appear on
your account;
- the dollar amount or number of shares you
wish to redeem;
- your signature(s) as it appears on your
account and a daytime telephone number.

A signature guarantee is required for
redemptions over $100,000. See Transaction
information--Redeeming shares.

o By Automatic You may arrange to receive automatic cash
Withdrawal payments periodically. Call 1-800-225-5163 for
Plan more information and an enrollment form.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
19
<PAGE>

- ---------------------------------------
Scudder tax-advantaged
retirement plans
- ---------------------------------------

o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.

o Scudder Horizon Plan. A no-load variable annuity that lets you build
assets by deferring taxes on your investment earnings. You can start with
$2,500 or more.

Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.

- --------------------------------------------------------------------------------
20
<PAGE>

- --------------------------------------------------------------------------------
Trustees and Officers
- --------------------------------------------------------------------------------

Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and Consultant
Sheryle J. Bolton
Trustee; Consultant
William T. Burgin
Trustee; General Partner, Bessemer Venture Partners
Thomas J. Devine
Trustee; Consultant
Keith R. Fox
Trustee; President, Exeter Capital Management Corporation
William H. Luers
Trustee; President, The Metropolitan Museum of Art
Wilson Nolen
Trustee; Consultant
Kathryn L. Quirk*
Trustee, Vice President and Assistant Secretary
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
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
Richard W. Desmond*
Assistant Secretary
* Scudder Kemper Investments, Inc.

- --------------------------------------------------------------------------------
21
<PAGE>

- --------------------------------------------------------------------------------
Investment products and services
- --------------------------------------------------------------------------------

The Scudder Family of Funds+
- --------------------------------------------------------------------------------
Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series--
Premium Shares*
Managed Shares*
Scudder Government Money Market Series--Managed Shares*

Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**

Tax Free+
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited
Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**

U.S. Income
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund

Global Income
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund

Asset Allocation
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio

U.S. Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund

U.S. Growth
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund

Global Growth
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.

Retirement Programs
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan **++
(a variable annuity)

Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil 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 Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.

For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. ++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 Kemper
Investments, Inc., are traded on various stock exchanges.

- --------------------------------------------------------------------------------
22
<PAGE>

- --------------------------------------------------------------------------------
How to contact Scudder
- --------------------------------------------------------------------------------

Account Service and Information:

For existing account service and transactions

Scudder Investor Relations -- 1-800-225-5163

For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you

Scudder Electronic Account Services -- http://funds.scudder.com

For personalized information about your Scudder accounts, exchanges and
redemptions

Scudder Automated Information Line (SAIL) -- 1-800-343-2890

Investment Information:

For information about the Scudder funds, including additional applications
and prospectuses, or for answers to investment questions

Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com

For establishing 401(k) and 403(b) plans

Scudder Defined Contribution Services -- 1-800-323-6105

Scudder Brokerage Services:

To receive information about this discount brokerage service and to obtain
an application

Scudder Brokerage Services* -- 1-800-700-0820

Personal CounselSM -- A Managed Fund Portfolio Program:

To receive information about this mutual fund portfolio guidance and
management program

Personal Counsel from Scudder -- 1-800-700-0183

Please address all correspondence to:

The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291

Or Stop by a Scudder Investor Center:

Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Investor Center near you--they can be found
in the following cities:

Boca Raton Chicago San Francisco
Boston New York

Scudder Investor Relations and Scudder Investor Centers are services provided
through Scudder Investor Services, Inc., Distributor.

* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061 --
Member NASD/SIPC.

- --------------------------------------------------------------------------------
23
<PAGE>

SCUDDER SMALL COMPANY VALUE FUND

A Pure No-Load T (No Sales Charges) Mutual Fund
Which Invests for Long-Term Growth
of Capital by Seeking out Undervalued
Stocks of Small U.S. Companies

- --------------------------------------------------------------------------------

STATEMENT OF ADDITIONAL INFORMATION

January 1, 1998

- --------------------------------------------------------------------------------

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of Scudder Small Company Value Fund
dated January 1, 1998, as amended from time to time, a copy of which may be
obtained without charge by writing to Scudder Investor Services, Inc., Two
International Place, Boston, Massachusetts 02110-4103.

<PAGE>

TABLE OF CONTENTS

Page

THE FUND'S INVESTMENT OBJECTIVE AND POLICIES ............................... 1
General Investment Objective and Policies ............................. 1
Investments and Investment Techniques ................................. 2
Investment Restrictions ............................................... 11

PURCHASES .................................................................. 12
Additional Information About Opening An Account ....................... 12
Additional Information About Making Subsequent Investments ............ 13
Additional Information About Making Subsequent Investments by
QuickBuy ............................................................ 13
Checks ................................................................ 13
Wire Transfer of Federal Funds ........................................ 14
Share Price ........................................................... 14
Share Certificates .................................................... 14
Other Information ..................................................... 14

EXCHANGES AND REDEMPTIONS .................................................. 15
Exchanges ............................................................. 15
Special Redemption and Exchange Information ........................... 16
Redemption by Telephone ............................................... 16
Redemption by QuickSell ............................................... 17
Redemption by Mail or Fax ............................................. 17
Redemption-In-Kind .................................................... 17
Other Information ..................................................... 18

FEATURES AND SERVICES OFFERED BY THE FUND .................................. 18
The Pure No-Load(TM) Concept .......................................... 18
Dividends and Capital Gain Distribution Options ....................... 19
Diversification ....................................................... 20
Scudder Investor Centers .............................................. 20
Reports to Shareholders ............................................... 20
Transaction Summaries ................................................. 20

THE SCUDDER FAMILY OF FUNDS ................................................ 20

SPECIAL PLAN ACCOUNTS ...................................................... 25
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals ........ 25
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for
Corporations and Self-Employed Individuals .......................... 25
Scudder IRA: Individual Retirement Account ........................... 25
Scudder 403(b) Plan ................................................... 26
Automatic Withdrawal Plan ............................................. 26
Group or Salary Deduction Plan ........................................ 27
Automatic Investment Plan ............................................. 27
Uniform Transfers/Gifts to Minors Act ................................. 27

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS .................................. 28

PERFORMANCE INFORMATION .................................................... 28
Average Annual Total Return ........................................... 28
Cumulative Total Return ............................................... 28
Total Return .......................................................... 29
Comparison of Fund Performance ........................................ 29
Internet access ....................................................... 30

FUND ORGANIZATION .......................................................... 33

i
<PAGE>

TABLE OF CONTENTS (continued)

Page

INVESTMENT ADVISER ......................................................... 34
Personal Investments by Employees of the Adviser ...................... 37

TRUSTEES AND OFFICERS ...................................................... 37

REMUNERATION ............................................................... 39
Responsibilities of the Board-Board and Committee Meetings ............ 39
Compensation of Officers and Trustees ................................. 40

DISTRIBUTOR ................................................................ 40

TAXES ...................................................................... 41

PORTFOLIO TRANSACTIONS ..................................................... 44
Brokerage Commissions ................................................. 44
Portfolio Turnover .................................................... 45

NET ASSET VALUE ............................................................ 45

ADDITIONAL INFORMATION ..................................................... 46
Experts ............................................................... 46
Shareholder Indemnification ........................................... 46
Other Information ..................................................... 46

FINANCIAL STATEMENTS ....................................................... 47

ii
<PAGE>

THE FUND'S INVESTMENT OBJECTIVE AND POLICIES

(See "Investment objective and policies" and "Additional
information
about policies and investments" in the Fund's prospectus.)

Scudder Small Company Value Fund (the "Fund") is a pure no-loadT,
diversified series of Scudder Securities Trust (the "Trust"), an open-end
management investment company which continuously offers and redeems its shares
at net asset value. It is a company of the type commonly known as a mutual fund.

General Investment Objective and Policies

Scudder Small Company Value Fund invests for long-term growth of capital
by seeking out undervalued stocks of small U.S. companies. The Fund's investment
adviser, Scudder Kemper Investments, Inc. (the "Adviser"), uses a systematic,
proprietary investment approach to identify small, U.S. companies that, in the
opinion of the Adviser, are selling at prices that do not reflect adequately
their long-term business potential. The Fund evaluates over 1000 companies
similar in size to those comprising the Russell 2000 Index (created by Frank
Russell Company ("Russell"), a leading asset strategy and investment management
consultant, which provides independent evaluation of investment managers. These
companies are often out of favor or not closely followed by investors and, as a
result, can offer substantial appreciation potential over time.

The Fund is expected to provide little, if any, current income and is
designed for the aggressive portion of an investor's portfolio. Although the
Fund typically holds a large number of securities identified through a
quantitative, value-driven investment strategy, it does entail above average
investment risk in comparison to larger U.S. stocks. Shares of the Fund should
be purchased with a long-term horizon in mind (five years or more).

In pursuit of long-term growth of capital, the Fund invests, under normal
circumstances, at least 90% of its assets in the common stock of small U.S.
companies. The Fund will invest in securities of companies that are similar in
size to those in the Russell 2000 Index of small stocks and maintain a median
market capitalization (i.e., current stock price times shares outstanding) below
$500 million. On a temporary basis, the Fund may continue to hold securities of
companies that have grown in market capitalization above the maximum of the
Russell 2000 Index, but will not add to these holdings.

While the Fund invests primarily in common stocks, it can purchase other
types of equity securities including preferred stocks (either convertible or
nonconvertible), rights, warrants and restricted securities. Securities may be
listed on national exchanges or, more commonly, traded over-the-counter. The
Fund may also invest up to 20% of its assets in U.S. Treasury, agency and
instrumentality obligations on a temporary basis, may enter into repurchase
agreements and may engage in strategic transactions, using such derivatives
contracts as index options and futures, to increase stock market participation,
enhance liquidity and manage transaction costs. The Fund may borrow money for
temporary, emergency or other purposes, including investment leverage purposes,
as determined by the Trustees. The Fund may also borrow under reverse repurchase
agreements. The Investment Company Act of 1940 (the "1940 Act") requires
borrowings to have 300% asset coverage.

For temporary defensive purposes, the Fund may invest without limit in
cash and cash equivalents when the Adviser deems such a position advisable in
light of economic or market conditions.

Except as otherwise indicated, the Fund's investment objective and policies
are not fundamental and may be changed without a vote of shareholders. If there
is a change in investment objective, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current financial
position and needs. The Fund is intended to be an investment vehicle for that
portion of an investor's assets which can appropriately accept above-average
risk and is not intended to provide a balanced investment program to meet all
requirements of every investor. There is no assurance that the Fund's objective
will be met.
<PAGE>

Master/feeder structure. The Trust's Board of Trustees may determine that the
objective of the Fund would be achieved more efficiently, while retaining its
current distribution arrangement, by investing in a master fund in a
master/feeder fund structure as described below, and in that case cause the Fund
to do so without prior approval by shareholders.

A master/feeder fund structure is one in which a fund (a "feeder fund"),
instead of investing directly in a portfolio of securities, invests all of its
investment assets in a separate registered investment company (the "master
fund") with substantially the same investment objective and policies as the
feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds preserving separate identities, management or distribution channels
at the feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss.

Investments and Investment Techniques

Value Investment Approach. The Fund is actively managed using a disciplined,
value-oriented investment management approach. The Adviser uses a proprietary,
computerized model to identify for investment small public U.S. companies
selling at prices that, in the opinion of the Adviser, do not reflect adequately
their long-term business potential. Companies purchased for the Fund typically
have the following characteristics:

o attractive valuations relative to the Russell 2000 Index-a widely
used benchmark of small stock performance-based on measures such as
price to earnings, price to book value and price to cash flow
ratios.

o favorable trends in earnings growth rates and stock price momentum.

The Fund's holdings are often out of favor or simply overlooked by
investors. Accordingly, their prices can rise either as a result of improved
business fundamentals, particularly when earnings grow faster than general
expectations, or as more investors come to recognize the full extent of a
company's underlying potential.

While the Fund involves above-average equity risk, the Fund's
value-oriented, systematic approach to investing is designed to mitigate
volatility of the Fund's share price relative to the small capitalization sector
of the U.S. stock market. This risk is further managed by purchasing a large
number of stocks, and employing specialized portfolio management techniques,
such as portfolio optimization.

The Fund focuses specifically on finding undervalued stocks of small U.S.
companies. Historically, small companies have been attractive because they have
been sources of new technologies and services, have competed with large
companies on the basis of lower labor costs and have grown faster than larger
firms. Their small size has also allowed them to respond rapidly to changing
business conditions. In addition, small companies have not been closely followed
by as many securities analysts as larger companies, so they have rewarded
investors with the patience and knowledge to have sought them out.

According to Ibbotson Associates, which has compiled market data back to
1926, the growth of $1 invested in small company stocks over that 70 year period
would have grown to $2,454.63, compared to $1,113.92 if invested in large
company stocks. Over this period, the compound annual growth rate of that $1
investment would have been 11.8% for the small company investment versus 10.5%
for the large company investment. With the better performance, however, comes
greater volatility in returns - from a one-year high of 123.27% to a one-year
low of -49.68% during the period for small stocks, vs. 54.0% and -43.3% for
large stocks.

2
<PAGE>

Cumulative Value of $1 Invested in 1926
(Periods ended December 31)

[GRAPHIC OMITTED]

Source: Ibbotson Associates(1)

The value approach entails searching for "bargains" in the market. These
are often companies that are selling at prices below their estimated long-term
business potential, and not followed or not purchased due to recent company
downturns. Historically, these stocks, as measured by the Russell 2000 Value
Index, typically have been less volatile than small growth stocks which
generally have higher price/earnings ratios. As one would expect, value stocks
have tended to rise as business fundamentals improved or as investors began to
recognize their potential. "Growth" stocks have provided even more substantial
increases in up markets, but they are also subject to substantial decreases in
down markets, especially relative to value stocks. These greater ups and downs
for growth stocks have meant greater overall volatility or risk. However,
according to data compiled by Russell, historical performance indicates that the
value orientation tends to produce less extreme swings, and manages to provide
superior overall returns due to the limited downside risk inherent in the
discipline.

The Russell 2000 Index is a dynamic index comprised of 2000 small U.S.
company stocks. (Scudder Small Company Value Fund invests in stocks of similar
size - see General Investment Objective and Policies.) For measurement and
analysis, Russell has split the Index into growth and value subsets.

Russell 2000 Index of Small Stocks Performance in Up and Down Markets
Compound Average Monthly Total Return: 1979* to September 1996

# Russell 2000(R) Russell 2000(R) Russell(R)
Months Growth Value 2000
Down Months 80 -5.1% -3.1% -4.1%
Up Months 133 5.0% 4.1% 4.5%
All Months 213 1.1% 1.3% 1.2%
(annualized) -- 13.7% 17.1% 15.5%
* Earliest performance for the Russell Indices.

- ----------
1 Small stocks from 1926-1995 are described by the NYSE 5th - 9th decile
returns. Large stocks are described by the Standard & Poor's Composite Index,
currently comprised of 500 generally large stocks in the U.S. Prior to 1957, the
Index was comprised of 90 of the largest stocks. Source: Stocks, Bonds Bills and
Inflation 1995 Yearbook, Ibbotson Associates.

3
<PAGE>

From 1979 to September 1996, a period that includes one of the most
significant "up market" periods in history, the Russell 2000 Value Index has
outperformed the overall Russell 2000 index by 1.6 percentage points on an
annualized basis. Furthermore, small company value stocks tend to outperform
small company stocks over various rolling periods.(2)

o Value has outperformed Russell 2000 in 59% of rolling 12 month
periods.
o Value has outperformed Russell 2000 in 97% of rolling 60 month
periods.

Small Cap Value Outperforms Small Stocks Over Long Term
o By 1.6% Points Annualized (1979-9/1996)
o In 120 of 202 (59%) Rolling 12 Month Periods
o In 149 of 154 (97%) Rolling 60 Month Periods

- --------------------------------------------------------------------------------

[GRAPHIC OMITTED]

Note: Small Cap Style Indices, currently defined by Frank Russell using
price-to-book ratios and the IBES Long Term Growth Forecast, are subsets of the
Russell 2000 Small Stock Index. Returns through 9/96. Source: Frank Russell Co.,
Scudder, Stevens & Clark.

The performance advantage of value stocks has been fairly consistent over
rolling five year periods and has not been caused by exceptional performance in
any one year. Instead, this phenomenon appears to be driven by the fact that the
downside volatility of small cap value stocks is limited relative to that of
growth stocks, as indicated in the previous table. Upside performance also tends
to be limited, but is sufficiently high that, over time, small cap value stocks
have outperformed small cap growth stocks.

Investments Involving Above-Average Risk. As opportunities for greater gain
frequently involve a correspondingly larger risk of loss, the Fund may purchase
securities carrying above-average risk. The Fund's shares are suitable only for
those investors who can make such investments without concern for current income
and who are in a financial position to assume above-average stock market risks
in search of long-term rewards.

As stated above, the Fund may purchase securities involving above-average
risk. Small companies may have limited product lines, markets or financial
resources; may lack management depth or experience; and may be more vulnerable
to adverse general market or economic developments than large companies. The
prices of small company securities are often more volatile than prices
associated with large company issues, and can display abrupt or erratic

- ----------
2 Rolling periods capture returns over overlapping uniform holding periods. In
examining 60-month rolling periods, the first rolling period would be
1/79-12/83, the second rolling period would be 2/79-1/84, the third rolling
period would be 3/79-2/84, etc.

4
<PAGE>

movements at times, due to limited trading volumes and less publicly available
information. To help reduce risk, the Fund allocates its investments among many
companies and different industries.

The securities of small companies are often traded only over-the-counter
and may not be traded in the volume typical of trading on a national securities
exchange. As a result, the disposition by the Fund of holdings of such
securities may require the Fund to offer a discount from recent prices or
dispose of the securities over a lengthy period of time. The prices of this type
of security may be more volatile than those of larger companies which are often
traded on a national securities exchange.

Convertible Securities. The Fund may invest in convertible securities; that is,
bonds, notes, debentures, preferred stocks, and other securities which are
convertible into common stocks.

The convertible securities in which the Fund may invest may be converted or
exchanged at a stated or determinable exchange ratio into underlying shares of
common stock. The exchange ratio for any particular convertible security may be
adjusted from time to time due to stock splits, dividends, spin-offs, other
corporate distributions, or scheduled changes in the exchange ratio. Convertible
debt securities and convertible preferred stocks, until converted, have general
characteristics similar to both debt and equity securities. Although to a lesser
extent than with debt securities generally, the market value of convertible
securities tends to decline as interest rates increase and, conversely, tends to
increase as interest rates decline. In addition, because of the conversion or
exchange feature, the market value of convertible securities typically changes
as the market value of the underlying common stocks changes, and, therefore,
also tends to follow movements in the general market for equity securities. A
unique feature of convertible securities is that as the market price of the
underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis and so may not experience market value declines to
the same extent as the underlying common stock. When the market price of the
underlying common stock increases, the prices of the convertible securities tend
to rise as a reflection of the value of the underlying common stock, although
typically not as much as the underlying common stock. While no securities
investments are without risk, investments in convertible securities generally
entail less risk than investments in common stock of the same issuer.

As debt securities, convertible securities are investments which provide
for a stream of income (or in the case of zero coupon securities, accretion of
income) with generally higher yields than common stocks. Of course, like all
debt securities, there can be no assurance of income or principal payments
because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
nonconvertible securities of similar quality because of their conversion or
exchange features.

Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.

Convertible securities may be issued as fixed income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes (LYONS). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.

Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker/dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Adviser to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's Investors Service ("Moody's") or Standard & Poor's ("S&P").

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<PAGE>

A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price upon repurchase. In either case, the income to the
Fund is unrelated to the interest rate on the Obligation itself. Obligations
will be physically held by the Custodian or in the Federal Reserve Book Entry
System.

For purposes of the Investment Company Act of 1940, as amended, ("1940
Act"), a repurchase agreement is deemed to be a loan from the Fund to the seller
of the Obligation subject to the repurchase agreement and is therefore subject
to the Fund's investment restriction applicable to loans. It is not clear
whether a court would consider the Obligation purchased by the Fund subject to a
repurchase agreement as being owned by the Fund or as being collateral for a
loan by the Fund to the seller. In the event of the commencement of bankruptcy
or insolvency proceedings with respect to the seller of the Obligation before
repurchase of the Obligation under a repurchase agreement, the Fund may
encounter delay and incur costs before being able to sell the security. Delays
may involve loss of interest or decline in price of the Obligation. If the court
characterizes the transaction as a loan and the Fund has not perfected a
security interest in the Obligation, the Fund may be required to return the
Obligation to the seller's estate and be treated as an unsecured creditor of the
seller. As an unsecured creditor, the Fund would be at risk of losing some or
all of the principal and income involved in the transaction. As with any
unsecured debt obligation purchased for the Fund, the Adviser seeks to minimize
the risk of loss through repurchase agreements by analyzing the creditworthiness
of the obligor, in this case the seller of the Obligation. Apart from the risk
of bankruptcy or insolvency proceedings, there is also the risk that the seller
may fail to repurchase the security. However, if the market value of the
Obligation subject to the repurchase agreement becomes less than the repurchase
price (including interest), the Fund will direct the seller of the Obligation to
deliver additional securities so that the market value of all securities subject
to the repurchase agreement will equal or exceed the repurchase price.

Borrowing. As a matter of fundamental policy, the Fund will not borrow money,
except as permitted under the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. While
the Trustees do not currently intend to borrow for investment leverage purposes,
if such a strategy were implemented in the future it would increase the Fund's
volatility and the risk of loss in a declining market. Borrowing by the Fund
will involve special risk considerations. Although the principal of the Fund's
borrowings will be fixed, the Fund's assets may change in value during the time
a borrowing is outstanding, thus increasing exposure to capital risk.

Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks or to seek gain. These strategies may be executed through the use
of derivative contracts. Such strategies are generally accepted as a part of
modern portfolio management and are regularly utilized by many mutual funds and
other institutional investors. Techniques and instruments may change over time
as new instruments and strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and other financial instruments, purchase and sell financial
futures contracts and options thereon, and enter into various interest rate
transactions such as swaps, caps, floors or collars (collectively, all the above
are called "Strategic Transactions"). Strategic Transactions may be used without
limit to attempt to protect against possible changes in the market value of
securities held in or to be purchased for the Fund's portfolio resulting from
securities market fluctuations, to protect the Fund's unrealized gains in the
value of its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of
fixed-income securities in the Fund's portfolio, or to establish a position in
the derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to

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<PAGE>

utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The Fund
will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.

Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.

General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."

A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.

With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.

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<PAGE>

The Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.

Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 15% of its assets in illiquid securities.

If the Fund sells a call option, the premium that it receives may serve as
a partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.

The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, equity securities
(including convertible securities) and Eurodollar instruments that are traded on
U.S. and foreign securities exchanges and in the over-the-counter markets, and
on securities indices, and futures contracts. All calls sold by the Fund must be
"covered" (i.e., the Fund must own the securities or futures contract subject to
the call) or must meet the asset segregation requirements described below as
long as the call is outstanding. Even though the Fund will receive the option
premium to help protect it against loss, a call sold by the Fund exposes the
Fund during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or instrument and
may require the Fund to hold a security or instrument which it might otherwise
have sold.

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<PAGE>

The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, equity securities
(including convertible securities) and Eurodollar instruments (whether or not it
holds the above securities in its portfolio), and on securities indices, and
futures contracts other than futures on individual corporate debt and individual
equity securities. The Fund will not sell put options if, as a result, more than
50% of the Fund's assets would be required to be segregated to cover its
potential obligations under such put options other than those with respect to
futures and options thereon. In selling put options, there is a risk that the
Fund may be required to buy the underlying security at a disadvantageous price
above the market price.

General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, or equity market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The sale of a futures contract creates
a firm obligation by the Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right in return for the premium paid to assume a position in a
futures contract and obligates the seller to deliver such position.

The Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission and will be
entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.

The Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of the Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.

Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

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<PAGE>

or combined strategy when, in the opinion of the Adviser, it is in the best
interests of the Fund to do so. A combined transaction will usually contain
elements of risk that are present in each of its component transactions.
Although combined transactions are normally entered into based on the Adviser's
judgment that the combined strategies will reduce risk or otherwise more
effectively achieve the desired portfolio management goal, it is possible that
the combination will instead increase such risks or hinder achievement of the
portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.

The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.

Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.

Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.

Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid assets
with its custodian to the extent Fund obligations are not otherwise "covered"
through ownership of the underlying security, financial instrument or currency.
In general, either the full

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<PAGE>

amount of any obligation by the Fund to pay or deliver securities or assets must
be covered at all times by the securities, instruments or currency required to
be delivered, or, subject to any regulatory restrictions, an amount of cash or
liquid high grade securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate liquid securities sufficient to purchase and
deliver the securities if the call is exercised. A call option sold by the Fund
on an index will require the Fund to own portfolio securities which correlate
with the index or to segregate liquid assets equal to the excess of the index
value over the exercise price on a current basis. A put option written by the
Fund requires the Fund to segregate liquid assets equal to the exercise price.

OTC options entered into by the Fund, including those on securities,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of assets equal to its
accrued net obligations, as there is no requirement for payment or delivery of
amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.

In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.

With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.

Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.

The Fund's activities involving Strategic Transactions may be limited by
the requirements of Subchapter M of the Internal Revenue Code for qualification
as a regulated investment company. (See "TAXES.")

Investment Restrictions

Unless specified to the contrary, the following restrictions may not be
changed without the approval of a majority of the outstanding voting securities
of the Fund involved which, under the 1940 Act and the rules thereunder and as
used in this Statement of Additional Information, means the lesser of (1) 67% or
more of the voting securities present at such meeting, if the holders of more
than 50% of the outstanding voting securities of the Fund are present or
represented by proxy, or (2) more than 50% of the outstanding voting securities
of the Fund.

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<PAGE>

Any investment restrictions herein which involve a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after and is caused by an acquisition or
encumbrance of securities or assets of, or borrowings by, the Fund.

As a matter of fundamental policy, the Fund may not:

(1) borrow money, except as permitted under the Investment Company Act
of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;

(2) issue senior securities, except as permitted under the Investment
Company Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;

(3) engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities;

(4) purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the Fund
reserves freedom of action to hold and to sell real estate acquired
as a result of the Fund's ownership of securities;

(5) purchase physical commodities or contracts related to physical
commodities; or

(6) make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.

As a matter of nonfundamental policy, each Fund may not:

(a) invest more than 15% of the Fund's total assets in securities which
are not readily marketable, the disposition of which is restricted
under Federal securities laws, or in repurchase agreements not
terminable within 7 days.

PURCHASES

(See "Purchases" and "Transaction information" in the Fund's prospectus.)

Additional Information About Opening An Account

Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, TWX, or telephone.

Shareholders of other Scudder funds who have submitted an account
application and have a certified Taxpayer Identification Number, clients having
a regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call, the investor will be asked to
indicate the Fund name, amount to be wired ($2,500 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the taxpayer identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, State Street Bank and Trust Company, Boston, MA
02110, ABA Number 011000028, DDA Account Number: 9903-5552. The investor must

12
<PAGE>

give the Scudder fund name, account name and the new account number. Finally,
the investor must send the completed and signed application to the Fund
promptly.

The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.

Additional Information About Making Subsequent Investments

Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by members of the NASD, by banks, and by established
shareholders (except by Scudder Individual Retirement Account (IRA), Scudder
Horizon Plan, Scudder Profit Sharing and Money Purchase Pension Plans, and
Scudder 401(k) and Scudder 403(b) Plan holders). Orders placed in this manner
may be directed to any office of the Distributor listed in the Fund's
prospectus. A confirmation of the purchase will be mailed out promptly following
receipt of a request to buy. Federal regulations require that payment be
received within three business days. If payment is not received within that
time, the order is subject to cancellation. In the event of such cancellation or
cancellation at the purchaser's request, the purchaser will be responsible for
any loss incurred by a Fund or the principal underwriter by reason of such
cancellation. If the purchaser is a shareholder, the Trust shall have the
authority, as agent of the shareholder, to redeem shares in the account in order
to reimburse the Fund or the principal underwriter for the loss incurred. Net
losses on such transactions which are not recovered from the purchaser will be
absorbed by the principal underwriter. Any net profit on the liquidation of
unpaid shares will accrue to the Fund.

Additional Information About Making Subsequent Investments by QuickBuy

Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000 but not less than $250. To
purchase shares by QuickBuy, shareholders should call before 4 p.m. eastern
time. Proceeds in the amount of your purchase will be transferred from your bank
checking account two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
purchased at the net asset value per share calculated at the close of trading on
the day of your call. QuickBuy requests received after the close of regular
trading on the Exchange will begin their processing and be purchased at the net
asset value calculated the following business day. If you purchase shares by
QuickBuy and redeem them within seven days of the purchase, the Fund may hold
the redemption proceeds for a period of up to seven business days. If you
purchase shares and there are insufficient funds in your bank account the
purchase will be canceled and you will be subject to any losses or fees incurred
in the transaction. QuickBuy transactions are not available for Scudder IRA
accounts and most other retirement plan accounts.

In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing an QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.

The Fund employs procedures, including recording telephone calls, testing
a caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine and to discourage fraud. To the extent that the Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.

Checks

A certified check is not necessary, but checks are only accepted subject
to collection at full face value U.S. funds and must be drawn on, or payable
through, a U.S. bank.

If shares of the Fund are purchased by a check which proves to be
uncollectible, the Trust reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Trust or the

13
<PAGE>

principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Trust will have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from, or restricted in, placing future orders in any of the
Scudder funds.

Wire Transfer of Federal Funds

To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).

The bank sending an investor's federal funds by bank wire may charge for
the service. Presently, the Distributor pays a fee for receipt by State Street
Bank and Trust Company (the "Custodian") of "wired funds," but the right to
charge investors for this service is reserved.

Boston banks are closed on certain holidays although the Exchange may be
open. These holidays include Martin Luther King, Jr. Day (the 3rd Monday in
January), Columbus Day (the 2nd Monday in October) and Veterans Day (November
11). Investors are not able to purchase shares by wiring federal funds on such
holidays because the Custodian is not open to receive such federal funds on
behalf of the Fund.

Share Price

Purchases will be filled without sales charge at the net asset value next
computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on each day during
which the Exchange is open for trading. Orders received after the close of
regular trading on the Exchange will receive the next business day's net asset
value. If the order has been placed by a member of the NASD, other than the
Distributor, it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to Scudder Service Corporation (the
"Transfer Agent") by the close of regular trading on the Exchange.

Share Certificates

Due to the desire of the Trust's management to afford ease of redemption,
certificates will not be issued to indicate ownership in the Fund.

Other Information

If purchases or redemptions of Fund shares are arranged and settlement is
made at an investor's election through a member of the NASD other than the
Distributor, that member may, at its discretion, charge a fee for that service.
The Board of Trustees and the Distributor, also the Fund's principal
underwriter, each has the right to limit the amount of purchases by and to
refuse to sell to, any person. The Trustees and the Distributor each may suspend
or terminate the offering of shares of the Fund at any time for any reason.

The Tax Identification Number section of the application must be completed
when opening an account. Applications and purchase orders without a correct
certified tax identification number and certain other certified information
(e.g. from exempt organizations, certification of exempt status) will be
returned to the investor.

The Trust may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.

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<PAGE>

EXCHANGES AND REDEMPTIONS

(See "Exchanges and redemptions" and "Transaction information"
in the Fund's prospectus.)

Exchanges

Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange may be
either an additional investment into an existing account or may involve opening
a new account in the other fund. When an exchange involves a new account, the
new account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration, tax
identification number, address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more. If the
account receiving the exchange proceeds is to be different in any respect, the
exchange request must be in writing and must contain an original signature
guarantee as described under "Transaction information-Exchanging and redeeming
shares-Signature guarantees" in the Fund's prospectus.

Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.

Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder Fund to an
existing account in another Scudder Fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.

There is no charge to the shareholder for any exchange described above.
However, shares that are exchanged may be subject to the Fund's 1% redemption
fee. (See "Special Redemption and Exchange Information." An exchange into
another Scudder fund is a redemption of shares, and therefore may result in tax
consequences (gain or loss) to the shareholder, and the proceeds of such an
exchange may be subject to backup withholding. (See "TAXES.")

Investors currently receive the exchange privilege, including exchange by
telephone, automatically without having to elect it. The Trust employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Trust does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trust will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. The Trust, the Fund and the Transfer Agent each reserves the right to
suspend or terminate the privilege of exchanging by telephone or fax at any
time.

The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder funds. For more information, please call
1-800-225- 5163.

Scudder retirement plans may have different exchange requirements. Please
refer to appropriate plan literature.

15
<PAGE>

Special Redemption and Exchange Information

In general, shares of the Fund may be exchanged or redeemed at net asset
value. However, shares of the Fund held for less than one year are redeemable at
a price equal to 99% of the then current net asset value per share. This 1%
discount, referred to in the prospectus and this statement of additional
information as a redemption fee, directly affects the amount a shareholder who
is subject to the discount receives upon exchange or redemption. It is intended
to encourage long-term investment in the Fund, to avoid transaction and other
expenses caused by early redemptions and to facilitate portfolio management. The
fee is not a deferred sales charge, is not a commission paid to the Adviser or
its subsidiaries, and does not benefit the Adviser in any way. The Fund reserves
the right to modify the terms of or terminate this fee at any time.

The redemption discount will not be applied to (a) a redemption of shares
of the Fund outstanding for one year or more, (b) shares purchased through
certain Scudder retirement plans, including 401(k) plans, 403(b) plans, 457
plans, Keogh accounts, and Profit Sharing and Money Purchase Pension Plans
provided, however, if such shares are purchased through a broker, financial
institution or recordkeeper maintaining an omnibus account for the shares, such
waiver may not apply. (Before purchasing shares, please check with your account
representative concerning the availability of the fee waiver.) In addition, this
waiver does not apply to IRA and SEP-IRA accounts. (c) a redemption of
reinvestment shares (i.e., shares purchased through the reinvestment of
dividends or capital gains distributions paid by the Fund), or (d) a redemption
of shares by the Fund upon exercise of its right to liquidate accounts (i)
falling below the minimum account size by reason of shareholder redemptions or
(ii) when the shareholder has failed to provide tax identification information.
For this purpose and without regard to the shares actually redeemed, shares will
be treated as redeemed as follows: first, reinvestment shares; second, purchased
shares held one year or more; and third, purchased shares held for less than one
year. Finally, if a redeeming shareholder acquires Fund shares through a
transfer from another shareholder, applicability of the discount, if any, will
be determined by reference to the date the shares were originally purchased, and
not from the date of transfer between shareholders.

Redemption by Telephone

Shareholders currently receive the right, automatically without having to
elect it, to redeem by telephone up to $50,000 and have the proceeds mailed to
their address of record. Shareholders may also request to have the proceeds
mailed or wired to their predesignated bank account. In order to request wire
redemptions by telephone, shareholders must have completed and returned to the
Transfer Agent the application, including the designation of a bank account to
which the redemption proceeds are to be sent.

(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate section on
the application.

(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA, Scudder
Pension and Profit-Sharing, Scudder 401(k) and Scudder 403(b)
Planholders) who wish to establish telephone redemption to a
predesignated bank account or who want to change the bank account
previously designated to receive redemption payments should either
return a Telephone Redemption Option Form (available upon request)
or send a letter identifying the account and specifying the exact
information to be changed. The letter must be signed exactly as the
shareholder's name(s) appears on the account. An original signature
and an original signature guarantee are required for each person in
whose name the account is registered.

If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.

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<PAGE>

submit any special wire transfer information with the telephone redemption
authorization. If appropriate wire information is not supplied, redemption
proceeds will be mailed to the designated bank.

The Fund employs procedures, including recording telephone calls, testing
a caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that the Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.

Redemption by QuickSell

Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickSell program may sell shares of the Fund by telephone. To sell
shares by QuickSell, shareholders should call before 4 p.m. eastern time.
Redemptions must be for at least $250. Proceeds in the amount of your redemption
will be transferred to your bank checking account two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, shares will be redeemed at the net asset value per share
calculated at the close of trading on the day of your call. QuickSell requests
received after the close of regular trading on the Exchange will begin their
processing and be redeemed at the net asset value calculated the following
business day. QuickSell transactions are not available for Scudder IRA accounts
and most other retirement plan accounts.

In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing an QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.

The Fund employs procedures, including recording telephone calls, testing
a caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that the Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.

Redemption by Mail or Fax

In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).

It is suggested that shareholders holding shares registered in other than
individual names contact the Transfer Agent prior to any redemptions to ensure
that all necessary documents accompany the request. When shares are held in the
name of a corporation, trust, fiduciary, agent, attorney or partnership, the
Transfer Agent requires, in addition to the stock power, certified evidence of
authority to sign. These procedures are for the protection of shareholders and
should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within five business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays in
payment of more than seven days for shares tendered for repurchase or redemption
may result, but only until the purchase check has cleared.

The requirements for IRA redemptions are different from those for regular
accounts. For more information please call 1- 800-225-5163.

Redemption-In-Kind

17
<PAGE>

the Trust and valued as they are for purposes of computing the Fund's net asset
value (a redemption-in-kind). If payment is made in securities, a shareholder
may incur transaction expenses in converting these securities into cash. The
Fund has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Trust is obligated to redeem shares, with respect to any one
shareholder during any 90 day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.

Other Information

If a shareholder redeems all shares in the account after the record date
of a dividend, the shareholder will receive, in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
or repurchased may be more or less than the shareholder's cost depending on the
net asset value at the time of redemption or repurchase. A wire charge may be
applicable for redemption proceeds wired to an investor's bank account.
Redemptions of shares, including an exchange into another Scudder fund, may
result in tax consequences (gain or loss) to the shareholder and the proceeds of
such redemptions may be subject to backup withholding. (see "TAXES.")

Shareholders who wish to redeem shares from Special Plan Accounts should
contact the employer, trustee or custodian of the Plan for the requirements.

The determination of net asset value and a shareholder's right to redeem
shares and to receive payment may be suspended at times and a shareholder's
right to redeem shares and to receive payment may be suspended at times during
which (a) the Exchange is closed, other than customary weekend and holiday
closings, (b) trading on the Exchange is restricted for any reason, (c) an
emergency exists as a result of which disposal by the Fund of securities owned
by it is not reasonably practicable or it is not reasonably practicable for the
Fund fairly to determine the value of its net assets, or (d) a governmental body
having jurisdiction over the Fund may by order permit such a suspension for the
protection of the Trust's shareholders; provided that applicable rules and
regulations of the SEC (or any succeeding governmental authority) shall govern
as to whether the conditions prescribed in (b), (c) or (d) exist.

Shareholders should maintain a share balance worth at least $2,500, which
amount may be changed by the Board of Trustees. Scudder retirement plans have
similar or lower minimum share balance requirements. A shareholder may open an
account with at least $1,000, if an automatic investment plan of $100/month is
established. Shareholders who maintain a non-fiduciary account balance of less
than $2,500 in the Fund, without establishing an automatic investment plan, will
be assessed an annual $10.00 per fund charge with the fee to be paid to the
Fund. The $10.00 charge will not apply to shareholders with a combined household
account balance in any of the Scudder Funds of $25,000 or more. The Fund
reserves the right, following 60 days' written notice to shareholders, to redeem
all shares in accounts below $250, including accounts of new investors, where a
reduction in value has occurred due to a redemption or exchange out of the
account. The Fund will mail the proceeds of the redeemed account to the
shareholder. Reductions in value that result solely from market activity will
not trigger an involuntary redemption. Retirement accounts and certain other
accounts will not be assessed the $10.00 charge or be subject to automatic
liquidation.

FEATURES AND SERVICES OFFERED BY THE FUND

(See "Shareholder benefits" in the Fund's prospectus.)

The Pure No-Load(TM) Concept

Investors are encouraged to be aware of the full ramifications of mutual
fund fee structures, and of how Scudder distinguishes its funds from the vast
majority of mutual funds available today. The primary distinction is between
load and no-load funds.

18
<PAGE>

services and/or maintenance of shareholder accounts. Asset-based sales charges
and service fees are typically paid pursuant to distribution plans adopted under
12b-1 under the 1940 Act.

A front-end load is a sales charge, which can be as high as 8.50% of the
amount invested. A back-end load is a contingent deferred sales charge, which
can be as high as 8.50% of either the amount invested or redeemed. The maximum
front-end or back-end load varies, and depends upon whether or not a fund also
charges a 12b-1 fee and/or a service fee or offers investors various sales-
related services such as dividend reinvestment. The maximum charge for a 12b-1
fee is 0.75% of a fund's average annual net assets, and the maximum charge for a
service fee is 0.25% of a fund's average annual net assets.

A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Rules of Fair Practice, a mutual fund
can call itself a "no-load" fund only if the 12b-1 fee and/or service fee does
not exceed 0.25% of a fund's average annual net assets.

Because Scudder funds do not pay any asset-based sales charges or service
fees, Scudder developed and trademarked the phrase pure no-loadT to distinguish
Scudder funds from other no-load mutual funds. Scudder pioneered the no-load
concept when it created the nation's first no-load fund in 1928, and later
developed the nation's first family of no-load mutual funds.

The following chart shows the potential long-term advantage of investing
$10,000 in a Scudder pure no-load fund over investing the same amount in a load
fund that collects an 8.50% front-end load, a load fund that collects only a
0.75% 12b-1 and/or service fee, and a no-load fund charging only a 0.25% 12b-1
and/or service fee. The hypothetical figures in the chart show the value of an
account assuming a constant 10% rate of return over the time periods indicated
and reinvestment of dividends and distributions.

================================================================================
Scudder No-Load
YEARS Pure No- 8.50% Load Load Fund Fund with
Load(TM) Fund Fund with 0.75% 0.25% 12b-1
12b-1 Fee Fee
- --------------------------------------------------------------------------------
10 $ 25,937 $ 23,733 $ 24,222 $ 25,354
- --------------------------------------------------------------------------------
15 41,772 38,222 37,698 40,371
- --------------------------------------------------------------------------------
20 67,275 61,557 58,672 64,282
================================================================================

Investors are encouraged to review the fee tables on page 2 of the Fund's
prospectus for more specific information about the rates at which management
fees and other expenses are assessed.

Dividends and Capital Gain Distribution Options

Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of the Fund. A change of instructions for the method
of payment must be received by the Transfer Agent at least five days prior to a
dividend record date. Shareholders may change their dividend option either by
calling 1-800-225-5163 or by sending written instructions to the Transfer Agent.
Please include your account number with your written request. See "How to
contact Scudder" in the Prospectus for the address.

Reinvestment is usually made at the closing net asset value determined on
the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of the Fund.

19
<PAGE>

Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.

Investors choosing to participate in Scudder's Automatic Withdrawal Plan
must reinvest any dividends or capital gains. For most retirement plan accounts,
the reinvestment of dividends and capital gains is also required.

Diversification

Your investment represents an interest in a large, diversified portfolio
of securities. Diversification may protect you against the possible risks of
concentrating in fewer securities or in a specific market sector.

Scudder Investor Centers

Investors may visit any of the Investor Centers maintained by the
Distributor. The Centers are designed to provide individuals with services
during any business day. Investors may pick up literature or obtain assistance
with opening an account, adding monies or special options to existing accounts,
making exchanges within the Scudder Family of Funds, redeeming shares or opening
retirement plans. Checks should not be mailed to the Centers but to "The Scudder
Funds" at the address listed under "How to contact Scudder" in the Prospectus.

Reports to Shareholders

The Fund issues shareholders unaudited semiannual financial statements and
annual financial statements audited by independent accountants, including a list
of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights.

Transaction Summaries

Annual summaries of all transactions in each Fund account are available to
shareholders. The summaries may be obtained by calling 1-800-225-5163.

THE SCUDDER FAMILY OF FUNDS

(See "Investment products and services" in the Fund's prospectus.)

The Scudder Family of Funds is America's first family of mutual funds and
the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.

MONEY MARKET

Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and, consistent therewith, to provide current income.
The Fund seeks to maintain a constant net asset value of $1.00 per share,
although in certain circumstances this may not be possible, and declares
dividends daily.

Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability of
capital and, consistent therewith, to maintain the liquidity of capital
and to provide current income. SCIT seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may not
be possible, and declares dividends daily.

20
<PAGE>

Scudder Money Market Series seeks to provide investors with as high a
level of current income as is consistent with its investment polices and
with preservation of capital and liquidity. The Fund seeks to maintain a
constant net asset value of $1.00 per share, but there is no assurance
that it will be able to do so. The institutional class of shares of this
Fund is not within the Scudder Family of Funds.

Scudder Government Money Market Series seeks to provide investors with as
high a level of current income as is consistent with its investment
polices and with preservation of capital and liquidity. The Fund seeks to
maintain a constant net asset value of $1.00 per share, but there is no
assurance that it will be able to do so. The institutional class of shares
of this Fund is not within the Scudder Family of Funds.

TAX FREE MONEY MARKET

Scudder Tax Free Money Fund ("STFMF") seeks to provide income exempt from
regular federal income tax and stability of principal through investments
primarily in municipal securities. STFMF seeks to maintain a constant net
asset value of $1.00 per share, although in extreme circumstances this may
not be possible.

Scudder Tax Free Money Market Series seeks to provide investors with as
high a level of current income that cannot be subjected to federal income
tax by reason of federal law as is consistent with its investment policies
and with preservation of capital and liquidity. The Fund seeks to maintain
a constant net asset value of $1.00 per share, but there is no assurance
that it will be able to do so. The institutional class of shares of this
Fund is not within the Scudder Family of Funds.

Scudder California Tax Free Money Fund* seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share while
providing California taxpayers income exempt from both California State
personal and regular federal income taxes. The Fund is a professionally
managed portfolio of high quality, short-term California municipal
securities. There can be no assurance that the stable net asset value will
be maintained.

Scudder New York Tax Free Money Fund* seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, while
providing New York taxpayers income exempt from New York State and New
York City personal income taxes and regular federal income tax. There can
be no assurance that the stable net asset value will be maintained.

TAX FREE

Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a high
degree of principal stability.

Scudder Medium Term Tax Free Fund seeks to provide a high level of income
free from regular federal income taxes and to limit principal fluctuation.
The Fund will invest primarily in high-grade, intermediate-term bonds.

Scudder Managed Municipal Bonds seeks to provide income exempt from
regular federal income tax primarily through investments in high-grade,
long-term municipal securities.

- ----------
* These funds are not available for sale in all states. For information, contact
Scudder Investor Services, Inc.

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Scudder High Yield Tax Free Fund seeks to provide a high level of interest
income, exempt from regular federal income tax, from an actively managed
portfolio consisting primarily of investment-grade municipal securities.

Scudder California Tax Free Fund* seeks to provide California taxpayers
with income exempt from both California State personal income and regular
federal income tax. The Fund is a professionally managed portfolio
consisting primarily of California municipal securities.

Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide
Massachusetts taxpayers with as high a level of income exempt from
Massachusetts personal income tax and regular federal income tax, as is
consistent with a high degree of price stability, through a professionally
managed portfolio consisting primarily of investment-grade municipal
securities.

Scudder Massachusetts Tax Free Fund* seeks to provide Massachusetts
taxpayers with income exempt from both Massachusetts personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal securities.

Scudder New York Tax Free Fund* seeks to provide New York taxpayers with
income exempt from New York State and New York City personal income taxes
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of New York municipal securities.

Scudder Ohio Tax Free Fund* seeks to provide Ohio taxpayers with income
exempt from both Ohio personal income tax and regular federal income tax.
The Fund is a professionally managed portfolio consisting primarily of
investment-grade municipal securities.

Scudder Pennsylvania Tax Free Fund* seeks to provide Pennsylvania
taxpayers with income exempt from both Pennsylvania personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal securities.

U.S. INCOME

Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing
primarily in high quality short-term bonds.

Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with investment in U.S.
Government securities and the minimization of reinvestment risk.

Scudder GNMA Fund seeks to provide high current income primarily from U.S.
Government guaranteed mortgage-backed (Ginnie Mae) securities.

Scudder Income Fund seeks a high level of income, consistent with the
prudent investment of capital, through a flexible investment program
emphasizing high-grade bonds.

Scudder High Yield Bond Fund seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities.

GLOBAL INCOME

Scudder Global Bond Fund seeks to provide total return with an emphasis on
current income by investing primarily in high-grade bonds denominated in
foreign currencies and the U.S. dollar. As a secondary objective, the Fund
will seek capital appreciation.

Scudder International Bond Fund seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. As a
secondary objective, the Fund seeks protection and possible enhancement of
principal value by actively managing currency, bond market and maturity
exposure and by security selection.

- ----------
* These funds are not available for sale in all states. For information, contact
Scudder Investor Services, Inc.

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Scudder Emerging Markets Income Fund seeks to provide high current income
and, secondarily, long-term capital appreciation through investments
primarily in high-yielding debt securities issued by governments and
corporations in emerging markets.

ASSET ALLOCATION

Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio, under normal market conditions, will invest
substantially in a select mix of Scudder bond mutual funds, but will have
some exposure to Scudder equity mutual funds.

Scudder Pathway Series: Balanced Portfolio seeks to provide investors with
a balance of growth and income by investing in a select mix of Scudder
money market, bond and equity mutual funds.

Scudder Pathway Series: Growth Portfolio seeks to provide investors with
long-term growth of capital. In pursuing this objective, the Portfolio
will, under normal market conditions, invest predominantly in a select mix
of Scudder equity mutual funds designed to provide long-term growth.

Scudder Pathway Series: International Portfolio seeks maximum total return
for investors. Total return consists of any capital appreciation plus
dividend income and interest. To achieve this objective, the Portfolio
invests in a select mix of established international and global Scudder
funds.

U.S. GROWTH AND INCOME

Scudder Balanced Fund seeks a balance of growth and income from a
diversified portfolio of equity and fixed-income securities. The Fund also
seeks long-term preservation of capital through a quality-oriented
approach that is designed to reduce risk.

Scudder Growth and Income Fund seeks long-term growth of capital, current
income, and growth of income.

Scudder S&P 500 Index Fund seeks to provide investment results that,
before expenses, correspond to the total return of common stocks publicly
traded in the United States, as represented by the Standard & Poor's 500
Composite Stock Price Index.

U.S. GROWTH

Value

Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.

Scudder Value Fund seeks long-term growth of capital through investment in
undervalued equity securities.

Scudder Small Company Value Fund invests for long-term growth of capital
by seeking out undervalued stocks of small U.S. companies.

Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization
("micro-cap") common stocks.

Growth

Scudder Classic Growth Fund seeks to provide long-term growth of capital
and to keep the value of its shares more stable than other growth mutual
funds.

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<PAGE>

Scudder Large Company Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of seasoned,
financially strong U.S. growth companies.

Scudder Development Fund seeks long-term growth of capital by investing
primarily in securities of small and medium-size growth companies.

Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies poised
to be leaders in the 21st century.

GLOBAL GROWTH

Worldwide

Scudder Global Fund seeks long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt securities
convertible into common stocks.

Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.

Scudder International Fund seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity securities.

Scudder Global Discovery Fund seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of
small companies located throughout the world.

Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the globe.

Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold- related equity
securities and gold.

Regional

Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.

Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.

Scudder Latin America Fund seeks to provide long-term capital appreciation
through investment primarily in the securities of Latin American issuers.

The Japan Fund, Inc. seeks long-term capital appreciation by investing
primarily in equity securities (including American Depository Receipts) of
Japanese companies.

The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.

24
<PAGE>

The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor Relations; and easy telephone
exchanges into other Scudder funds. Certain Scudder funds may not be available
for purchase or exchange. For more information, please call 1-800-225-5163.

SPECIAL PLAN ACCOUNTS

(See "Scudder tax-advantaged retirement plans," "Purchases-By Automatic
Investment Plan" and "Exchanges and redemptions-By Automatic Withdrawal
Plan" in the Fund's prospectus.)

Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. It is
advisable for an investor considering the funding of the investment plans
described below to consult with an attorney or other investment or tax adviser
with respect to the suitability requirements and tax aspects thereof.

Shares of the Fund may also be a permitted investment under profit sharing
and pension plans and IRA's other than those offered by the Fund's distributor
depending on the provisions of the relevant plan or IRA.

None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.

Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals

Shares of the Fund may be purchased as the investment medium under a plan
in the form of a Scudder Profit-Sharing Plan (including a version of the Plan
which includes a cash-or-deferred feature) or a Scudder Money Purchase Pension
Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code.

Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals

Shares of the Fund may be purchased as the investment medium under a plan
in the form of a Scudder 401(k) Plan adopted by a corporation, a self-employed
individual or a group of self-employed individuals (including sole proprietors
and partnerships), or other qualifying organization. This plan has been approved
as a prototype by the IRS.

Scudder IRA: Individual Retirement Account

Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.

25
<PAGE>

participants in qualified plans (or who have spouses who are active
participants) are also eligible to make tax-deductible contributions to an IRA;
the annual amount, if any, of the contribution which such an individual will be
eligible to deduct will be determined by the amount of his, her, or their
adjusted gross income for the year. Whenever the adjusted gross income
limitation prohibits an individual from contributing what would otherwise be the
maximum tax-deductible contribution he or she could make, the individual will be
eligible to contribute the difference to an IRA in the form of nondeductible
contributions.

An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples if only one spouse has
earned income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.

The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)

Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution

- -----------------------------------------------------------
Starting Annual Rate of Return
Age of -------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699

This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)

Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket

- -----------------------------------------------------------
Starting Annual Rate of Return
Age of -------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681

Scudder 403(b) Plan

Shares of the Fund may also be purchased as the underlying investment for
tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.

Automatic Withdrawal Plan

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<PAGE>

redemption of a fixed dollar amount, fixed share amount, percent of account
value or declining balance. The Plan provides for income dividends and capital
gains distributions, if any, to be reinvested in additional shares. Shares are
then liquidated as necessary to provide for withdrawal payments. Since the
withdrawals are in amounts selected by the investor and have no relationship to
yield or income, payments received cannot be considered as yield or income on
the investment and the resulting liquidations may deplete or possibly extinguish
the initial investment and any reinvested dividends and capital gains
distributions. Requests for increases in withdrawal amounts or to change the
payee must be submitted in writing, signed exactly as the account is registered,
and contain signature guarantee(s) as described under "Transaction
information-Redeeming shares-Signature guarantees" in the Fund's prospectus. Any
such requests must be received by the Fund's transfer agent ten days prior to
the date of the first automatic withdrawal. An Automatic Withdrawal Plan may be
terminated at any time by the shareholder, the Trust or its agent on written
notice, and will be terminated when all shares of the Fund under the Plan have
been liquidated or upon receipt by the Trust of notice of death of the
shareholder.

An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.

Group or Salary Deduction Plan

An investor may join a Group or Salary Deduction Plan where satisfactory
arrangements have been made with Scudder Investor Services, Inc. for forwarding
regular investments through a single source. The minimum annual investment is
$240 per investor which may be made in monthly, quarterly, semiannual or annual
payments. The minimum monthly deposit per investor is $20. Except for trustees
or custodian fees for certain retirement plans, at present there is no separate
charge for maintaining group or salary deduction plans; however, the Trust and
its agents reserve the right to establish a maintenance charge in the future
depending on the services required by the investor.

The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.

Automatic Investment Plan

Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.

The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.

Uniform Transfers/Gifts to Minors Act

Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.

The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.

27
<PAGE>

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

(See "Distribution and performance information-Dividends and capital
gains distributions" in the Fund's prospectus.)

The Fund intends to follow the practice of distributing substantially all
of its investment company taxable income, which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
The Fund may allow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, the Fund may retain all or part of such gain for reinvestment, after
paying the related federal income taxes for which the shareholders may claim a
credit against their federal income tax liability. If the Fund does not
distribute the amount of capital gains and/or ordinary income required to be
distributed by an excise tax provision of the Code, the Fund may be subject to
that excise tax. In certain circumstances, the Fund may determine that it is in
the interest of shareholders to distribute less than the required amount. (See
"TAXES.")

The Fund intends to distribute investment company taxable income and any
net realized capital gains resulting from Fund investment activity in November
or December each year. Both types of distributions will be made in shares of the
Fund and confirmations will be mailed to each shareholder unless a shareholder
has elected to receive cash, in which case a check will be sent. Distributions
of investment company taxable income and net realized capital gains are taxable
(see "TAXES"), whether made in shares or cash.

PERFORMANCE INFORMATION

(See "Distribution and performance information-Performance
information" in the Fund's prospectus.)

From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures will be calculated in the following manner:

Average Annual Total Return

Average Annual Total Return is the average annual compound rate of return
for the periods of one year and the life of the Fund, all ended on the last day
of a recent calendar quarter. Average annual total return quotations reflect
changes in the price of the Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by finding the average
annual compound rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):

T = (ERV/P)1/n - 1
Where:

P = a hypothetical initial investment of $1,000
T = Average Annual Total Return
n = number of years
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.

Cumulative Total Return

Cumulative Total Return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative Total Return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative Total

28
<PAGE>

Return is calculated by finding the cumulative rates of return of a
hypothetical investment over such periods, according to the
following formula (Cumulative Total Return is then expressed as a
percentage):

C = (ERV/P) -1
Where:

C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the end of the
applicable period, of a hypothetical $1,000 investment made at
the beginning of the applicable period.

Cumulative Total Return for the period ended August 31, 1996

Life of Fund

13.54%

Total Return

Total Return is the rate of return on an investment for a specified period
of time calculated in the same manner as Cumulative Total Return.

Comparison of Fund Performance

A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.

In connection with communicating its performance to current or prospective
shareholders, the Fund also may compare these figures to the performance of
unmanaged indices which may assume reinvestment of dividends or interest but
generally do not reflect deductions for administrative and management costs.
Examples include, but are not limited to the Dow Jones Industrial Average, the
Consumer Price Index, Standard & Poor's 500 Composite Stock Price Index (S&P
500), the NASDAQ OTC Composite Index, the NASDAQ Industrials Index, the Russell
2000 Index, and statistics published by the Small Business Administration.

From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.

From time to time, in marketing and other Fund literature, Trustees and
officers of the Fund, the Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.

29
<PAGE>

The Fund may be advertised as an investment choice in Scudder's college
planning program. The description may contain illustrations of projected future
college costs based on assumed rates of inflation and examples of hypothetical
fund performance, calculated as described above.

Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.

Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.

Because bank products guarantee the principal value of an investment and
money market funds seek stability of principal, these investments are considered
to be less risky than investments in either bond or equity funds, which may
involve the loss of principal. However, all long-term investments, including
investments in bank products, may be subject to inflation risk, which is the
risk of erosion of the value of an investment as prices increase over a long
time period. The risks/returns associated with an investment in bond or equity
funds depend upon many factors. For bond funds these factors include, but are
not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.

A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.

Risk/return spectrums also may depict funds that invest in both domestic
and foreign securities or a combination of bond and equity securities.

Internet access

World Wide Web Site - The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.

The site is designed for interactivity, simplicity and maneuverability. A
section entitled "Planning Resources" provides information on asset allocation,
tuition, and retirement planning to users who fill out interactive "worksheets."
Investors can easily establish a "Personal Page," that presents price
information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both Scudder and Lipper Analytical Services, Inc. are
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.

30
<PAGE>

Scudder has communicated with shareholders and other interested parties on
Prodigy since 1988 and has participated since 1994 in GALT's Networth "financial
marketplace" site on the Internet. The firm made Scudder Funds information
available on America Online in early 1996.

Account Access - Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.

Scudder's personal portfolio capabilities - known as SEAS (Scudder
Electronic Account Services) - are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.

An Account Activity option reveals a financial history of transactions for
an account, with trade dates, type and amount of transaction, share price and
number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.

A Call MeTM feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call MeTM feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.

Evaluation of Fund performance or other relevant statistical information
made by independent sources may also be used in advertisements concerning the
Fund, including reprints of, or selections from, editorials or articles about
this Fund. Sources for Fund performance information and articles about the Fund
include the following:

American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.

Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.

Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.

Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.

Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.

CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.

Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.

Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.

Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.

31
<PAGE>

Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.

The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.

Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.

IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."

Ibbotson Associates, Inc., a company specializing in investment research and
data.

Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.

Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.

Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.

Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.

Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.

Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.

The New York Times, a nationally distributed newspaper which regularly covers
financial news.

The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.

No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.

Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.

Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.

Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.

Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.

32
<PAGE>

United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.

USA Today, a leading national daily newspaper.

U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.

Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.

The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.

Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.

Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.

Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.

FUND ORGANIZATION

(See "Fund organization" in the Fund's prospectus.)

The Fund is a series of Scudder Securities Trust, formerly Scudder
Development Fund, a Massachusetts business trust established under a Declaration
of Trust dated October 16, 1985, as amended. The Trust's predecessor was
organized as a Delaware corporation in 1970. The Trust's authorized capital
consists of an unlimited number of shares of beneficial interest of $0.01 par
value, all of which are of one class and have equal rights as to voting,
dividends and liquidation. The Trust's shares are currently divided into five
series, Scudder Development Fund, Scudder Micro Cap Fund, Scudder 21st Century
Growth Fund, Scudder Small Company Value Fund and Scudder Financial Services
Fund. The Trustees have the authority to issue additional series of shares and
to designate the relative rights and preferences as between the different
series. Each share of each Fund has equal rights with each other share of that
Fund as to voting, dividends and liquidation. All shares issued and outstanding
will be fully paid and nonassessable by the Trust, and redeemable as described
in this Statement of Additional Information and in each Fund's prospectus.

The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.

33
<PAGE>

upon only by shareholders of the series involved. Additionally, approval of the
investment advisory agreement is a matter to be determined separately by each
series.

The Trustees, in their discretion, may authorize the division of shares of
the Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution. The Trustees have no present
intention of taking the action necessary to effect the division of shares into
separate classes, nor of changing the method of distribution of shares of the
Fund.

The Declaration of Trust provides that obligations of the Fund are not
binding upon the Trustees individually but only upon the property of the Fund,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Fund will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Fund. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.

INVESTMENT ADVISER

(See "Fund organization-Investment adviser" in the Fund's prospectus.)

Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Fund. Scudder, Stevens & Clark, Inc.
("Scudder"), the predecessor organization to the Adviser, organization is one of
the most experienced investment counsel firms in the U.S. It was established as
a partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928 it introduced the first no-load
mutual fund to the public. In 1953 the Adviser introduced Scudder International
Fund, Inc., the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries. The firm
reorganized from a partnership to a corporation on June 28, 1985.

On June 26, 1997, Scudder entered into an agreement with Zurich Insurance
Company ("Zurich") pursuant to which Scudder and Zurich agreed to form an
alliance. On November __, 1997, Zurich acquired a majority interest in Scudder,
and Zurich Kemper Investments, Inc., a Zurich subsidiary, became part of
Scudder. Scudder's name has been changed to Scudder Kemper Investments, Inc.

Founded in 1872, Zurich is a multinational, public corporation organized
under the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world. Zurich Insurance Group is particularly strong in the insurance of
international companies and organizations. Over the past few years, Zurich's
global presence, particularly in the United States, has been strengthened by
means of selective acquisitions.

The principal source of the Adviser's income is professional fees received
from providing continuous investment advice, and the firm derives no income from
brokerage or underwriting of securities. Today, it provides investment counsel
for many individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations. In addition,
it manages Montgomery Street Income Securities, Inc., Scudder California Tax
Free Trust, Scudder Cash Investment Trust, Scudder Equity Trust, Scudder Fund,
Inc., Scudder Funds Trust, Scudder Global Fund, Inc., Scudder GNMA Fund, Scudder
Portfolio Trust, Scudder Institutional Fund, Inc., Scudder International Fund,
Inc., Scudder Investment Trust, Scudder Municipal Trust, Scudder Mutual Funds,
Inc., Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc., Scudder
Pathway Series, Scudder Securities Trust, Scudder State Tax Free Trust, Scudder
Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund,
Scudder Variable Life Investment Fund, Scudder World Income Opportunities Fund,
Inc., The

34
<PAGE>

Argentina Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc., The
Japan Fund, Inc., The Latin America Dollar Income Fund, Inc. and Scudder Spain
and Portugal Fund, Inc. Some of the foregoing companies or trusts have two or
more series.

The Adviser also provides investment advisory services to the mutual funds
which comprise the AARP Investment Program from Scudder. The AARP Investment
Program from Scudder has assets over $13 billion and includes the AARP Growth
Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed Investment
Portfolios Trust and AARP Cash Investment Funds.

Pursuant to an Agreement between Scudder, Stevens & Clark, Inc. and AMA
Solutions, Inc., a subsidiary of the American Medical Association (the "AMA"),
dated May 9, 1997, Scudder has agreed, subject to applicable state regulations,
to pay AMA Solutions, Inc. royalties in an amount equal to 5% of the management
fee received by Scudder with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLinkSM Program. Scudder will
also pay AMA Solutions, Inc. a general monthly fee, currently in the amount of
$833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLinkSM Program will be a customer of Scudder (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA InvestmentLinkSM
is a service mark of AMA Solutions, Inc.

The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. In this work, the Adviser
utilizes certain reports and statistics from a wide variety of sources,
including brokers and dealers who may execute portfolio transactions for the
Fund and other clients of the Adviser, but conclusions are based primarily on
investigations and critical analyses by the Adviser's own research specialists.

Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view toward achieving their respective investment
objectives and after consideration of such factors as their current holdings,
availability of cash for investment and the size of their investments generally.
Frequently, a particular security may be bought or sold for only one client or
in different amounts and at different times for more than one but less than all
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In addition, purchases
or sales of the same security may be made for two or more clients on the same
day. In such event, such transactions will be allocated among the clients in a
manner believed by the Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Adviser in the interest of achieving
the most favorable net results to the Fund.

An investment management agreement (the "Agreement") dated October 6, 1995
was approved by the Trustees of the Fund on September 6, 1995 and by the initial
shareholder of the Fund on October 4, 1995. Because the transaction between
Scudder and Zurich resulted in the assignment of the Fund's investment
management agreement with Scudder, that agreement was deemed to be automatically
terminated at the consummation of the transaction. In anticipation of the
transaction, however, a new investment management agreement between the Fund and
the Adviser was approved by the Fund's Trustees. At the special meeting of the
Fund's stockholders held on October 23, 1997, the stockholders also approved a
proposed new investment management agreement. The new investment management
agreement (the "Agreement") became effective as of November __, 1997 and will be
in effect for an initial term ending on September 30, 1998. The Agreement is in
all material respects on the same terms as the previous investment management
agreement which it supersedes. The Agreement incorporates conforming changes
which promote consistency among all of the funds advised by the Adviser and
which permit ease of administration. The Agreement will continue in effect from
year to year thereafter only if its continuance is approved annually by the vote
of a majority of those Trustees who are not parties to such Agreement or
interested persons of the Adviser or the Fund, cast in person at a meeting
called for the purpose of voting on such approval, and either by a vote of the
Fund's Trustees or of a majority of the outstanding voting securities of the
Fund. The Agreement may be terminated at any time without payment of penalty by
either party on sixty days' written notice, and automatically terminates in the
event of its assignment.

35
<PAGE>

Under the Agreement, the Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objective, policies and restrictions and determines what securities
shall be purchased, held or sold and what portion of the Fund's assets shall be
held uninvested, subject always to the provisions of the Fund's Declaration of
Trust and By-Laws, the 1940 Act, the Code and to the Fund's investment
objective, policies and restrictions, and subject, further, to such policies and
instructions as the Board of Trustees of the Fund may from time to time
establish. The Adviser also advises and assists the officers of the Fund in
taking such steps as are necessary or appropriate to carry out the decisions of
its Trustees and the appropriate committees of the Trustees regarding the
conduct of the business of the Fund.

Under the Agreement, the Adviser renders significant administrative
services (not otherwise provided by third parties) necessary for the Fund's
operations as an open-end investment company including, but not limited to,
preparing reports and notices to the Trustees and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to the Fund (such as the Fund's transfer agent, pricing
agents, custodian, accountants and others); preparing and making filings with
the SEC and other regulatory agencies; assisting in the preparation and filing
of the Fund's federal, state and local tax returns; preparing and filing the
Fund's federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of the Fund under applicable
federal and state securities laws; maintaining the Fund's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of the Fund; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Fund's operating budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging for, the payment of distributions and dividends and otherwise
assisting the Fund in the conduct of its business, subject to the direction and
control of the Trustees.

The Adviser pays the compensation and expenses (except those for attending
Board and committee meetings outside New York, New York and Boston,
Massachusetts) of all Trustees, officers and executive employees of the Fund
affiliated with the Adviser, and makes available, without expense to the Fund,
the services of such directors, officers and employees of the Adviser as may
duly be elected officers of the Fund, subject to their individual consent to
serve and to any limitations imposed by law, and provides the Fund's office
space and facilities.

For these services the Fund pays the Adviser a fee equal to an annual rate
of 0.75% of the Fund's average daily net assets payable monthly, provided the
Fund will make such interim payments as may be requested by the Adviser not to
exceed 75% of the amount of the fee then accrued on the books of the Fund and
unpaid. The Adviser has agreed until December 31, 1997 to maintain the total
annualized expenses of the Fund at no more than 1.50% of the average daily net
assets of the Fund. For the fiscal period October 6, 1995 (commencement of
operations) to August 31, 1997, the Adviser did not impose any portion of its
management fee amounting to $______.

Under the Agreement, the Fund is responsible for all of its other expenses
including: fees and expenses incurred in connection with membership in
investment company organizations; broker's commissions, legal, auditing and
accounting expenses; the calculation of net asset value; taxes and governmental
fees; the fees and expenses of the Transfer Agent; the cost of preparing share
certificates or any other expenses including expenses of issuance, redemption or
repurchase of shares; the expenses of and the fees for registering or qualifying
securities for sale; the fees and expenses of Trustees, officers and employees
of the Fund who are not affiliated with the Adviser; the cost of printing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians. The Fund may arrange to have third parties assume all or part of
the expenses of sale, underwriting and distribution of shares of the Fund. The
Fund is also responsible for expenses of shareholders' meetings, the cost of
responding to shareholders' inquiries and expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees with respect thereto.

The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Trust's investment products and services.

36
<PAGE>

In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees of the Fund who are not
"interested persons" of the Adviser are represented by independent counsel at
the Fund's expense.

The Agreement provides that the Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the Agreement.

Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.

None of the Trustees or officers of the Fund may have dealings with the
Fund as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Fund.

Personal Investments by Employees of the Adviser

Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.

TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>

Name Position Position with Underwriter,
and Address with Fund Principal Occupation** Scudder Investor Services, Inc.
<S> <C> <C> <C>

Daniel Pierce+* (63) President and Chairman of the Board and Vice President, Director and
Trustee Managing Director of Scudder, Assistant Treasurer
Stevens & Clark, Inc.

Paul Bancroft III (67) Trustee Venture Capitalist and --
1120 Cheston Lane Consultant; Retired, President
Queenstown, MD 21658 Chief Executive Officer and
Director of Bessemer Securities
Corporation

Sheryle J. Bolton (51) Trustee Consultant --
560 White Plains Road
Tarrytown, NY 10591

William T. Burgin Trustee General Partner, Bessemer --
P. O. Box 580 Venture Partners
Dover, MA 02030-0580

37
<PAGE>

Thomas J. Devine (71) Trustee Consultant --
641 Lexington Avenue,
28th Floor
New York, NY 10022

Keith R. Fox (43) Trustee President, Exeter Capital --
10 East 53rd Street Management Corporation
New York, NY 10022

William H. Luers (68) Trustee President, The Metropolitan --
993 Fifth Avenue Museum of Art
New York, NY 10028

Wilson Nolen (71) Trustee Consultant (1989 until --
1120 Fifth Avenue present); Corporate Vice
New York, NY 10128 President of Becton, Dickinson
& Company, manufacturer of
medical and scientific products
(until June 1989)

Kathryn L. Quirk++#* (45) Trustee Managing Director of Scudder, Vice President
Stevens & Clark, Inc.

Robert W. Lear (80) Honorary Trustee Executive-in-Residence, --
429 Silvermine Road Visiting Professor, Columbia
New Canaan, CT 06840 University Graduate School of
Business

Robert G. Stone, Jr. (74) Honorary Trustee Chairman of the Board and --
405 Lexington Avenue, Director, Kirby Corporation
39th Floor (inland and offshore marine
New York, NY 10174 transportation and diesel
repairs)

Edmund R. Swanberg++ (76) Honorary Trustee Advisory Managing Director of --
Scudder, Stevens & Clark, Inc.

Peter Chin++ (55) Vice President Principal of Scudder, Stevens & --
Clark, Inc.

James M. Eysenbach@ (35) Vice President Vice President of Scudder, --
Stevens & Clark, Inc.

Philip S. Fortuna++ (40) Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.

Jerard K. Hartman++ (64) Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.

Thomas W. Joseph+ (58) Vice President Principal of Scudder, Stevens & Vice President, Director,
Clark, Inc. Treasurer and Assistant Clerk

38
<PAGE>

Thomas F. McDonough+ (50) Vice President Principal of Scudder, Stevens & Clerk
and Secretary Clark, Inc.

Pamela A. McGrath+ (44) Vice President Managing Director of Scudder, --
and Treasurer Stevens & Clark, Inc.

Roy C. McKay++ (54) Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.

Edward J. O'Connell++ (52) Vice President Principal of Scudder, Stevens & Assistant Treasurer
and Assistant Clark, Inc.
Treasurer

Richard W. Desmond++ (61) Assistant Vice President of Scudder, Vice President
Secretary Stevens & Clark, Inc.

* Mr. Pierce and Ms. Quirk are considered by the Fund and counsel to be persons who are "interested persons"
of the Adviser or of the Fund, within the meaning of the Investment Company Act of 1940, as amended.
** Unless otherwise stated, all the Trustees and officers have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
# Mr. Pierce and Ms. Quirk are members of the Executive Committee, which may exercise all of the powers of
the Trustees when they are not in session.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
@ Address: 101 California Street, Suite 4100, San Francisco, CA 94111-5886
</TABLE>

The Trustees and Officers of the Fund also serve in similar capacities
with other Scudder Funds.

As of November 30, 1997, all Directors and officers as a group owned
beneficially (as that term is defined in Section 13(d) of the Securities
Exchange Act of 1934) _______ shares, or ____% of the shares of the Fund.

Certain accounts for which the Adviser acts as investment adviser owned
_______ shares in the aggregate, or 9.55% of the outstanding shares on November
30, 1997. The Adviser may be deemed to be the beneficial owner of such shares
but disclaims any beneficial ownership in such shares.

To the best of the Fund's knowledge, as of November 30, 1997, no person
owned beneficially more than 5% of the Fund's outstanding shares except as
stated above.

REMUNERATION

Responsibilities of the Board--Board and Committee Meetings

The Board of Trustees is responsible for the general oversight of each
Fund's business. A majority of the Board's members are not affiliated with the
Adviser. These "Independent Trustees" have primary responsibility for assuring
that each Fund is managed in the best interests of its shareholders.

The Board of Trustees meets at least quarterly to review the investment
performance of each Fund and other operational matters, including policies and
procedures designated to assure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, each
Fund's investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates, and
comparative information regarding fees and expenses of competitive funds. They

39
<PAGE>

are assisted in this process by the Funds' independent public accountants and by
independent legal counsel selected by the Independent Trustees.

All of the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls.

The Independent Trustees met 16 times during 1996, including Board and
Committee meetings and meetings to review each Fund's contractual arrangements
as described above.

Compensation of Officers and Trustees

The Independent Trustees receive the following compensation from each
Fund: an annual trustee's fee of $4,000; a fee of $400 for attendance at each
Board meeting, audit committee meeting, or other meeting held for the purposes
of considering arrangements between each Fund and the Adviser or any affiliate
of the Adviser; $150 for any other committee meeting (although in some cases the
Independent Trustees have waived committee meeting fees); and reimbursement of
expenses incurred for travel to and from Board Meetings. No additional
compensation is paid to any Independent Trustee for travel time to meetings or
other activities.

The Independent Trustees may also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type and complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1996 from the Trust and from all of Scudder funds as a group.

Name Scudder Securities Trust* All Scudder Funds

Paul Bancroft III, $17,572 $143,358 (16 funds)
Trustee
Sheryle J. Bolton, $0 $71,200 (9 funds)
Trustee
Thomas J. Devine, $18,672 $156,058 (18 funds)
Trustee
Keith R. Fox, $18,372 $87,508 (10 funds)
Trustee
Wilson Nolen, $19,172 $165,608 (17 funds)
Trustee
Robert G. Stone, Jr., $1,272 $12,272 ** (2 funds)
Honorary Trustee
</TABLE>

* Scudder Securities Trust consists of seven funds: Scudder Development
Fund, Scudder Small Company Value Fund, Scudder Micro Cap Fund, Scudder
21st Century Growth Fund, Scudder Financial Services Fund, Scudder Health
Care Fund and Scudder Technology Fund. Scudder Micro Cap Fund commenced
operations on August 12, 1996. Scudder 21st Century Growth Fund commenced
operations on September 9, 1996. Scudder Financial Services Fund commenced
operations on September 30, 1997. As of January 1, 1998 Scudder Health
Care Fund and Scudder Technology Fund each had not commenced operations.

** This amount does not reflect $6,189 in retirement benefits accrued as part
of Fund Complex expenses, and $6,000 in estimated annual benefits payable
upon retirement. Retirement benefits accrued and proposed are to be paid
to Mr. Stone as additional compensation for serving on the Board of The
Japan Fund, Inc.

DISTRIBUTOR

40
<PAGE>

the Trustees who are not parties to such agreement or interested persons of any
such party and either by a vote of a majority of the Trustees or a majority of
the outstanding voting securities of the Fund. The underwriting agreement was
last approved by the Trustees on September 10, 1997.

Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of its registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering the Fund as a broker or dealer in the
various states as required; the fees and expenses of preparing, printing and
mailing prospectuses annually to existing shareholders (see below for expenses
relating to prospectuses paid by the Distributor), notices, proxy statements,
reports or other communications to shareholders of the Fund; the cost of
printing and mailing confirmations of purchases of shares and any prospectuses
accompanying such confirmations; any issuance taxes and/or any initial transfer
taxes; a portion of shareholder toll-free telephone charges and expenses of
shareholder service representatives; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
a portion of the cost of computer terminals used by both the Fund and the
Distributor.

The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of the shares of the Fund to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a 12b-1 Plan is in effect which
provides that the Fund shall bear some or all of such expenses.

NOTE: Although the Fund does not currently have a 12b-1 Plan, and the
Trustees have no current intention of adopting one, the Fund would also
pay those fees and expenses permitted to be paid or assumed by the Fund
pursuant to a 12b-1 Plan, if any, were adopted by the Fund,
notwithstanding any other provision to the contrary in the underwriting
agreement.

As agent, the Distributor currently offers the Fund's shares on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.

TAXES

(See "Distribution and performance information--Dividends and
capital gain distributions" and "Transaction information--
Tax information, Tax identification number" in the
Fund's prospectus.)

The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code or a predecessor statute, and has qualified as
such since its inception. It intends to continue to qualify for such treatment.
Such qualification does not involve governmental supervision or management of
investment practices or policy.

A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.

The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.

41
<PAGE>

Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund. Presently, the Fund has
no capital loss carryforwards. From November 1, 1995 through August 31, 1996 the
Fund incurred $6,985 of net realized capital losses which the Fund intends to
elect to defer and treat as arising in the fiscal year ending August 31, 1997.

If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a relative share of federal income taxes paid by
the Fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between a pro rata share of such gains owned and the
individual tax credit.

Distributions of investment company taxable income are taxable to
shareholders as ordinary income.

To the extent that dividends from domestic corporations constitute a
portion of the Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the deduction for dividends received by corporations.
Shareholders will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent the shares of the Fund
with respect to which the dividends are received are treated as debt-financed
under federal income tax law, and is eliminated if either those shares or the
shares of the Fund are deemed to have been held by the Fund or the shareholder,
as the case may be, for less than 46 days.

Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of the Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.

Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.

All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.

A qualifying individual may make a deductible IRA contribution for any
taxable year only if (i) neither the individual nor his or her spouse (unless
filing separate returns) is an active participant in an employer's retirement
plan, or (ii) the individual (and his or her spouse, if applicable) has an
adjusted gross income below a certain level ($40,050 for married individuals
filing a joint return, with a phase-out of the deduction for adjusted gross
income between $40,050 and $50,000; $25,050 for a single individual, with a
phase-out for adjusted gross income between $25,050 and $35,000). However, an
individual not permitted to make a deductible contribution to an IRA for any
such taxable year may nonetheless make nondeductible contributions up to $2,000
to an IRA (beginning in 1997, up to $2,000 per individual for married couples if
only one spouse has earned income) for that year. There are special rules for
determining how withdrawals are to be taxed if an IRA contains both deductible
and nondeductible amounts. In general, a proportionate amount of each withdrawal
will be deemed to be made from nondeductible contributions; amounts treated as a
return of nondeductible contributions will not be taxable. Also, annual
contributions may be made to a spousal IRA even if the spouse has earnings in a
given year if the spouse elects to be treated as having no earnings (for IRA
contribution purposes) for the year.

42
<PAGE>

Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.

Equity options (including covered call options on portfolio stock) and
over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general, no loss is
recognized by a Fund upon payment of a premium in connection with the purchase
of a put or call option. The character of any gain or loss recognized (i.e.,
long-term or short-term) will generally depend, in the case of a lapse or sale
of the option, on the Fund's holding period for the option, and in the case of
an exercise of a put option, on the Fund's holding period for the underlying
stock. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying stock or substantially identical stock in the Fund's portfolio. If
the Fund writes a put or call option, no gain is recognized upon its receipt of
a premium. If the option lapses or is closed out, any gain or loss is treated as
a short-term capital gain or loss. If a call option is exercised, any resulting
gain or loss is a short-term or long-term capital gain or loss depending on the
holding period of the underlying stock. The exercise of a put option written by
the Fund is not a taxable transaction for the Fund.

Many futures and forward contracts entered into by the Fund and all
listed non-equity options written or purchased by the Fund (including options on
futures contracts and options on broad-based stock indices) will be governed by
Section 1256 of the Code. Absent a tax election to the contrary, gain or loss
attributable to the lapse, exercise or closing out of any such position
generally will be treated as 60% long-term and 40% short-term capital gain or
loss, and on the last trading day of the Fund's fiscal year, all outstanding
Section 1256 positions will be marked to market (i.e. treated as if such
positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term capital
gain or loss. Under certain circumstances, entry into a futures contract to sell
a security may constitute a short sale for federal income tax purposes, causing
an adjustment in the holding period of the underlying security or a
substantially identical security in the Fund's portfolio.

Positions of the Fund which consist of at least one stock and at least
one other position with respect to a related security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for certain "qualified
covered call options" on stock written by the Fund.

Positions of the Fund which consist of at least one position not
governed by Section 1256 and at least one futures or forward contract or
nonequity option governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, certain tax elections exist for them which reduce or
eliminate the operation of these rules. The Fund intends to monitor its
transactions in options and futures and may make certain tax elections in
connection with these investments.

The Fund will be required to report to the Internal Revenue Service all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are

43
<PAGE>

applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.

Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.

The Fund is organized as a series of a Massachusetts business trust and
is not liable for any income or franchise tax in the Commonwealth of
Massachusetts, provided that it qualifies as a regulated investment company for
federal income tax purposes.

The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.

Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.

PORTFOLIO TRANSACTIONS

Brokerage Commissions

To the maximum extent feasible the Adviser places orders for portfolio
transactions for the Fund through the Distributor, which in turn places orders
on behalf of the Fund with issuers, underwriters or other brokers and dealers.
The Distributor receives no commissions, fees or other remuneration from the
Fund for this service.
Allocation of brokerage is supervised by the Adviser.

The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund's portfolio is to obtain the most favorable
net results, taking into account such factors as price, commission where
applicable (negotiable in the case of U.S. national securities exchange
transactions), size of order, difficulty of execution and skill required of the
executing broker/dealer. The Adviser seeks to evaluate the overall
reasonableness of brokerage commissions paid (to the extent applicable) through
the familiarity of the Distributor with commissions charged on comparable
transactions, as well as by comparing commissions paid by the Fund to reported
commissions paid by others. The Adviser reviews on a routine basis commission
rates, execution and settlement services performed, making internal and external
comparisons.

When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
brokers and dealers who supply market quotations to the custodian of the Fund
for appraisal purposes; or who supply research, market and statistical
information to the Fund or the Adviser. The term "research, market and
statistical information" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities, and analyses
and reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts. The Adviser is not
authorized when placing portfolio transactions for the Fund to pay a brokerage
commission (to the extent applicable) in excess of that which another broker
might have charged for executing the same transaction solely on account of the
receipt of research, market or statistical information. The Adviser does not
place orders with brokers or dealers on the basis that the broker or dealer has
or has not sold shares of the Fund. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available otherwise.

44
<PAGE>

Although certain research, market and statistical information from
brokers and dealers can be useful to the Fund and to the Adviser, it is the
opinion of the Adviser that such information will only supplement the Adviser's
own research effort since the information must still be analyzed, weighed, and
reviewed by the Adviser's staff. Such information may be useful to the Adviser
in providing services to clients other than the Fund, and not all such
information is used by the Adviser in connection with the Fund. Conversely, such
information provided to the Adviser by brokers and dealers through whom other
clients of the Adviser effect securities transactions may be useful to the
Adviser in providing services to the Fund.

Subject also to obtaining the most favorable net results, the Adviser
may place brokerage transactions through the Fund's custodian and a credit
against the custodian fee due to the custodian equal to one-half of the
commission on any such transaction will be given. Except for implementing the
policy stated above, there is no intention to place portfolio transactions with
particular brokers or dealers or groups thereof.

In the fiscal period ended August 31, 1996, the Fund paid brokerage
commissions of $78,852. For the fiscal period ended August 31, 1996, $38,755
(68.87% of the total brokerage commissions paid) resulted from orders placed,
consistent with the policy of obtaining the most favorable net results, with
brokers and dealers who provided supplementary research information to the Fund
or the Adviser. The amount of such transactions aggregated $17,209,696 (5.7% of
all transactions).

The Trustees intend to review from time to time whether the recapture
for the benefit of the Fund of some portion of the brokerage commissions or
similar fees paid by the Fund on portfolio transactions is legally permissible
and advisable.

Portfolio Turnover

The Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. A higher rate
involves greater brokerage transaction expenses to the Fund and may result in
the realization of net capital gains, which would be taxable to shareholders
when distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective. For the fiscal
period ended August 31, 1996 the portfolio turnover rate was 33.97%.

NET ASSET VALUE

The net asset value of shares of the Fund is computed as of the close
of regular trading on the New York Stock Exchange (the "Exchange") on each day
the Exchange is open for trading. The Exchange is scheduled to be closed on the
following holidays: New Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of the Fund, less
all liabilities, by the total number of shares outstanding.

An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system is
valued at its most recent sale price. Lacking any sales, the security is valued
at the high or "inside" bid quotation. The value of an equity security not
quoted on the NASDAQ System, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.

45
<PAGE>

methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.

An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.

If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.

If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.

Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.

ADDITIONAL INFORMATION

Experts

The Financial Highlights of the Fund included in the prospectus and the
Financial Statements incorporated by reference in this Statement of Additional
Information have been so included or incorporated by reference in reliance on
the report of Coopers & Lybrand L.L.P., One Post Office Square, Boston,
Massachusetts 02109, independent accountants, and given on the authority of that
firm as experts in accounting and auditing.

Shareholder Indemnification

The Trust is an organization of the type commonly known as a
Massachusetts business trust. Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Fund's property or
the acts, obligations or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of the Fund's property of any shareholder held
personally liable for the claims and liabilities which a shareholder may become
subject by reason of being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.

Other Information

Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in light of the objective and policies of the
Fund, and other factors such as its other portfolio holdings and tax
considerations, and should not be construed as recommendations for similar
action by other investors.

46
<PAGE>

The name "Scudder Securities Trust" is a designation of the Trustees
for the time being under a Declaration of Trust dated October 16, 1985, as
amended from time to time, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Fund. No series
of the Trust shall be liable for the obligations of any other series. Upon the
initial purchase of shares of the Fund, the shareholder agrees to be bound by
the Trust's Declaration of Trust, as amended from time to time. The Declaration
of Trust is on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts.

The Fund has a fiscal year end of August 31.

The CUSIP number of the Fund is 811196-20-3.

The Fund employs State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 as custodian.

The firm of Dechert Price & Rhoads is counsel to the Fund.

Costs of $23,751.06 incurred by the Fund in conjunction with its
organization are amortized over the five year period beginning October 6, 1995.

Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net
asset value for the Fund. The Fund pays SFAC an annual fee equal to 0.025% of
the first $150 million of average daily net assets, 0.0075% of such assets in
excess of $150 million, 0.0045% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. For the period October 6, 1995
(commencement of operations) to August 31, 1996, SFAC did not impose a portion
of their fee amounting to $31,965 and the fee imposed amounted to $36,531.

Scudder Service Corporation ("SSC"), P.O. Box 2291, Boston,
Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer and
dividend paying agent for the Fund. The Fund pays SSC an annual fee for each
account maintained for a participant. For the period October 6, 1995
(commencement of operations) to August 31, 1996, SSC did not impose a portion of
their fee amounting to $50,693, and the fee imposed amounted to $57,935.

Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the period October 6, 1995
(commencement of operations) to August 31,1996, STC did not impose a portion of
their fee amounting to $1,082, and the fee imposed amounted to $1,236.

The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Fund has
filed with the SEC under the Securities Act of 1933 and reference is hereby made
to the Registration Statement for further information with respect to the Fund
and the securities offered hereby. This Registration Statement and its
amendments are available for inspection by the public at the SEC in Washington,
D.C.

FINANCIAL STATEMENTS

The financial statements, including the investment portfolio, of
Scudder Small Company Value Fund, which are included on pages 17-23, inclusive,
in the Annual Report to the Shareholders of the Fund dated August 31, 1997,
together with the Report of the Independent Accountants, and Financial
Highlights, are incorporated by reference and attached hereto, and are deemed to
be a part of this Statement of Additional Information.

47
<PAGE>
Scudder
Small Company
Value Fund

Annual Report
August 31, 1997

A pure no-load(TM) (no sales charges) mutual fund which offers opportunities for
long-term growth of capital by seeking undervalued stocks of small U.S.
companies.

o For the twelve-month period ended August 31, 1997, Scudder Small Company Value
Fund provided a total return of 44.67%, exceeding by a wide margin the 37.30%
total return of small company value stocks and the 28.96% return of small
company stocks overall, as measured by the unmanaged Russell 2000 Value and the
Russell 2000 indices, respectively.

o After trailing large-cap stocks for most of the year, the Fund also surpassed
the performance of large-cap stocks, as represented by the 40.66% return of the
S&P 500.

o As of August 31, 1997, the Fund was invested in 201 small U.S. companies with
a median stock market capitalization of $437 million and a price-to-earnings
ratio of roughly one-half that of small company stocks, reflecting the Fund's
disciplined, value-oriented approach.

Table of Contents

3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Glossary of Investment Terms
10 Investment Portfolio
19 Financial Statements
22 Financial Highlights
23 Notes to Financial Statements
26 Report of Independent Accountants
27 Tax Information
28 Officers and Trustees
29 Investment Products and Services
30 Scudder Solutions

2 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

Dear Shareholders,

We are pleased to present the annual report for Scudder Small Company Value
Fund for the twelve-month period ended August 31, 1997.

Your Fund benefited from its disciplined, value-oriented approach to
investing in small company stocks, as it outperformed both small-cap and
small-cap value indices during the fiscal period. This satisfying performance
placed the Fund among the top 6% (24th) of 421 small company funds according to
Lipper Analytical Services, Inc. for the period. A complete discussion of your
Fund's activities begins on page 1.

On the heels of several back-to-back years of strong performance by the
U.S. stock market, yet another year of outstanding performance is almost hard to
believe. Returns over this period exceed by a wide margin the approximately 10%
long run average for U.S. stocks. Considering the recent strength of the market,
we believe it is especially important for investors to have realistic
expectations for stocks. While we expect the environment that has contributed to
the stock market's good performance to continue, double-digit returns may not be
repeated in 1998. Part of a sound approach to building a portfolio is adequate
diversification with exposure to small-cap, foreign, emerging market, and fixed
income securities in addition to large-cap U.S. stocks. Our Investor Relations
representatives can assist you with assessing your needs and determining the
next steps to achieving your long-term goals.
Please feel free to give them a call toll-free at 1-800-225-2470.

For those of you who are interested in new Scudder products, we recently
introduced Scudder International Growth and Income Fund, which pursues a
yield-oriented approach to investing in international equities. The Fund seeks
to provide long-term growth of capital plus current income. Investors who desire
international exposure but wish to take a more conservative approach may
appreciate the Fund's emphasis on dividend paying stocks of established
companies listed on foreign exchanges. For further information on this new fund,
please turn to page 31.

Thank you for your continued investment in Scudder Small Company Value
Fund. If you have any questions about your Fund, please call Scudder Investor
Relations at 1-800-225-2470 or visit our Internet Web site at
http://funds.scudder.com.

Sincerely,

/s/Daniel Pierce
Daniel Pierce
President,
Scudder Small Company Value Fund

3 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

Performance Update as of August 31, 1997

- ----------------------------------------
Fund Index Comparisons
- ----------------------------------------
Total Return
- ----------------------------------------
Period Growth
Ended of Average
8/31/97 $10,000 Cumulative Annual
- ----------------------------------------
Scudder Small Company Fund
Ticker Symbol: SCSUX
- ----------------------------------------
1 Year $14,467 44.67% 44.67%
Life of
Fund** $16,425 64.25% 29.87%
- ----------------------------------------
Russell 2000 Value Index
- ----------------------------------------
1 Year $13,730 37.30% 37.30%
Life of
Fund** $15,431 54.31% 25.59%
- ----------------------------------------
Russell 2000 Index
- ----------------------------------------
1 Year $12,896 28.96% 28.96%
Life of
Fund** $14,467 44.67% 21.40%
- ----------------------------------------
S&P 500 Index
- ----------------------------------------
1 Year $14,066 40.66% 40.66%
Life of
Fund** $16,064 60.64% 28.26%

- ----------------------------------------
Growth of a $10,000 Investment
- ----------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:

Scudder Micro Cap Fund
Year Amount
- ----------------------
10/95* $10,000
11/95 $10,409
2/96 $10,844
5/96 $11,930
8/96 $11,605
11/96 $12,837
2/97 $13,522
5/97 $14,637
8/97 $16,789

Russell 2000 Value Index
Year Amount
- ----------------------
10/95* $10,000
11/95 $10,397
2/96 $10,959
5/96 $11,786
8/96 $11,506
11/96 $12,600
2/97 $13,325
5/97 $14,206
8/97 $15,799

Russell 2000 Index
Year Amount
- ----------------------
10/95* $10,000
11/95 $10,420
2/96 $11,017
5/96 $12,309
8/96 $11,399
11/96 $12,143
2/97 $12,403
5/97 $13,168
8/97 $14,701

S&P 500 Index
Year Amount
- ----------------------
10/95* $10,000
11/95 $10,439
2/96 $11,105
5/96 $11,669
8/96 $11,432
11/96 $13,347
2/97 $14,009
5/97 $15,102
8/97 $16,081

The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Nasdaq Stock Market.
The Russell 2000 Index is an unmanaged capitalization-weighted measure
of approximately 2000 small U.S. stocks. The Russell 2000 Value Index
measures the performance of those Russell 2000 companies with lower
price-to-book ratios and lower forecasted growth rates. Index returns
assume reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.

* The Fund commenced operations on October 6, 1995. The graphed Index
comparison begins October 31, 1995.

- ----------------------------------------
Returns and Per Share Information
- ----------------------------------------

A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.

Yearly periods ended August 31

1996** 1997
- --------------------------------------------------------------------------------
Net Asset Value $13.57 $19.58
- --------------------------------------------------------------------------------
Income Dividends $ .05 $ .03
- --------------------------------------------------------------------------------
Capital Gains Distributions $ -- $ .01
- --------------------------------------------------------------------------------
Fund Total Return (%) 13.54 44.67
- --------------------------------------------------------------------------------
Index Total Return (%) 12.38 37.30
- --------------------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, the total return for the one year and life
of Fund periods would have been lower.

* The Fund commenced operations on October 6, 1995.

4 - SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

Portfolio Summary as of August 31, 1997

- ----------------------------------------
Asset Allocation
- ----------------------------------------

A graph in the form of a pie chart appears
here, illustrating the exact data points
in the below table.

Equity Securities 96%
Cash Equivalents 4%
- ----------------------------------------
100%
- ----------------------------------------

The Fund seeks to be fully invested in
stocks of small U.S. companies.

- ----------------------------------------
Sectors/Largest Holdings
(Excludes 4% Cash Equivs.)
- ----------------------------------------
1. Manufacturing (18%)
L.S. Starrett Corp.
Manufacturing tools

2. Financial (17%)
Harleysville Group, Inc.
Regional insurance holding company

3. Consumer Discretionary (10%)
Toro Co.
Manufacturer of lawn and snow
removal equipment

4. Construction (9%)
U.S. Home Corp
Single home builder and financier

5. Technology (7%)
CTS Corp.
Manufacturer of electronic and
electromechanical components

6. Utilities (7%)
Energen Corp.
Natural gas distributor

7. Service Industries (6%)
Mine Safety Appliance Co.
Manufacturer of safety and health
protection equipment and instruments

8. Durables (6%)
NACCO Industries, Inc. "A"
Manufacturer of forklift trucks

9. Metals & Minerals (5%)
Brush Wellman Inc.
Manufacturer of engineered metal
products

10. Consumer Staples (5%)
Nash-Finch Co.
Owner and operator of supermarkets
and warehouse stores

- ----------------------------------------------------------------------
Stock Characteristics
- ----------------------------------------------------------------------
Fund as
% of
Russell S&P Russell
Fund 2000* 500** 2000
- ----------------------------------------------------------------------
Small Companies ($ millions)
Market Capitalization: Median 437 461 6,260 95%
Market Capitalization: Wgt. Avg. 467 741 49,685 63%
Revenues 767 590 25,301 130%

Value Orientation
P/E: Trailing Twelve Months 15.1 31.5 22.6 48%
Price/Sales 0.6 1.2 1.5 51%
Price/Book Value 1.8 2.8 3.7 66%
Yield (Avg. Stock) 1.3% 1.1% 1.7% 111%

* The Russell 2000 Index is an unmanaged capitalization weighted
measure of approximately 2000 small U.S. stocks.

** The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Nasdaq Stock Market.

Reflecting the Fund's value orientation, the portfolio's
average price-earnings ratio is less than half that of the
overall small-cap market.

For more complete details about the Fund's Investment Portfolio, see page 10.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.

5 - SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

Portfolio Management Discussion

In the following interview, James M. Eysenbach and Philip S. Fortuna, portfolio
managers of Scudder Small Company Value Fund, discuss the Fund's strategy and
market environment during the fiscal period.

Q: How did the Fund perform?

A: For the trailing twelve-month period ended August 31, 1997, the Fund provided
a total return of 44.67%, exceeding the 37.30% return of the unmanaged Russell
2000 Value Index of small company value stocks and the 28.96% return of the
Russell 2000 Index of small company stocks overall. Among its peers, the Fund
ranked in the top 6% (24th) of 421 small-cap funds according to Lipper
Analytical Services, Inc. for the same period. The Fund's net asset value per
share increased from $13.57 to $19.58, and it paid an income distribution of
$0.03 per share and a capital gain distribution of $0.01 per share.

Q: How do you judge this performance?

A: The Fund's disciplined method of stock selection, which focuses on companies
with attractive valuations, has been particularly rewarding during a period when
the small-cap market struggled to keep pace with the strong returns of large-cap
stocks. Towards the end of the period, we began to see a change as large-cap
stock performance slipped. As a result, the Fund outperformed the larger-cap S&P
500 Index in addition to small-cap benchmarks over the trailing twelve-month
period and from the Fund's inception on October 6, 1995. Of course, these are
still relatively short time periods. A minimum three-to five-year investment
horizon can provide a more realistic perspective in evaluating the performance
of a stock fund.

Q: What is your investment strategy?

A: We seek to exploit inefficiencies in the small-cap segment of the U.S. stock
market and add value through quantitative equity analysis, portfolio
construction and efficient trading. We do not attempt to add value through
market timing, either by moving between stocks and cash or among various
segments of the equity markets. Instead, we attempt to keep the Fund essentially
fully-invested in small U.S. stocks. This approach is consistently applied and
does not change significantly from one reporting period to the next.

Q: How is your investment strategy different from other funds?

A: Instead of attempting to gauge the growth prospects of a company's new
products or the quality of management and their projections for the future, we
seek to invest in attractively valued small company stocks. We conduct a
quantitative evaluation of more than one thousand small companies, analyzing
valuations, sales and earnings trends, returns to shareholders, and risk
characteristics to identify promising candidates for the Fund.

Q: What characterizes the Fund's value orientation?

A: We look at valuation from several perspectives. One measure is the
portfolio's price-earnings (P/E) multiple. The P/E is a widely used stock
valuation gauge that indicates what investors are paying for a company's
earnings on a per-share basis. A low "earnings multiple" can indicate an
undervalued security for a given level of earnings. The Fund's current average
P/E is 15.1, or roughly one-half that of the Russell 2000 Index of small company
stocks. This below-average P/E is indicative of the Fund's value approach, and

6 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

has the potential to provide a degree of downside protection if stocks decline.

Q: Is the Fund less volatile than the market?

A: As a result of our value-oriented investment strategy, the Fund has been less
volatile than the overall stock market, whether measured against the Russell
2000 small-cap stock universe or the S&P 500 Index of larger company stocks. The
Fund's overall volatility, as measured by the standard deviation of monthly
returns from inception, has been about 20% lower than the Russell 2000 and about
10% less volatile than the S&P 500. While lower volatility is typical of
small-cap value stocks relative to small-cap stocks overall, this period has
been unusual in that this segment has also exhibited lower volatility than
large-cap stocks.

Q: How do you select investments?

A: Our process is highly systematic, and starts with collecting extensive
financial information on individual companies. Using a proprietary investment
model, we analyze this data in a consistent, objective way across a large
universe of small companies. Each stock is assigned a ranking based on its
relative attractiveness. In addition, as new information streams in, such as
recent earnings reports, it is incorporated into the evaluation so that we can
instantly see how the fresh data affects the relative attractiveness of each
stock. Careful consideration is then given to the risk characteristics of these
stocks within the context of a diversified portfolio. We employ the assistance
of a computer model to assess the millions of possibilities and identify the
portfolio with the highest potential return for a given level of risk. Finally,
we work with our traders to determine the most efficient means of executing our
purchase and sale decisions.

Q: Are there other considerations that go into the investment process?

A: Yes. We consider the tax implications of portfolio management decisions and
keep turnover at a relatively modest level -- 44% over the trailing
twelve-months. This strategy has resulted in lower realized gains and therefore,
lower taxable capital gains distributions to shareholders, while still providing
attractive total returns.

Q: The small-cap market is perceived as high risk. What do you do to manage
risk?

A: The risks of holding individual small-cap stocks can be high. Small companies
generally have higher business risks than more established companies, such as
untested management, less diversified product lines, and limited financial
resources. This makes small companies more vulnerable to adverse business
developments than larger companies. Also, because some small-cap stocks are
traded less frequently, the price of these issues can drop quickly if investors
rush to sell. Conversely, the price can be dramatically bid up if an investor
tries to initiate a large position in a stock. We attempt to control these risks
throughout the selection process by holding a relatively large number of
securities in the portfolio. That way, if a few individual securities experience
problems, the effect is minimized. The Fund is also structured to promote a
stable base of assets. To discourage short-term trading, the Fund imposes a 1%

7 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

redemption fee on shares held less than one year.

Q: What is your outlook for small-cap value stocks and the Fund?

A: As believers in our own investment strategy, we think small-cap value stocks
have an important place in nearly every long-term investor's portfolio. However,
small-cap value stocks will have periods of underperformance and will not always
provide the exceptional tailwind that this segment has recently enjoyed. We
believe that small-cap value stocks offer many long-term benefits, including the
potential to improve an investor's portfolio diversification. With sales and
earnings growth having become harder to sustain at some large companies, we
believe small-caps should continue to provide a good place for long-term
investors seeking exposure to a dynamic sector of the stock market.

Scudder Small Company Value Fund: A Team Approach
to Investing

Scudder Small Company Value 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 joined Scudder in 1991 as a senior quantitative analyst,
served as director of quantitative services from 1993 to 1997 and is currently
managing portfolios full-time. Mr. Eysenbach has more than 10 years investment
management experience, specializing in quantitative research, analysis and
portfolio management. Philip S. Fortuna joined Scudder in 1986 as a manager of
institutional equity accounts, and has served as director of quantitative
services and director of investment operations. He has also been involved in
global planning and new product development in addition to his portfolio
management responsibilities. Mr. Fortuna is currently director of Scudder's
quantitative group.

8 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

Glossary of Investment Terms

FUNDAMENTAL RESEARCH Analysis of companies based on
the projected impact of management,
products, sales, and earnings on balance
sheets and income statements. Distinct
from technical analysis, which evaluates
the attractiveness of a stock based on
historical price and trading volume
movements, rather than the financial
results of the underlying company.

GROWTH STOCK Stock of a company that has
displayed above average earnings growth
and is expected to continue to increase
profits rapidly going forward.

LIQUIDITY A stock that is liquid has enough shares
outstanding and a substantial enough
market capitalization to allow large
purchases and sales to occur without
causing a significant change in its
market price.

MARKET CAPITALIZATION The value of a company's
outstanding shares of common stock,
determined by the number of shares
outstanding multiplied by the share price
(Shares x Price = Market Capitalization).
The universe of publicly traded companies
is frequently divided into large-, mid-,
and small-capitalizations. In general,
"large-cap" stocks tend to be more liquid
than "small-cap" stocks.

OVER/UNDER WEIGHTING Refers to the allocation of
assets -- usually by sector, industry, or
country -- within a portfolio relative to
a benchmark index, (i.e. the Russell
2000) or an investment universe.

PRICE-EARNINGS RATIO (P/E) A widely used gauge of a stock's
(also "earnings multiple") valuation that indicates what investors
are paying for a company's earnings on
a per share basis. A higher "earnings
multiple" indicates a higher expected
growth rate and the potential for greater
price fluctuations.

STANDARD DEVIATION A statistical measure of the
degree to which an individual value tends
to vary from the mean of the
distribution. Frequently used in
portfolio management to determine the
range of possible future performances
based on the past performance of a
security.

VALUE STOCK A stock that does not fully reflect
the company's intrinsic value, as
indicated by price-earnings ratio,
price-book value ratio, dividend yield,
or some other valuation measure, relative
to its industry or the market overall.
Value stocks tend to display less price
volatility and may carry higher dividend
yields.

(Sources: Scudder; Barron's Dictionary of Finance and Investment Terms)

9 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

Investment Portfolio as of August 31, 1997

<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 4.2%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 8/29/97 at
5.45%, to be repurchased at $5,261,184 on 9/2/97, collateralized by a -----------
$3,755,000 U.S. Treasury Note, 12%, 8/15/13 (Cost $5,258,000) ........................ 5,258,000 5,258,000
-----------

Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 95.8%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 9.8%
Apparel & Shoes 0.6%
Oxford Industries, Inc. ................................................................. 21,500 721,594
-----------
Department & Chain Stores 3.4%
AnnTaylor Stores Corp.* ................................................................. 6,100 104,463
Carson Pirie Scott & Co.* ............................................................... 27,400 972,700
Casey's General Stores, Inc.* ........................................................... 37,900 862,225
Dress Barn Inc.* ........................................................................ 20,300 416,150
Shopko Stores, Inc.* .................................................................... 35,900 987,250
Syms Corp.* ............................................................................. 65,000 824,688
-----------
4,167,476
-----------
Home Furnishings 3.5%
Ethan Allen Interiors Inc. .............................................................. 3,300 242,550
Furniture Brands International Inc.* .................................................... 22,700 400,088
Interface, Inc. ......................................................................... 26,000 728,000
Mikasa, Inc.* ........................................................................... 40,900 485,688
Oneida Ltd. ............................................................................. 26,500 839,719
Thomas Industries, Inc. ................................................................. 21,900 648,788
Toro Co. ................................................................................ 28,000 1,039,500
-----------
4,384,333
-----------
Hotels & Casinos 0.5%
Prime Hospitality Corp.* ................................................................ 30,100 571,900
-----------
Recreational Products 0.2%
Outboard Marine Corp. ................................................................... 14,800 264,550
-----------
Restaurants 0.8%
Ryan's Family Steak Houses, Inc.* ....................................................... 101,200 936,100
-----------
Specialty Retail 0.8%
Fabri-Centers of America "A"* ........................................................... 24,400 594,750
Inacom Corp. ............................................................................ 12,600 434,700
-----------
1,029,450
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

10 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Consumer Staples 5.2%
Food & Beverage 3.8%
Earthgrains Co. ......................................................................... 15,000 615,000
International Multifoods Corp. .......................................................... 10,600 284,875
Michael Foods, Inc. ..................................................................... 31,000 670,375
Morningstar Group, Inc.* ................................................................ 23,000 687,125
Nash-Finch Co. .......................................................................... 48,200 1,030,275
Pilgrim's Pride Corp. ................................................................... 59,900 703,825
Rykoff-Sexton, Inc. ..................................................................... 29,800 752,450
-----------
4,743,925
-----------
Package Goods/Cosmetics 0.5%
American Safety Razor Co.* .............................................................. 32,000 596,000
-----------
Textiles 0.9%
Guilford Mills, Inc. .................................................................... 50,500 1,098,375
-----------
Health 1.2%
Hospital Management 0.4%
Mariner Health Group, Inc.* ............................................................. 36,000 522,000
-----------
Medical Supply & Specialty 0.8%
Bindley Western Industries, Inc. ........................................................ 30,200 760,663
West Co., Inc. .......................................................................... 6,100 189,863
-----------
950,526
-----------
Financial 16.3%
Banks 7.4%
Banknorth Group, Inc. ................................................................... 20,800 1,040,000
Bok Financial Corp. ..................................................................... 10,400 384,800
Chittenden Corp. ........................................................................ 14,050 481,213
Citizens Banking Corp. .................................................................. 17,800 703,100
Commerce Bancorp, Inc. .................................................................. 10,249 379,204
Community First Bankshares, Inc. ........................................................ 13,700 558,275
First Citizens BancShares, Inc. "A" ..................................................... 1,200 107,400
FirstBank Puerto Rico ................................................................... 15,900 448,181
Heritage Financial Services, Inc. ....................................................... 27,600 531,300
MAF Bancorp, Inc. ....................................................................... 14,100 433,575
National Bancorp of Alaska, Inc. ........................................................ 5,100 448,800
People's Heritage Financial Group, Inc. ................................................. 2,659 99,048
Riggs National Corp. .................................................................... 39,900 837,900
</TABLE>

The accompanying notes are an integral part of the financial statements.

11 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Silicon Valley Bancshares* .............................................................. 7,300 392,375
Susquehanna Bancshares, Inc. ............................................................ 18,000 495,000
TR Financial Corp. ...................................................................... 16,000 442,000
UST Corporation ......................................................................... 23,100 496,650
Usbancorp, Inc. ......................................................................... 10,200 626,025
Webster Financial Corp. ................................................................. 6,300 333,113
-----------
9,237,959
-----------
Insurance 7.4%
Acceptance Insurance Cos., Inc.* ........................................................ 24,600 547,350
Allied Group, Inc.* ..................................................................... 11,750 519,938
American Annuity Group, Inc. ............................................................ 25,600 531,200
American Heritage Life Investment Corp. ................................................. 25,000 882,813
Baldwin & Lyons, Inc. "B" ............................................................... 13,400 259,625
Capitol Transamerica Corp. .............................................................. 7,700 200,200
Delphi Financial Group, Inc. "A" ........................................................ 5,586 244,719
Guarantee Life Companies, Inc. .......................................................... 16,800 449,400
Guaranty National Corp. ................................................................. 32,100 904,819
Harleysville Group, Inc. ................................................................ 25,700 1,089,038
Life Re Corp. ........................................................................... 10,200 523,388
Life USA Holdings Inc.* ................................................................. 44,300 670,038
Medical Assurance, Inc. ................................................................. 5,155 257,740
Nymagic, Inc. ........................................................................... 30,100 726,163
Presidential Life Corp. ................................................................. 45,700 874,013
Trenwick Group, Inc. .................................................................... 12,500 454,688
-----------
9,135,132
-----------
Business Finance 0.7%
Imperial Bancorp ........................................................................ 27,000 882,563
-----------
Consumer Finance 0.5%
North American Mortgage Co. ............................................................. 23,900 618,413
-----------
Other Financial Companies 0.3%
Cash America International, Inc. ........................................................ 38,939 418,594
-----------
Service Industries 6.0%
Environmental Services 1.2%
Mine Safety Appliance Co. ............................................................... 15,400 970,200
OHM Corp.* .............................................................................. 66,600 553,613
-----------
1,523,813
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

12 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment 1.3%
Interra Financial, Inc. ................................................................. 16,000 696,000
Jefferies Group, Inc. ................................................................... 8,800 598,400
Phoenix Duff & Phelps Corp. ............................................................. 44,600 340,075
-----------
1,634,475
-----------
Miscellaneous Commercial Services 2.5%
Berlitz International, Inc. ............................................................. 34,600 908,250
CORT Business Services Corp.* ........................................................... 10,900 417,606
Getty Realty Corp.* ..................................................................... 19,700 344,750
McGrath Rentcorp ........................................................................ 38,000 874,000
Volt Information Sciences, Inc.* ........................................................ 9,900 552,544
-----------
3,097,150
-----------
Printing/Publishing 1.0%
Bowne & Co., Inc. ....................................................................... 20,700 599,006
Merrill Corp. ........................................................................... 16,800 680,400
-----------
1,279,406
-----------
Durables 5.7%
Aerospace 0.5%
Tracor, Inc. ............................................................................ 21,200 638,650
-----------
Automobiles 3.3%
A.O. Smith Corp. ........................................................................ 10,000 352,500
Arvin Industries, Inc. .................................................................. 10,300 358,569
Excel Industries Inc. ................................................................... 30,400 775,200
Simpson Industries, Inc. ................................................................ 88,000 979,000
Titan International, Inc. ............................................................... 34,900 636,925
Walbro Inc. ............................................................................. 20,100 432,150
Wynn's International, Inc. .............................................................. 20,050 578,944
-----------
4,113,288
-----------
Construction/Agricultural Equipment 1.7%
Allied Products Corp. ................................................................... 10,300 363,719
Global Industrial Technologies, Inc.* ................................................... 32,200 609,788
NACCO Industries, Inc. "A" .............................................................. 12,600 1,086,750
-----------
2,060,257
-----------
Leasing Companies 0.2%
AMERCO .................................................................................. 7,300 196,188
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

13 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Manufacturing 17.0%
Chemicals 2.0%
Cambrex Corp. ........................................................................... 10,950 533,128
NCH Corp. ............................................................................... 16,400 1,115,200
Stepan Co. .............................................................................. 36,600 862,388
-----------
2,510,716
-----------
Containers & Paper 0.6%
Mosinee Paper Corp. ..................................................................... 20,699 615,795
Shorewood Packaging Corp.* .............................................................. 8,300 179,488
-----------
795,283
-----------
Diversified Manufacturing 4.1%
ACX Technologins, Inc.* ................................................................. 17,900 468,756
Cascade Corp. ........................................................................... 36,100 652,056
Griffon Corp.* .......................................................................... 54,200 758,800
Insilco Corp.* .......................................................................... 15,100 577,575
Robbins & Myers, Inc. ................................................................... 18,500 603,563
Scotsman Industries, Inc. ............................................................... 30,300 835,144
Tredegar Industries, Inc. ............................................................... 11,800 811,988
Valmont Industries ...................................................................... 17,000 357,000
-----------
5,064,882
-----------
Electrical Products 0.5%
AFC Cable Systems, Inc.* ................................................................ 18,700 560,973
-----------
Hand Tools 1.0%
L.S. Starrett Corp. "A" ................................................................. 35,400 1,239,000
-----------
Industrial Specialty 3.3%
Apogee Enterprises, Inc. ................................................................ 14,500 317,188
Applied Power, Inc. "A" ................................................................. 5,600 355,600
Barnes Group, Inc. ...................................................................... 26,600 733,163
Commercial Intertech Corp. .............................................................. 23,600 395,300
Electro Scientific Industries, Inc.* .................................................... 13,300 645,050
FSI International, Inc.* ................................................................ 27,500 508,750
Kulicke & Soffa Industries, Inc.* ....................................................... 11,700 537,469
Spartech Corp. .......................................................................... 22,300 354,013
Wyman-Gordon Co.* ....................................................................... 8,300 226,694
-----------
4,073,227
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

14 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Machinery/Components/Controls 3.4%
Amcast Industrial Corp. ................................................................. 30,400 737,200
Columbus McKinnon Corp. ................................................................. 18,500 376,938
Commonwealth Industries Inc. ............................................................ 5,000 95,625
DT Industries, Inc. ..................................................................... 6,300 187,425
Gleason Corp. ........................................................................... 13,600 742,900
Mueller Industries, Inc.* ............................................................... 5,500 240,969
Sequa Corp. "A"* ........................................................................ 13,600 697,000
Tennant Company ......................................................................... 24,400 838,750
Zero Corporation ........................................................................ 12,600 339,413
-----------
4,256,220
-----------
Office Equipment/Supplies 0.3%
General Binding Corp. ................................................................... 11,900 368,900
-----------
Wholesale Distributors 1.8%
Applied Industrial Technology, Inc. ..................................................... 18,450 758,756
Hughes Supply, Inc. ..................................................................... 24,250 621,406
Rexel, Inc.* ............................................................................ 38,500 801,281
-----------
2,181,443
-----------
Technology 7.0%
Computer Software 0.4%
MTS Systems Corp. ....................................................................... 16,200 518,400
-----------
Diverse Electronic Products 1.2%
Cubic Corp. ............................................................................. 24,000 837,000
Esterline Technologies Corp.* ........................................................... 17,000 631,125
-----------
1,468,125
-----------
EDP Peripherals 0.1%
Black Box Corp. ......................................................................... 4,700 170,963
-----------
Electronic Components/Distributors 2.9%
CTS Corp. ............................................................................... 12,600 1,020,600
MicroAge Inc.* .......................................................................... 27,600 750,375
Park Electrochemical Corp. .............................................................. 24,900 737,663
Photronics, Inc.* ....................................................................... 2,400 141,600
Pioneer Standard Electronics, Inc. ...................................................... 27,200 408,000
Rogers Corp.* ........................................................................... 15,600 590,850
-----------
3,649,088
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

15 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Electronic Data Processing 0.1%
Sequent Computer Systems, Inc.* ......................................................... 6,300 177,581
-----------
Military Electronics 1.2%
Tech-Sym Corp.* ......................................................................... 27,000 896,063
Watkins-Johnson Co. ..................................................................... 17,700 608,438
-----------
1,504,501
-----------
Precision Instruments 0.2%
Silicon Valley Group Inc. ............................................................... 9,000 303,750
Semiconductors 0.9%
Electroglas, Inc.* ...................................................................... 17,200 550,400
Oak Technology, Inc. .................................................................... 2,200 23,925
Siliconix, Inc.* ........................................................................ 14,500 558,250
-----------
1,132,575
-----------
Energy 3.6%
Oil & Gas Production 1.1%
Plains Resources, Inc.* ................................................................. 38,400 700,800
Tesoro Petroleum Corp.* ................................................................. 39,000 667,875
-----------
1,368,675
-----------
Oil Companies 0.6%
Giant Industries, Inc. .................................................................. 18,200 335,563
Holly Corp. ............................................................................. 15,400 403,288
-----------
738,851
-----------
Oilfield Services/Equipment 1.9%
Cliffs Drilling Co.* .................................................................... 13,400 639,013
Getty Petroleum Corp. ................................................................... 19,400 109,125
Pride International Inc.* ............................................................... 23,500 752,000
RPC, Inc. ............................................................................... 40,400 873,650
-----------
2,373,788
-----------
Metals & Minerals 5.2%
Steel & Metals
Brush Wellman, Inc. ..................................................................... 40,500 1,012,500
Carpenter Technology Corp. .............................................................. 1,100 49,294
Chaparral Steel Co. ..................................................................... 36,400 550,550
Citation Corp.* ......................................................................... 31,200 546,000
Cleveland-Cliffs, Inc. .................................................................. 22,200 925,463
Commercial Metals Co. ................................................................... 18,900 581,175
</TABLE>

The accompanying notes are an integral part of the financial statements.

16 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lone Star Technologies* ................................................................. 15,600 636,675
National Steel Corp. "B"* ............................................................... 35,800 673,488
Quanex Corp. ............................................................................ 22,400 813,400
RMI Titanium Co.* ....................................................................... 18,200 381,063
Shiloh Industries, Inc.* ................................................................ 15,300 283,050
-----------
6,452,658
-----------
Construction 9.1%
Building Materials 5.3%
Ameron International Corp. .............................................................. 18,000 1,051,875
Butler Manufacturing Co. ................................................................ 13,100 471,600
Florida Rock Industries, Inc. ........................................................... 17,100 844,313
Lone Star Industries, Inc. .............................................................. 12,600 669,375
Medusa Corp. ............................................................................ 9,700 455,900
Puerto Rican Cement Co., Inc. ........................................................... 30,400 1,069,700
Southdown, Inc. ......................................................................... 14,100 661,819
Texas Industries, Inc. .................................................................. 12,700 423,069
Triangle Pacific Corp.* ................................................................. 15,200 478,800
Universal Forest Products, Inc. ......................................................... 27,600 469,200
-----------
6,595,651
-----------
Building Products 0.7%
Zurn Industries, Inc. ................................................................... 28,300 840,156
-----------
Homebuilding 2.5%
Champion Enterprises, Inc.* ............................................................. 9,200 158,700
D.R. Horton, Inc. ....................................................................... 24,900 392,175
NVR Inc.* ............................................................................... 44,400 949,050
Skyline Corp. ........................................................................... 15,900 460,106
U.S. Home Corp.* ........................................................................ 33,800 1,193,563
-----------
3,153,594
-----------
Miscellaneous 0.6%
Granite Construction, Inc. .............................................................. 36,500 766,500
-----------
Transportation 2.9%
Air Freight 0.6%
Circle International Group, Inc. ........................................................ 29,600 743,700
-----------
Airlines 0.6%
Alaska Air Group Inc.* .................................................................. 26,700 732,581
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

17 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Marine Transportation 0.5%
Avondale Industries, Inc.* .............................................................. 24,500 560,438
-----------
Trucking 1.2%
Roadway Express, Inc. ................................................................... 22,800 524,400
USFreightways Corp. ..................................................................... 22,500 675,000
Yellow Corp.* ........................................................................... 8,500 266,688
-----------
1,466,088
-----------
Utilities 6.8%
Electric Utilities 4.0%
Black Hills Corp. ....................................................................... 21,800 607,675
Central Lousiana Electric Co. ........................................................... 24,700 648,375
Central Hudson Gas & Electric Co. ....................................................... 19,000 634,125
Commonwealth Energy System Cos. ......................................................... 41,500 1,021,938
El Paso Electric Co.* ................................................................... 149,400 933,750
Northwestern Public Service Co. ......................................................... 46,400 896,100
SIGCORP, Inc. ........................................................................... 9,600 242,400
-----------
4,984,363
-----------
Natural Gas Distribution 2.6%
Energen Corp. ........................................................................... 30,100 1,085,481
Laclede Gas Co. ......................................................................... 15,700 383,669
North Carolina Natural Gas Corp. ........................................................ 15,700 491,606
Northwest Natural Gas Co. ............................................................... 26,500 662,500
Southern Union Co. ...................................................................... 24,310 556,091
-----------
3,179,347
-----------
Water Supply 0.2%
Aquarion Co. ............................................................................ 11,500 299,723
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $90,875,958) 119,053,857
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $96,133,958) (a) 124,311,857
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) The cost for federal income tax purposes was $96,133,958. At August 31,
1997, net unrealized appreciation for all securities based on tax cost was
$28,177,899. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $28,445,899 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$268,000.

* Non-income producing security.

The accompanying notes are an integral part of the financial statements.

18 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

Financial Statements

Statement of Assets and Liabilities
as of August 31, 1997

<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $96,133,958) .................. $ 124,311,857
Cash .................................................................. 187
Receivable on Fund shares sold ........................................ 782,140
Dividends and interest receivable ..................................... 127,818
Deferred organization expense ......................................... 14,697
Other assets .......................................................... 791
----------------
Total assets .......................................................... 125,237,490
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ..................................... 1,611,176
Payable for Fund shares redeemed ...................................... 37,101
Accrued management fee ................................................ 82,323
Other payables and accrued expenses ................................... 108,068
----------------
Total liabilities ..................................................... 1,838,668
--------------------------------------------------------------------------------------------
Net assets, at market value $ 123,398,822
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................................... 19,194
Net unrealized appreciation (depreciation) on investments ............. 28,177,899
Accumulated net realized gain ......................................... 2,442,080
Paid-in capital ....................................................... 92,759,649
--------------------------------------------------------------------------------------------
Net assets, at market value $ 123,398,822
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($123,398,822 / 6,303,515 outstanding shares of beneficial ----------------
interest, $.01 par value, unlimited number of shares authorized) ... $19.58
----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

19 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

Statement of Operations
year ended August 31, 1997

<TABLE>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $1,662) ................ $ 943,691
Interest ........................................................... 161,977
-----------------
1,105,668
-----------------
Expenses:
Management fee ..................................................... 526,383
Services to shareholders ........................................... 346,695
Custodian and accounting fees ...................................... 101,264
Trustees' fees and expenses ........................................ 42,307
Registration fees .................................................. 14,649
Reports to shareholders ............................................ 65,189
Auditing ........................................................... 19,608
Legal .............................................................. 13,143
Amortization of organization expense ............................... 4,749
Other .............................................................. 9,531
-----------------
Total expenses before reductions ................................... 1,143,518
Expense reductions ................................................. (89,398)
-----------------
Expenses, net ...................................................... 1,054,120
---------------------------------------------------------------------------------------------
Net investment income 51,548
---------------------------------------------------------------------------------------------

Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments .......................... 2,467,254
Net unrealized appreciation (depreciation) during the period on
investments ..................................................... 25,374,837
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 27,842,091
---------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 27,893,639
---------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

20 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

Statements of Changes in Net Assets

<TABLE>
<CAPTION>
For the Period
October 6, 1995
Year (commencement
Ended of
August 31, operations) to
Increase (Decrease) in Net Assets 1997 August 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ..................................... $ 51,548 $ 153,303
Net realized gain (loss) from investment transactions ..... 2,467,254 (6,985)
Net unrealized appreciation (depreciation) on
investment transactions during the period .............. 25,374,837 2,803,062
----------------- ----------------
Net increase (decrease) in net assets resulting from
operations ............................................. 27,893,639 2,949,380
----------------- ----------------
Distributions to shareholders from net investment income .. (127,322) (61,519)
----------------- ----------------
Distributions to shareholders from net realized gains ..... (18,189) --
----------------- ----------------
Fund share transactions:
Proceeds from shares sold ................................. 67,337,610 42,630,158
Net asset value of shares issued to shareholders in
reinvestment of distributions .......................... 138,706 59,327

Cost of shares redeemed ................................... (13,069,182) (4,422,357)
Redemption fees ........................................... 56,374 30,997
----------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ........................................... 54,463,508 38,298,125
----------------- ----------------
Increase (decrease) in net assets ......................... 82,211,636 41,185,986
Net assets at beginning of period ......................... 41,187,186 1,200
Net assets at end of period (including undistributed
net investment income of $19,194 and ----------------- ----------------
$93,313, respectively) ................................. $123,398,822 $41,187,186
----------------- ----------------
Other Information
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ................. 3,034,156 100
----------------- ----------------
Shares sold ............................................... 4,061,936 3,368,696
Shares issued to shareholders in reinvestment of
distributions .......................................... 9,042 4,792
Shares redeemed ........................................... (801,619) (339,432)
----------------- ----------------
Net increase (decrease) in Fund shares .................... 3,269,359 3,034,056
----------------- ----------------
Shares outstanding at end of period ....................... 6,303,515 3,034,156
----------------- ----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

21 -- SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

Financial Highlights

The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
For the Period
October 6, 1995
(commencement of
Year Ended operations) to
August 31, August 31,
1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
-----------------------------------
Net asset value, beginning of period .............................................. $13.57 $12.00
-----------------------------------
Income from investment operations: ................................................ .01 .07
Net investment income
Net realized and unrealized gain on investment transactions ....................... 6.03 1.53
-----------------------------------
Total from investment operations .................................................. 6.04 1.60
-----------------------------------
Less distributions:
From net investment income ........................................................ (.03) (.05)
From net realized gains on investment transactions ................................ (.01) --
-----------------------------------
Total distributions ............................................................... (.04) (.05)
-----------------------------------
Redemption fees ................................................................... .01 .02
-----------------------------------
Net asset value, end of period .................................................... $19.58 $13.57
-----------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) .............................................................. 44.67 13.54(c)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................................ 123 41
Ratio of operating expenses, net to average daily net assets (%) .................. 1.50 1.50*
Ratio of operating expenses before expense reductions, to average daily net
assets (%) ..................................................................... 1.63 2.61*
Ratio of net investment income to average daily net assets (%) .................... .07 .67*
Portfolio turnover rate (%) ....................................................... 43.64 33.97*
Average commission rate paid ...................................................... $.0332 $.0364
</TABLE>

22 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>

Notes to Financial Statements

A. Significant Accounting Policies

Scudder Small Company Value Fund (the "Fund") is a diversified series of Scudder
Securities Trust (the "Trust"). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.

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. stock
exchanges are valued at the most recent sale price reported on the exchange on
which the security is traded most extensively. If no sale occurred, the security
is then valued at the calculated mean between the most recent bid and asked
quotations. If there are no such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the Nasdaq 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 repurchase price.

Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended (the "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
provision for federal income tax 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 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.

Distribution of Income and Gains. Distributions of net investment income 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.

23 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>

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 an accrual basis.

B. Purchases and Sales of Securities

During the year ended August 31, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $80,668,714 and
$30,128,716, 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
objectives, policies, and restrictions. The Adviser determines the securities,
instruments, and other contracts relating to investments to be purchased, sold
or entered into by the Fund. In addition to portfolio management services, the
Adviser provides certain administrative services in accordance with the
Agreement. The Adviser has agreed not to impose all or a portion of its
management fee until December 31, 1997 in order to maintain the annualized
expenses of the Fund at not more than 1.50% of average daily net assets. For the
year ended August 31, 1997, the Adviser imposed fees amounting to $436,985 and
the portion not imposed amounted to $89,398 of which $82,323 was unpaid as of
August 31, 1997.

On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close in the fourth quarter of 1997.

Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended August 31, 1997, the amount charged by SSC aggregated $285,621 of
which $31,498 was unpaid at August 31, 1997.

Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended August 31, 1997,
the amount charged to the Fund by STC aggregated $20,160, of which $3,172 was
unpaid at August 31, 1997.

24 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>

Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. At August 31, 1997, the
Special Servicing Agreement expense charged to the Fund amounted to $6,566.

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 year ended
August 31, 1997, the amount charged to the Fund by SFAC aggregated $57,935, of
which $5,319 was unpaid at August 31, 1997.

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 year ended August 31, 1997, Trustees' fees and expenses aggregated $42,307.

D. Lines of Credit

The Fund and several affiliated Funds (the "Participants") share in a $500
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33.33% of its net assets under the agreement. In addition, the Fund
also maintains an uncommitted line of credit.

25 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>

Report of Independent Accountants

To the Trustees of Scudder Securities Trust and the Shareholders of Scudder
Small Company Value Fund:

We have audited the accompanying statement of assets and liabilities of Scudder
Small Company Value Fund, including the investment portfolio, as of August 31,
1997, and the related statement of operations for the year then ended, the
statements of changes in net assets, and the financial highlights for the year
then ended, and for the period October 6, 1995 (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
audits.

We conducted our audits 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, 1997 by correspondence with the custodian. 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
Scudder Small Company Value Fund as of August 31, 1997, the results of its
operations for the year then ended, and the changes in its net assets, and the
financial highlights for the year then ended and for the period October 6, 1995
(commencement of operations) to August 31, 1996, in conformity with generally
accepted accounting principles.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
October 2, 1997

26 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>

Tax Information

Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$2,391,656 as capital gain dividends for its fiscal year ended August 31, 1997.

Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Scudder Fund account, please call a Scudder Investors Relations
Representative at 1-800-225-5163.

27 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>

Officers and Trustees

Daniel Pierce*
President and Trustee

Paul Bancroft III
Trustee; Venture Capitalist and Consultant

William T. Burgin*
Trustee

Thomas J. Devine
Trustee; Consultant

Keith R. Fox
Trustee; Private Equity Investor, Exeter Capital Management Corporation

Dr. Wilson Nolen
Trustee; Consultant

Kathryn L. Quirk*
Trustee, Vice President and Assistant Secretary

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 Emeritus 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*
Trustee and 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

Richard W. Desmond*
Assistant Secretary

28 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>
Investment Products and Services

The Scudder Family of Funds+++
- --------------------------------------------------------------------------------
Money Market
- ------------
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Premium Shares*
Managed Shares*
Scudder Government Money Market Series --
Managed Shares*

Tax Free Money Market+
- ----------------------
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**

Tax Free+
- ---------
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**

U.S. Income
- -----------
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund

Global Income
- -------------
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund

Asset Allocation
- ----------------
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio

U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund

U.S. Growth
- -----------
Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund

Growth
Scudder Classic Growth Fund
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund

Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund

Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.

Retirement Programs
- -------------------
IRA
SEP IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan**+++ +++
(a variable annuity)

For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +++Funds within categories are listed
in order from expected least risk to most risk. Certain Scudder funds may not be
available for purchase or exchange. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **Not available in all states. +++ +++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.

29 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

Scudder Solutions
<TABLE>
<CAPTION>

Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy

A convenient investment program in which you designate Lets you purchase Scudder fund shares
the purchase details and the bank account, and money is electronically, avoiding potential mailing delays;
electronically debited from that account monthly to designate a bank account and the transaction
regularly purchase fund shares and "dollar cost average" details, and money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from that account.
fewer when it's higher, which can reduce your average
purchase price over time.

Automatic Dividend Transfer Payroll Deduction and Direct Deposit

The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).

Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.

Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.

Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell

You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you designate.

DistributionsDirect

Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.

30 -SCUDDER SMALL COMPANY VALUE FUND
<PAGE>

Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder

Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.

Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.

Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.

For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center

For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:

Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York

- ------------------------------------------------------------------------------------------------------------------------------
New From Scudder: Scudder International Growth and Income Fund

Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
- ------------------------------------------------------------------------------------------------------------------------------
The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. Contact Scudder Investor Services, Inc., Distributor,
for a prospectus which contains more complete information, including management fees and other expenses. Please read it
carefully before you invest or send money.

</TABLE>

31 -SCUDDER SMALL COMPANY VALUE 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.

SCUDDER

[LOGO]

*Scudder, Stevens & Clark, Inc.

<PAGE>

SCUDDER MICRO CAP FUND

A Pure No-Load(TM) (No Sales Charges) Mutual Fund Seeking
Long-Term Growth of Capital Through Investment
Primarily in a Diversified Portfolio of U.S. Micro-cap Stocks

- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION

January 1, 1998
- --------------------------------------------------------------------------------

This combined Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectus of Scudder Micro Cap Fund
dated January 1, 1998, as amended from time to time, copies of which may be
obtained without charge by writing to Scudder Investor Services, Inc., Two
International Place, Boston, Massachusetts 02110-4103.

<PAGE>

THE FUND'S INVESTMENT OBJECTIVES AND POLICIES ..........................1
General Investment Objective and Policies ........................1
Special Considerations ...........................................2
Specialized Investment Techniques ................................5
Investment Restrictions .........................................12

PURCHASES .............................................................13
Additional Information About Opening An Account .................13
Additional Information About Making Subsequent Investments ......14

Additional Information About Making Subsequent Investments
by QuickBuy ...................................................14

Checks ..........................................................14
Wire Transfer of Federal Funds ..................................15
Share Price .....................................................15
Share Certificates ..............................................15
Other Information ...............................................15

EXCHANGES AND REDEMPTIONS .............................................16
Exchanges .......................................................16
Special Redemption and Exchange Information .....................17
Redemption by Telephone .........................................17
Redemption by QuickSell .........................................18
Redemption by Mail or Fax .......................................18
Redemption-in-Kind ..............................................19
Other Information ...............................................19

FEATURES AND SERVICES OFFERED BY THE FUND .............................20
The Pure No-LoadT Concept .......................................20
Dividend and Capital Gain Distribution Options ..................21
Scudder Investor Centers ........................................21
Reports to Shareholders .........................................21
Transaction Summaries ...........................................21

THE SCUDDER FAMILY OF FUNDS ...........................................21

SPECIAL PLAN ACCOUNTS .................................................26
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals ..26
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for
Corporations and Self-Employed Individuals ....................26
Scudder IRA: Individual Retirement Account .....................26
Scudder 403(b) Plan .............................................27
Automatic Withdrawal Plan .......................................27
Group or Salary Deduction Plan ..................................28
Automatic Investment Plan .......................................28
Uniform Transfers/Gifts to Minors Act ...........................28

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS .............................29

PERFORMANCE INFORMATION ...............................................29
Average Annual Total Return .....................................29
Cumulative Total Return .........................................30
Total Return ....................................................30
Comparison of Portfolio Performance .............................30

ORGANIZATION OF THE FUND ..............................................33

i
<PAGE>

INVESTMENT ADVISER ....................................................34
Personal Investments by Employees of the Adviser ................37

TRUSTEES AND OFFICERS .................................................37

REMUNERATION ..........................................................40
Responsibilities of the Board-Board and Committee Meetings ......40
Compensation of Officers and Trustees ...........................40

DISTRIBUTOR ...........................................................41

TAXES .................................................................42

PORTFOLIO TRANSACTIONS ................................................45
Brokerage Commissions ...........................................45
Portfolio Turnover ..............................................46

NET ASSET VALUE .......................................................46

ADDITIONAL INFORMATION ................................................47
Experts .........................................................47
Other Information ...............................................47

FINANCIAL STATEMENTS ..................................................48

ii
<PAGE>

THE FUND'S INVESTMENT OBJECTIVES AND POLICIES

(See "Investment objective and policies" in the Fund's prospectus.)

Scudder Micro Cap Fund (the "Fund") is a series of Scudder Securities
Trust (the "Trust"); the Fund is a pure no-load(TM), diversified, open-end
management investment company which continuously offers and redeems shares at
net asset value. Scudder Micro Cap Fund is a company of the type commonly known
as a mutual fund.

General Investment Objective and Policies

The Fund's investment objective is to seek long-term growth of capital
through investment primarily in a diversified portfolio of U.S.
micro-capitalization ("micro-cap") common stocks. These domestic emerging growth
securities provide little or no current income but, in the opinion of the Fund's
investment adviser, Scudder Kemper Investments, Inc. (the "Adviser"), offer
substantial long-term appreciation potential as well as the opportunity to
enhance the overall diversification of an investor's portfolio.

Due to the inherent business characteristics and risks of small companies,
along with the relatively limited trading market for micro-cap stocks, the
Fund's share price can experience periods of significant volatility. As a
result, the Fund should be considered a long-term investment and only one part
of a well-diversified personal investment portfolio. To encourage a long-term
investment holding period and to facilitate portfolio management, a 1%
redemption and exchange fee, described in greater detail below, is payable to
the Fund for the benefit of remaining shareholders on shares held less than one
year.

Qualified retirement plans may choose Scudder Micro Cap Fund as an option
for participants after the Fund has reached $100 million in total assets.
Investors in the Fund through a qualified retirement plan who terminate
participation and/or take a distribution of assets from the plan will be
permitted to transfer those assets to an individual account in Scudder Micro Cap
Fund.

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.

Except as otherwise indicated, the Fund's investment objective and policies
are not fundamental and may be changed without a vote of shareholders.
Shareholders will receive written notice of any changes in the Fund's investment
objective. If there is a change in investment objective, shareholders should
consider whether the Fund remains an appropriate investment in light of their
then current financial position and needs. There can be no assurance that the
Fund's objective will be met.

The Fund seeks to provide long-term growth of capital by investing, under
normal market conditions, at least 80% of its assets in common stocks issued by
U.S. micro-cap companies. The Fund will typically invest in companies that, at
the time of purchase, are smaller than the smallest stocks in the Russell 2000R
Index at its annual reconstitution. The median market capitalization (i.e.,
current stock price times shares outstanding) of the portfolio is not expected
to exceed $125 million.

While the Fund invests predominantly in common stocks, it can purchase
other types of equity securities, including preferred stocks (either convertible
or non-convertible), rights and warrants. Securities may be listed on national
exchanges, or much more commonly, traded over-the-counter. The Fund may invest
up to 20% of its assets in U.S. Treasuries, agency and instrumentality
obligations, may enter into repurchase agreements and may engage in strategic
transactions to increase stock market participation, enhance liquidity and
manage transaction costs. In addition, for temporary or emergency purposes, such
as providing for redemptions or distributions, the Fund may borrow from banks
and other financial institutions in an amount not exceeding the value of
one-third of the Fund's total assets. The Fund will not borrow for investment
purposes.
<PAGE>

For temporary defensive purposes, the Fund may invest without limit in
cash and cash equivalents when the Adviser deems such a position advisable in
light of economic or market conditions. More information about these investment
techniques is provided under "Additional information about policies and
investments" in the Fund's prospectus.

The Fund is actively managed using a quantitative, value-oriented
investment approach. The Adviser selects investments from among the more than
4,000 publicly traded U.S. micro-cap stocks based on a proprietary, quantitative
investment strategy. Using this approach, the Adviser looks for companies
selling at a discount to estimated fair value. Because of their small size, and
less frequent trading activity, the companies represented in the Fund are often
overlooked or not closely followed by investors. Accordingly, their prices can
rise either as a result of improved business fundamentals, particularly when
earnings grow faster than general expectations, or as more investors appreciate
the full extent of a company's underlying business potential. The Fund seeks to
avoid what are judged in the opinion of the Fund's Adviser to be overpriced
companies with high investment risk and deteriorating fundamentals.

Portfolio diversification is an important component of the investment
management process. To help manage the Fund's above-average investment risk and
improve liquidity, the Adviser expects to invest in hundreds of small, publicly
traded companies, representing a broad cross-section of U.S. industries. The
Fund's systematic, value-oriented approach to investing is designed to mitigate
volatility of the Fund's share price relative to the micro-capitalization
sector of the U.S. stock market. Risk is further managed by employing
specialized portfolio management and trading techniques. Despite these
techniques, the Fund's share price can move up and down significantly, even over
short periods of time.

Master/feeder structure. The Trust's Board of Trustees may determine that the
objective of each Fund would be achieved more efficiently, while retaining its
current distribution arrangement, by investing in a master fund in a
master/feeder fund structure as described below, and in that case cause a Fund
to do so without prior approval by shareholders.

A master/feeder fund structure is one in which a fund (a "feeder fund"), instead
of investing directly in a portfolio of securities, invests all of its
investment assets in a separate registered investment company (the "master
fund") with substantially the same investment objective and policies as the
feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds preserving separate identities, management or distribution channels
at the feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss.

Special Considerations

While, historically, micro-capitalization company stocks have outperformed
the stocks of large companies, the former have customarily involved more
investment risk as well. Micro-capitalization companies may have limited
product lines, markets or financial resources; may lack management depth or
experience; and may be more vulnerable to adverse general market or economic
developments than large companies. The prices of micro-capitalization company
securities are often more volatile than prices associated with large company
issues, and can display abrupt or erratic movements at times, due to limited
trading volumes and less publicly available information.

Also, because micro-capitalization companies normally have fewer shares
outstanding and these shares trade less frequently than large companies, it may
be more difficult for the Fund to buy and sell significant amounts of such
shares without an unfavorable impact on prevailing market prices.

Some of the companies in which the Fund may invest may distribute, sell or
produce products which have recently been brought to market and may be dependent
on key personnel.

The securities of micro-capitalization companies are often traded
over-the-counter and may not be traded in the volumes typical on a national
securities exchange. Consequently, in order to sell this type of holding, the
Fund may need to discount the securities from recent prices or dispose of the
securities over a long period of time.

2
<PAGE>

Large selection universe

Over half of the U.S. companies traded on the three primary U.S. exchanges
(NYSE, AMEX and NASDAQ) are micro-cap companies. Of the more than 7000
securities of U.S. companies traded on these exchanges, the 1000 largest (market
capitalizations greater than $1 billion) are generally considered to be
large-cap stocks. The next 2000 largest (with market caps currently in the range
of $178 to $1 billion) are often referred to as small-cap stocks. This group
roughly corresponds to the Russell 2000 Index, a widely followed index of small
companies. The remaining stocks - over 4000 securities - are considered
micro-cap issues (currently below $178 million in market capitalization).

US Equity Market Size Profile

o US Companies on NYSE, NASDAQ, AMEX with Prices>$1

[PYRAMID CHART OMITTED]

Large Cap
(1000 Stocks)

>$1.0 Billion Market Cap

Small Cap
(4000+Stocks)

Source: FactSet Research Systems, Scudder, 6/96

Because of the small size, limited liquidity and vast numbers of micro-cap
stocks, this segment (shown at the base of the pyramid in the diagram above) is
often overlooked by Wall Street analysts, offering a wide range of investment
opportunities. The Fund's Advisor seeks to exploit these opportunities using a
proprietary quantitative model.

The "micro-cap stock effect"

According to Ibbotson Associates, who has compiled market data back to
1926, the growth of $1 invested in smaller stocks over the period through
December 1995 would have grown to $3,822 compared to $1,114 invested in large
company stocks. Traditionally referred to as "small company stocks," the
Ibbotson index is actually a better representation of what are now called
micro-capitalization issues. With a median market cap of only $56 million, the
stocks in this index are far smaller than the $570 million median market cap of
the typical small company mutual fund [Morningstar Principia 5/31/96]. A
micro-cap stock fund offers investors the opportunity to experience the greater
return potential represented in the study by Ibbotson Associates and others.

3
<PAGE>

[GRAPH OMITTED]

Source: Ibbotson Associates

With the potential for higher returns comes higher risk, as shown in the chart
below:

[GRAPH OMITTED]

Source: Ibbotson Associates, Micro-Cap based on Ibbotson Small Co.
Portfolio.

Annualized returns for micro-cap stocks (12/26-12/95) are higher - 12.5%
versus 10.5% for large-cap - but this category experienced greater volatility
as measured by standard deviation (34.4% for micro-cap versus 20.4% for
large-cap). This higher volatility suggests the need for a long-term horizon
when investing in micro-capitalization stocks.

Diversification Benefits
In addition to their return potential, smaller capitalization stocks are
often sought out by investors because they do not necessarily move in the same
direction at the same time as larger stocks. Indeed, the correlation coefficient
(one measure of this potential for diversification) between small-cap and
large-cap stock returns is only 0.71. Because of their low profile, micro-cap
stocks have an even lower correlation of 0.54 with large-cap stock returns.

4
<PAGE>

Correlation of Total Returns
60 Months Ending 12/95

Micro Cap Small Cap
(CRSP 9-10) (S&P)
----------- -----

S&P 500 0.54 0.71
S&P Mid Cap 0.75 0.91
S&P Small Cap 0.89 1.00

[Prudential Securities Benchmark Study VI.V February 1996]

As a result, adding micro-cap stocks to a portfolio of larger stock funds
can provide excellent diversification. Furthermore, investors in the fund will
gain exposure to hundreds of micro-cap stocks, reducing the relatively high risk
associated with individual micro-cap issues.

Specialized Investment Techniques

Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve the Fund's objective of long-term capital appreciation, the
Fund may invest in debt securities, including bonds of private issuers.
Portfolio debt investments will be selected on the basis of, among other things,
credit quality, and the fundamental outlooks for currency, economic and interest
rate trends, taking into account the ability to hedge a degree of currency or
local bond price risk. The Fund may purchase "investment-grade" bonds, rated
Aaa, Aa, A or Baa by Moody's Investor Services, Inc. ("Moody's") or AAA, AA, A
or BBB by Standard & Poor's Corporation ("S&P") or, if unrated, judged to be of
equivalent quality as determined by the Adviser.

Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of the fixed-income securities in the Fund's portfolio, or
to enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.

5
<PAGE>

movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.

6
<PAGE>

particular class or series of options), in which event the relevant market for
that option on that exchange would cease to exist, although outstanding options
on that exchange would generally continue to be exercisable in accordance with
their terms.

Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or are determined to be of equivalent
credit quality by the Adviser. The staff of the Securities and Exchange
Commission (the "SEC") currently takes the position that OTC options purchased
by the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing its assets in illiquid securities.

The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.

The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities), and on
securities indices and futures contracts other than futures on individual
corporate debt and individual equity securities. The Fund will not sell put
options if, as a result, more than 50% of the Fund's assets would be required to
be segregated to cover its potential obligations under such put options other
than those with respect to futures and options thereon. In selling put options,
there is a risk that the Fund may be required to buy the underlying security at
a disadvantageous price above the market price.

7
<PAGE>

General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate or equity market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The sale of a futures contract creates
a firm obligation by the Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures, the net cash
amount). Options on futures contracts are similar to options on securities
except that an option on a futures contract gives the purchaser the right in
return for the premium paid to assume a position in a futures contract and
obligates the seller to deliver such position.

Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, and multiple
interest rate transactions and any combination of futures, options, and interest
rate transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio as a duration

8
<PAGE>

management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where they do not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. The purchase of a cap entitles the purchaser to receive payments on a
notional principal amount from the party selling such cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from the party selling such floor to the extent that a specified index
falls below a predetermined interest rate or amount. A collar is a combination
of a cap and a floor that preserves a certain return within a predetermined
range of interest rates or values.

The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believes such obligations do not constitute senior securities under
the Investment Company Act of 1940 (the "1940 Act") and, accordingly, will not
treat them as being subject to its borrowing restrictions. The Fund will not
enter into any swap, cap, floor or collar transaction unless, at the time of
entering into such transaction, the unsecured long-term debt of the
Counterparty, combined with any credit enhancements, is rated at least A by S&P
or Moody's or has an equivalent rating from a NRSRO or is determined to be of
equivalent credit quality by the Adviser. If there is a default by the
Counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.

Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid high
grade assets with its custodian, State Street Bank and Trust Company (the
"Custodian") to the extent Fund obligations are not otherwise "covered" through
ownership of the underlying security, financial instrument or currency. In
general, either the full amount of any obligation by the Fund to pay or deliver
securities or assets must be covered at all times by the securities, instruments
or currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid high grade securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate liquid high-grade
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate liquid
high grade assets equal to the excess of the index value over the exercise price
on a current basis. A put option written by the Fund requires the Fund to
segregate liquid high grade assets equal to the exercise price.

Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate liquid high grade assets equal to the amount of the Fund's
obligation.

9
<PAGE>

the Fund will segregate an amount of assets equal to the full value of the
option. OTC options settling with physical delivery, or with an election of
either physical delivery or cash settlement will be treated the same as other
options settling with physical delivery.

The Fund's activities involving Strategic Transactions may be limited by
the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company. (See
"TAXES.")

Convertible Securities. The Fund may invest in convertible securities which are
bonds, notes, debentures, preferred stocks, and other securities which are
convertible into common stocks. Investments in convertible securities can
provide income through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of their conversion or exchange features.

As fixed income securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all fixed income securities, there can be no assurance of income or
principal payments because the issuers of the convertible securities may default
on their obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.

10
<PAGE>

Convertible securities may be issued as fixed income obligations that pay
current income or as zero coupon notes and bonds, including Liquid Yield Option
Notes (LYONs). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the purchase price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.

Repurchase Agreements. The Fund may enter into repurchase agreements with member
banks of the Federal Reserve System, any foreign bank or with any domestic or
foreign broker-dealer which is recognized as a reporting government securities
dealer if the creditworthiness of the bank or broker-dealer has been determined
by the Adviser to be at least as high as that of other obligations the Fund may
purchase.

A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price upon repurchase. In either case, the income to the
Fund is unrelated to the interest rate on the Obligation itself. Obligations
will be held by the Custodian or in the Federal Reserve Book Entry system. Some
repurchase commitment transactions may not provide the Fund with collateral
marked-to-market during the term of the commitment.

For purposes of the 1940 Act a repurchase agreement is deemed to be a loan
from the Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to the Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delay and incur costs
before being able to sell the security. Delays may involve loss of interest or
decline in price of the Obligation. If the court characterizes the transaction
as a loan and the Fund has not perfected a security interest in the Obligation,
the Fund may be required to return the Obligation to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured creditor, the
Fund would be at risk of losing some or all of the principal and income involved
in the transaction. As with any unsecured debt instrument purchased for the
Fund, the Adviser seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
Obligation, in which case the Fund may incur a loss if the proceeds to the Fund
of the sale to a third party are less than the repurchase price. However, if the
market value of the Obligation subject to the repurchase agreement becomes less
than the repurchase price (including interest), the Fund will direct the seller
of the Obligation to deliver additional securities so that the market value of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
A repurchase agreement with foreign banks may be available with respect to
government securities of the particular foreign jurisdiction, and such
repurchase agreements involve risks similar to repurchase agreements with U.S.
entities.

Borrowing. The Fund are each authorized to borrow money from banks and other
financial institutions in an amount equal to up to 33 1/3% of the Fund's net
assets for purposes of liquidity and to provide for redemptions and

11
<PAGE>

distributions. The Fund will borrow only when the Adviser believes that
borrowing will benefit the Fund after taking into account considerations such as
the costs of the borrowing. The Fund will not borrow for investment purposes, to
increase return or leverage the portfolio. Borrowing by the Fund will involve
special risk considerations. Although the principal of the Fund's borrowings
will be fixed, the Fund's assets may change in value during the time a borrowing
is outstanding, thus increasing exposure to capital risk.

Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933 or the availability of an exemption from registration
(such as Rules 144 or 144A) or because they are subject to other legal or
contractual delays in or restrictions on resale.

Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the Securities Act of 1933. The Fund may be deemed to be an
"underwriter" for purposes of the Securities Act of 1933 when selling restricted
securities to the public, and in such event the Fund may be liable to purchasers
of such securities if such sale is made in violation of the 1933 Act or if the
registration statement prepared by the issuer, or the prospectus forming a part
of it, is materially inaccurate or misleading.

When-Issued Securities. The Fund may from time to time purchase equity and debt
securities on a "when-issued" or "forward delivery" basis. The price of such
securities, which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued or
forward delivery securities takes place at a later date. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. To the extent that assets of the Fund are
held in cash pending the settlement of a purchase of securities, the Fund would
earn no income; however, it is the Fund's intention to be fully invested to the
extent practicable and subject to the policies stated above. While when-issued
or forward delivery securities may be sold prior to the settlement date, the
Fund intends to purchase such securities with the purpose of actually acquiring
them unless a sale appears desirable for investment reasons. At the time the
Fund makes the commitment to purchase a security on a when-issued or forward
delivery basis, it will record the transaction and reflect the value of the
security in determining its net asset value. The market value of the when-issued
or forward delivery securities may be more or less than the purchase price. The
Fund does not believe that its net asset value or income will be adversely
affected by its purchase of securities on a when-issued or forward delivery
basis.

Lending of Portfolio Securities. The Fund may seek to increase its return by
lending portfolio securities. Under present regulatory policies, including those
of the Board of Governors of the Federal Reserve System and the SEC, such loans
may be made to member firms of the Exchange, and would be required to be secured
continuously by collateral in cash, U.S. Government securities or other high
grade debt obligations maintained on a current basis at an amount at least equal
to the market value and accrued interest of the securities loaned. The Fund
would have the right to call a loan and obtain the securities loaned on no more
than five days' notice. During the existence of a loan, the Fund would continue
to receive the equivalent of the interest paid by the issuer on the securities
loaned and would also receive compensation based on investment of the
collateral. As with other extensions of credit there are risks of delay in
recovery or even loss of rights in the collateral should the borrower of the
securities fail financially. However, the loans would be made only to firms
deemed by the Adviser to be of good standing, and when, in the judgment of the
Adviser, the consideration which can be earned currently from securities loans
of this type justifies the attendant risk. If the Fund determines to make
securities loans, the value of the securities loaned will not exceed 30% of the
value of the Fund's total assets at the time any loan is made.

Investment Restrictions

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<PAGE>

As a matter of fundamental policy, the Fund may not:

(1) borrow money, except as permitted under the Investment Company Act
of 1940, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;

(2) issue senior securities, except as permitted under the Investment
Company Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;

(5) purchase physical commodities or contracts related to physical
commodities; or

As a matter of nonfundamental policy, each Fund may not:

Any investment restrictions herein which involve a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after, and is caused by, an acquisition
or encumbrance of securities or assets of, or borrowings by, the Fund.

PURCHASES

(See "Purchases" and "Transaction information" in the Fund's prospectus.)

Additional Information About Opening An Account

Shareholders of other Scudder funds who have submitted an account
application and have certified a Tax Identification Number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call the investor will be asked to indicate
the Fund name, amount to be wired ($2,500 minimum), name of bank or trust
company from which the wire will be sent, the exact registration of the new
account, the tax identification or social security number, address and telephone
number. The investor must

13
<PAGE>

then call the bank to arrange a wire transfer to The Scudder Funds, Boston, MA
02110, ABA Number 011000028, DDA Account Number 9903-5552. The investor must
give the Scudder fund name, account name and the new account number. Finally,
the investor must send the completed and signed application to the Fund
promptly.

The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.

Additional Information About Making Subsequent Investments

Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder pension and profit sharing, Scudder 401(k) and
Scudder 403(b) Plan holders), members of the NASD, and banks. Orders placed in
this manner may be directed to any Scudder Investor Services, Inc. office listed
in the Fund's prospectus. A two-part invoice of the purchase will be mailed out
promptly following receipt of a request to buy. Payment should be attached to a
copy of the invoice for proper identification. Federal regulations require that
payment be received within three business days. If payment is not received
within that time, the shares may be canceled. In the event of such cancellation
or cancellation at the purchaser's request, the purchaser will be responsible
for any loss incurred by the Fund or the principal underwriter by reason of such
cancellation. If the purchaser is a shareholder, the Fund shall have the
authority, as agent of the shareholder, to redeem shares in the account in order
to reimburse the Fund or the principal underwriter for the loss incurred. Net
losses on such transactions which are not recovered from the purchaser will be
absorbed by the principal underwriter. Any net profit on the liquidation of
unpaid shares will accrue to the Fund.

Additional Information About Making Subsequent Investments by QuickBuy

The Fund employs procedures, including recording telephone calls, testing
a caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine. and to discourage fraud. To the extent that the Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.

Checks

A certified check is not necessary, but checks are only accepted subject to
collection at full face value in U.S. funds and must be drawn on, or payable
through, a U.S. bank.

14
<PAGE>
authority, as agent of the shareholder, to redeem shares in the account in order
to reimburse the Fund or the principal underwriter for the loss incurred.
Investors whose orders have been canceled may be prohibited from or restricted
in placing future orders in any of the Scudder funds.

Wire Transfer of Federal Funds

To obtain the net asset value determined as of the close of regular
trading on the Exchange, on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).

The bank sending an investor's federal funds by bank wire may charge for
the service. Presently, the Distributor pays a fee for receipt by the Custodian
of "wired funds," but the right to charge investors for this service is
reserved.

Boston banks are closed on certain local holidays although the Exchange may
be open. These holidays include Martin Luther King, Jr. Day (the 3rd Monday in
January), Columbus Day (the 2nd Monday in October) and Veterans Day (November
11). Investors are not able to purchase shares by wiring federal funds on such
holidays because the Custodian is not open to receive such funds on behalf of
the Fund.

Share Price

Purchases will be filled without sales charge at the net asset value next
computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on each day the
Exchange is open for trading. Orders received after the close of regular trading
on the Exchange will be executed at the next business day's net asset value. If
the order has been placed by a member of the NASD, other than the Distributor,
it is the responsibility of that member broker, rather than the Fund, to forward
the purchase order to Scudder Service Corporation (the "Transfer Agent") in
Boston by the close of regular trading on the Exchange.

Share Certificates

Due to the desire of Fund management to afford ease of redemption,
certificates will not be issued to indicate ownership in the Fund.

Other Information

If purchases or redemptions of the Fund's shares are arranged and
settlement is made through a member of the NASD, other than the Distributor,
that member may, at its discretion, charge a fee for that service. The Board of
Directors and the Distributor, the Fund's principal underwriter, each has the
right to limit the amount of purchases by, and to refuse to sell to, any person.
The Trustees and the Distrbutor each may suspend or terminate the offering of
shares of the Fund at any time for any reason.

The Tax Identification Number section of the application must be completed
when opening an account. Applications and purchase orders without a correct
certified tax identification number and certain other certified information
(e.g., certification of exempt status from exempt investors), will be returned
to the investor.

The Fund may issue shares at net asset value in connection with any merger
or consolidation with, or acquisition of the assets of, any investment company
or personal holding company, subject to the requirements of the 1940 Act.

15
<PAGE>

EXCHANGES AND REDEMPTIONS

(See "Exchanges and redemptions" and "Transaction information" in the Fund's
prospectus.)

Exchanges

Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange either may
be an additional investment into an existing account or may involve opening a
new account in the other fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request must
be in writing and must contain an original signature guarantee as described
under "Transaction Information-Redeeming shares-Signature guarantees" in the
Fund's prospectus.

Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the net asset value
determined on that day. Exchange orders received after the close of regular
trading on the Exchange will be executed on the following business day.

Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund at current net asset value through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the phone or in writing. Automatic
exchanges will continue until the shareholder requests by phone or in writing to
have the feature removed, or until the originating account is depleted. The
Trust and the Transfer Agent each reserve the right to suspend or terminate the
privilege of the Automatic Exchange Program at any time.

There is no charge to the shareholder for any exchange described above.
However, shares that are exchanged from the Fund may be subject to the Fund's 1%
redemption fee. (See "Special Redemption and Exchange Information") An exchange
into another Scudder fund is a redemption of shares, and therefore may result in
tax consequences (gain or loss) to the shareholder, and the proceeds of such an
exchange may be subject to backup withholding.
(See "TAXES.")

Investors currently receive the exchange privilege, including exchange by
telephone, automatically without having to elect it. The Fund employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
and the Transfer Agent each reserve the right to suspend or terminate the
privilege of exchanging by telephone or fax at any time.

Scudder retirement plans may have different exchange requirements. Please
refer to appropriate plan literature.

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<PAGE>

Special Redemption and Exchange Information

In general, shares of the Fund may be exchanged or redeemed at net asset
value. However, shares of the Fund held for less than one year are redeemable at
a price equal to 99% of the Fund's then current net asset value per share. This
1% discount, referred to in the prospectus and this Statement of Additional
Information as a redemption fee, directly affects the amount a shareholder who
is subject to the discount receives upon exchange or redemption. It is intended
to encourage long-term investment in the Fund, to avoid transaction and other
expenses caused by early redemptions and to facilitate portfolio management. The
fee is not a deferred sales charge, is not a commission paid to the Adviser or
its subsidiaries, and does not benefit the Adviser in any way. The Fund reserves
the right to modify the terms of or terminate this fee at any time.

The redemption fee will not be applied to (a) a redemption of shares held
in certain retirement plans, including 401(k) plans, 403(b) plans, 457 plans,
Keogh accounts, and profit sharing and money purchase pension plans (however,
this fee waiver does not apply to IRA and SEP-IRA accounts), (b) a redemption of
any shares of the Fund outstanding for one year or more, (c) a redemption of
reinvestment shares (i.e., shares purchased through the reinvestment of
dividends or capital gains distributions paid by the Fund), or (d) a redemption
of shares by the Fund upon exercise of its right to liquidate accounts (i)
falling below the minimum account size by reason of shareholder redemptions or
(ii) when the shareholder has failed to provide tax identification information.
However, if shares are purchased for a retirement plan account through a broker,
financial institution or recordkeeper maintaining an omnibus account for the
shares, such waiver may not apply. For this purpose and without regard to the
shares actually redeemed, shares will be redeemed as follows: first,
reinvestment shares; second, purchased shares held one year or more; and third,
purchased shares held for less than one year. Finally, if a shareholder enters
into a transaction in Fund shares which, although it may technically be treated
as a redemption and purchase for recordkeeping purposes, does not involve the
termination of economic interest in the Fund, no redemption fee will apply and
applicability of the redemption fee, if any, on any subsequent redemption or
exchange will be determined by reference to the date the shares were originally
purchased, and not the date of the transaction.

Redemption by Telephone

Shareholders currently receive the right, automatically without having to
elect it, to redeem by telephone up to $50,000 and have the proceeds mailed to
their address of record. Shareholders may request to have the proceeds mailed or
wired to their predesignated bank account. In order to request redemptions by
telephone, shareholders must have completed and returned to the Transfer Agent
the application, including the designation of a bank account to which the
redemption proceeds are to be sent.

(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate section on
the application.

(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA, Scudder
Pension and Profit-Sharing, Scudder 401(k) and Scudder 403(b)
Planholders) who wish to establish telephone redemption to a
predesignated bank account or who want to change the bank account
previously designated to receive redemption proceeds should either
return a Telephone Redemption Option Form (available upon request)
or send a letter identifying the account and specifying the exact
information to be changed. The letter must be signed exactly as the
shareholder's name(s) appears on the account. An original signature
and an original signature guarantee are required for each person in
whose name the account is registered.

Note: Investors designating a savings bank to receive their telephone redemption
proceeds are advised that if the savings bank is not a participant in the
Federal Reserve System, redemption proceeds must be wired through a commercial
bank which is a correspondent of the savings bank. As this may delay receipt by
the shareholder's account, it is suggested that investors wishing to use a
savings bank discuss wire procedures with their bank and submit any

17
<PAGE>

special wire transfer information with the telephone redemption authorization.
If appropriate wire information is not supplied, redemption proceeds will be
mailed to the designated bank.

The Fund employs procedures, including recording telephone calls, testing
a caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that the Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.

Redemption requests by telephone (technically a repurchase by agreement
between the Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.

Redemption by QuickSell

The Fund employs procedures, including recording telephone calls, testing
a caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that the Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.

Redemption by Mail or Fax

In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request documents such as, but not restricted to, stock
powers, trust instruments, certificates of death, appointments as executor,
certificates of corporate authority and waivers of tax required in some states
when settling estates.

It is suggested that shareholders holding shares registered in other than
individual names contact the Transfer Agent prior to any redemptions to ensure
that all necessary documents accompany the request. When shares are held in the
name of a corporation, trust, fiduciary agent, attorney or partnership, the
Transfer Agent requires, in addition to the stock power, certified evidence of
authority to sign. These procedures are for the protection of shareholders and
should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within seven business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays of more
than seven days of payment for shares tendered for repurchase or redemption may
result, but only until the purchase check has cleared.

The requirements for IRA redemptions are different from those for regular
accounts. For more information call 1-800-225-5163.

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<PAGE>

Redemption-in-Kind

The Trust reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities into cash. The Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act as a result of
which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90 day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.

Other Information

Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct repurchase requests to the
Fund through Scudder Investor Services, Inc. at Two International Place, Boston,
Massachusetts 02110-4103 by letter, fax, TWX, or telephone. A two-part
confirmation will be mailed out promptly after receipt of the repurchase
request. A written request in good order with a proper original signature
guarantee, as described in the Fund's prospectus under "Transaction
information-Signature guarantees," should be sent with a copy of the invoice to
Scudder Funds, c/o Scudder Confirmed Processing, Two International Place,
Boston, Massachusetts 02110-4103. Failure to deliver shares or required
documents (see above) by the settlement date may result in cancellation of the
trade and the shareholder will be responsible for any loss incurred by the Fund
or the principal underwriter by reason of such cancellation. Net losses on such
transactions which are not recovered from the shareholder will be absorbed by
the principal underwriter. Any net gains so resulting will accrue to the Fund.
For this group, repurchases will be carried out at the net asset value next
computed after such repurchase requests have been received. The arrangements
described in this paragraph for repurchasing shares are discretionary and may be
discontinued at any time.

If a shareholder redeems all shares in the account after the record date
of a dividend, the shareholder receives in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
or repurchased may be more or less than the shareholder's cost depending on the
net asset value at the time of redemption or repurchase. The Fund does not
impose a repurchase charge, although a wire charge may be applicable for
redemption proceeds wired to an investor's bank account. Redemption of shares,
including redemptions undertaken to effect an exchange for shares of another
Scudder fund, may result in tax consequences (gain or loss) to the shareholder
and the proceeds of such redemptions may be subject to backup withholding.
(See "TAXES.")

Shareholders who wish to redeem shares from Special Plan Accounts should
contact the employer, trustee or custodian of the Plan for the requirements.

The determination of net asset value and a shareholder's right to redeem
shares and to receive payment may be suspended at times (a) during which the
Exchange is closed, other than customary weekend and holiday closings, (b)
during which trading on the Exchange is restricted for any reason, (c) during
which an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or (d)
during which the SEC by order permits a suspension of the right of redemption or
a postponement of the date of payment or of redemption; provided that applicable
rules and regulations of the SEC (or any succeeding governmental authority)
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.

Shareholders should maintain a share balance worth at least $2,500 ($1,000
for IRAs, Uniform Gift to Minor Act, and Uniform Trust to Minor Act accounts),
which amount may be changed by the Board of Trustees. Scudder retirement plans
have similar or lower minimum balance requirements. A shareholder may open an
account with at least $1,000 ($500 for an IRA), if an automatic investment plan
(AIP) of $100/month ($50/month for an IRA) is established.

19
<PAGE>

in accounts below $250, including accounts of new investors, where a reduction
in value has occurred due to a redemption or exchange out of the account. The
Fund will mail the proceeds of the redeemed account to the shareholder at the
address of record. Reductions in value that result solely from market activity
will not trigger an involuntary redemption. UGMA, UTMA, IRA and other retirement
accounts will not be assessed the $10.00 charge or be subject to automatic
liquidation.

FEATURES AND SERVICES OFFERED BY THE FUND

(See "Shareholder benefits" in the Fund's prospectus.)

The Pure No-Load(TM) Concept

Load funds generally are defined as mutual funds that charge a fee for the
sale and distribution of fund shares. There are three types of loads: front-end
loads, back-end loads, and asset-based Rule 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.

A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the NASD
Rules of Fair Practice, a mutual fund can call itself a "no-load" fund only if
the 12b-1 fee and/or service fee does not exceed 0.25% of a fund's average
annual net assets.

20
<PAGE>

Investors are encouraged to review the fee tables on page 2 of the Fund's
prospectus for more specific information about the rates at which management
fees and other expenses are assessed.

Dividend and Capital Gain Distribution Options

Investors have freedom to choose whether to receive cash or to reinvest any
dividends from net investment income or distributions from realized capital
gains in additional shares of the Fund. A change of instructions for the method
of payment must be given to the Transfer Agent in writing at least five days
prior to a dividend record date. Shareholders may change their dividend option
by calling 1-800-225-5163 or by sending written instructions to the Transfer
Agent. Please include your account number with your written request. See "How to
Contact Scudder" in the Fund's prospectus for the address.

Scudder Investor Centers

Investors may visit any of the Investor Centers maintained by the
Distributor listed in the Fund's prospectus. The Centers are designed to provide
individuals with services during any business day. Investors may pick up
literature or find assistance with opening an account, adding monies or special
options to existing accounts, making exchanges within the Scudder Family of
Funds, redeeming shares or opening retirement plans. Checks should not be mailed
to the Centers but should be mailed to "The Scudder Funds" at the address listed
under "How to contact Scudder" in the prospectus.

Reports to Shareholders

The Fund issues to its shareholders unaudited semiannual financial
statements and annual financial statements audited by independent accountants,
including a list of investments held and statements of assets and liabilities,
operations, changes in net assets and financial highlights. Each distribution
will be accompanied by a brief explanation of the source of the distribution.

Transaction Summaries

Annual summaries of all transactions in each Fund account are available to
shareholders. The summaries may be obtained by calling 1-800-225-5163.

THE SCUDDER FAMILY OF FUNDS

(See "Investment products and services" in the Funds' prospectuses.)

21
<PAGE>

MONEY MARKET

Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability of
capital and, consistent therewith, to maintain the liquidity of capital
and to provide current income. SCIT seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may not
be possible, and declares dividends daily.

TAX FREE MONEY MARKET

TAX FREE

Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a high
degree of principal stability.

- ----------
* These funds are not available for sale in all states. For
information, contact Scudder Investor Services, Inc.

22
<PAGE>

Scudder Managed Municipal Bonds seeks to provide income exempt from
regular federal income tax primarily through investments in high-grade,
long-term municipal securities.

U.S. INCOME

Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing
primarily in high quality short-term bonds.

Scudder GNMA Fund seeks to provide high current income primarily from U.S.
Government guaranteed mortgage-backed (Ginnie Mae) securities.

Scudder Income Fund seeks a high level of income, consistent with the
prudent investment of capital, through a flexible investment program
emphasizing high-grade bonds.

Scudder High Yield Bond Fund seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities.

GLOBAL INCOME

- ----------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.

23
<PAGE>

ASSET ALLOCATION

Scudder Pathway Series: Balanced Portfolio seeks to provide investors with
a balance of growth and income by investing in a select mix of Scudder
money market, bond and equity mutual funds.

U.S. GROWTH AND INCOME

Scudder Growth and Income Fund seeks long-term growth of capital, current
income, and growth of income.

U.S. GROWTH

Value

Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.

Scudder Value Fund seeks long-term growth of capital through investment in
undervalued equity securities.

Scudder Small Company Value Fund invests for long-term growth of capital
by seeking out undervalued stocks of small U.S. companies.

Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization
("micro-cap") common stocks.

24
<PAGE>

Growth

Scudder Classic Growth Fund seeks to provide long-term growth of capital
and to keep the value of its shares more stable than other growth mutual
funds.

Scudder Large Company Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of seasoned,
financially strong U.S. growth companies.

Scudder Development Fund seeks long-term growth of capital by investing
primarily in securities of small and medium-size growth companies.

Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies poised
to be leaders in the 21st century.

GLOBAL GROWTH

Worldwide

Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.

Scudder International Fund seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity securities.

Scudder Global Discovery Fund seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of
small companies located throughout the world.

Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the globe.

Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold- related equity
securities and gold.

Regional

Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.

Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.

Scudder Latin America Fund seeks to provide long-term capital appreciation
through investment primarily in the securities of Latin American issuers.

The Japan Fund, Inc. seeks long-term capital appreciation by investing
primarily in equity securities (including American Depository Receipts) of
Japanese companies.

25
<PAGE>

Monday and Thursday in the "Money-Market Funds" section of The Wall Street
Journal. This information also may be obtained by calling the Scudder Automated
Information Line (SAIL) at 1-800-343-2890.

SPECIAL PLAN ACCOUNTS

(See "Scudder tax-advantaged retirement plans," "Purchases-By Automatic
Investment Plan" and "Exchanges and redemptions-By Automatic Withdrawal Plan" in
the Fund's prospectus.)

None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.

Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals

Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals

Scudder IRA: Individual Retirement Account

Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.

26
<PAGE>

participants) are also eligible to make tax-deductible contributions to an IRA;
the annual amount, if any, of the contribution which such an individual will be
eligible to deduct will be determined by the amount of his, her, or their
adjusted gross income for the year. Whenever the adjusted gross income
limitation prohibits an individual from contributing what would otherwise be the
maximum tax-deductible contribution he or she could make, the individual will be
eligible to contribute the difference to an IRA in the form of nondeductible
contributions.

Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution

Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket

- -----------------------------------------------------------
Starting Annual Rate of Return
Age of -------------------------------------------
Contributions 5% 10% 15%
- -----------------------------------------------------------
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681

Scudder 403(b) Plan

Automatic Withdrawal Plan

27
<PAGE>

then liquidated as necessary to provide for withdrawal payments. Since the
withdrawals are in amounts selected by the investor and have no relationship to
yield or income, payments received cannot be considered as yield or income on
the investment and the resulting liquidations may deplete or possibly extinguish
the initial investment and any reinvested dividends and capital gains
distributions. Requests for increases in withdrawal amounts or to change the
payee must be submitted in writing, signed exactly as the account is registered,
and contain signature guarantee(s) as described under "Transaction
information-Redeeming shares-Signature guarantees" in the Fund's prospectus. Any
such requests must be received by the Fund's transfer agent ten days prior to
the date of the first automatic withdrawal. An Automatic Withdrawal Plan may be
terminated at any time by the shareholder, the Trust or its agent on written
notice, and will be terminated when all shares of the Fund under the Plan have
been liquidated or upon receipt by the Trust of notice of death of the
shareholder.

An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.

Group or Salary Deduction Plan

Automatic Investment Plan

Uniform Transfers/Gifts to Minors Act

28
<PAGE>

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

(See "Distribution and performance information-Dividends and capital gains
distributions" in the Fund's prospectus.)

The Fund intends to follow the practice of distributing all of its
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The Fund
may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Fund may retain all or part of such gain for reinvestment after paying the
related federal income taxes for which the shareholders may then be asked to
claim a credit against their federal income tax liability. (See "TAXES.")

If the Fund does not distribute an amount of capital gain and/or ordinary
income required to be distributed by an excise tax provision of the Code, it may
be subject to such tax. (See "TAXES.") In certain circumstances, the Fund may
determine that it is in the interest of shareholders to distribute less than
such an amount.

Earnings and profits distributed to shareholders on redemptions of Fund
shares may be utilized by the Fund, to the extent permissible, as part of the
Fund's dividend paid deduction on its federal tax return.

The Trust intends to distribute the Fund's investment company taxable
income and any net realized capital gains in November or December, although an
additional distribution may be made if necessary. Both types of distributions
will be made in shares of the Fund and confirmations will be mailed to each
shareholder unless a shareholder has elected to receive cash, in which case a
check will be sent. Distributions of investment company taxable income and net
realized capital gains are taxable (See "TAXES"), whether made in shares or
cash.

Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Fund issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.

PERFORMANCE INFORMATION

(See "Distribution and performance information-Performance information"
in the Fund's prospectus.)

Average Annual Total Return

Average annual total return is the average annual compound rate of return
for the periods of one year and the life of the Fund, ended on the last day of a
recent calendar quarter. Average annual total return quotations reflect changes
in the price of the Fund's shares and assume that all dividends and capital
gains distributions during the respective periods were reinvested in Fund
shares. Average annual total return is calculated by finding the average annual
compound rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):

T = (ERV/P)^1/n - 1
Where:

T = Average Annual Total Return
P = a hypothetical initial payment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.

29
<PAGE>

Cumulative Total Return

Cumulative total return is the compound rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of the Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by finding the cumulative
rate of return of a hypothetical investment over such periods, according to the
following formula (cumulative total return is then expressed as a percentage):

C = (ERV/P) -1
Where:

C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at
the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.

Total Return

Total return is the rate of return on an investment for a specified period
of time calculated in the same manner as cumulative total return.

Comparison of Portfolio Performance

From time to time, in advertising and marketing literature, the Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.

From time to time, in marketing and other Fund literature, Trustees and
officers of the Fund, the Fund's lead portfolio manager, or members of the
portfolio management team may be depicted and quoted to give prospective and
current shareholders a better sense of the outlook and approach of those who
manage the Fund. In addition, the amount of assets that the Adviser has under
management in various geographical areas may be quoted in advertising and
marketing materials.

30
<PAGE>

Risk/return spectrums also may depict funds that invest in both domestic
and foreign securities or a combination of bond and equity securities.

Scudder's Theme: Build Create Provide. Marketing and fund literature may refer
to Scudder's theme: "Build Create Provide." This theme intends to encapsulate
the composition of a sound investment philosophy, one through which Scudder can
help provide investors appropriate avenues for pursuing dreams. Individuals
recognize the need to build investment plans that are suitable and directed at
achieving one's financial goals. The desired result from planning and a
long-term commitment to it is the ability to build wealth over time. While there
are no guarantees in the pursuit of wealth through investing, Scudder believes
that a sound investment plan can enhance one's ability to achieve financial
goals that are clearly defined and appropriately approached. Wealth, while a
relative term, may be defined as the freedom to provide for those interests
which you hold most important - your family, future, and/or your community.

Evaluation of Fund performance or other relevant statistical information
made by independent sources may also be used in advertisements concerning the
Fund, including reprints of, or selections from, editorials or articles about
the Fund Sources for Fund performance information and articles about the Fund
include the following:

American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.

Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.

Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.

31
<PAGE>

Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.

Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.

Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.

Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.

Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.

Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.

Global Investor, a European publication that periodically reviews
the performance of U.S. mutual funds investing internationally.

IBC/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the performance of
the nation's money market funds, summarizing money market fund activity and
including certain averages as performance benchmarks, specifically "Donoghue's
Money Fund Average," and "Donoghue's Government Money Fund Average."

Ibbotson Associates, Inc., a company specializing in investment research and
data.

Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.

Investor's Daily, a daily newspaper that features financial, economic, and
business news.

Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.

Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.

Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.

Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.

32
<PAGE>

The New York Times, a nationally distributed newspaper which regularly covers
financial news.

The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.

No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.

Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.

Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.

Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.

Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.

USA Today, a leading national daily newspaper.

U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.

Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.

The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.

Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.

Worth, a national publication issued 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.

ORGANIZATION OF THE FUND

(See "Fund organization" in the Fund's prospectus.)

The Trustees have the authority to issue additional series of shares and
to designate the relative rights and preferences as between the different
series. Each share of the Fund has equal rights with each other share of the
Fund

33
<PAGE>

as to voting, dividends and liquidation. All shares issued and outstanding
will be fully paid and nonassessable by the Trust, and redeemable as described
in this Statement of Additional Information and in the Fund's prospectus.

Shares of the Trust entitle their holders to one vote per share; however,
separate votes are taken by each series on matters affecting that individual
series. For example, a change in investment policy for a series would be voted
upon only by shareholders of the series involved. Additionally, approval of the
investment advisory agreement is a matter to be determined separately by each
series.

The Declaration of Trust provides that obligations of the Fund is not
binding upon the Trustees individually but only upon the property of the Fund,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Fund will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Fund. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.

INVESTMENT ADVISER

(See "Fund organization-Investment adviser" in the Fund's prospectus.)

Scudder Kemper Investments, Inc., an investment counsel firm, acts as
investment adviser to the Funds. Scudder, Stevens & Clark, Inc. ("Scudder"), the
predecessor organization to the Adviser, is one of the most experienced
investment management firms in the United States. It was established as a
partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928 it introduced the first no-load
mutual fund to the public. In 1953, the Adviser introduced the Scudder
International Fund, the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries. The firm
reorganized from a partnership to a corporation on June 28, 1985. As of December
31, 1997, the Adviser was responsible for managing more than $__ billion in U.S.
equity securities, including over $__ billion in domestically oriented growth
mutual funds. On June 26, 1997, Scudder entered into an agreement with Zurich
Insurance Company ("Zurich") pursuant to which Scudder and Zurich agreed to form
an alliance. On December __, 1997, Zurich acquired a majority interest in
Scudder, and Zurich Kemper Investments, Inc., a Zurich subsidiary, became part
of Scudder. Scudder's name has been changed to Scudder Kemper Investments, Inc.

34
<PAGE>

its operations as an insurer as well as from its ownership of its subsidiaries
and affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world. Zurich Insurance Group is particularly strong in the insurance of
international companies and organizations. Over the past few years, Zurich's
global presence, particularly in the United States, has been strengthened by
means of selective acquisitions.

Pursuant to an Agreement between Scudder, Stevens & Clark, Inc. and AMA
Solutions, Inc., a subsidiary of the American Medical Association (the "AMA"),
dated May 9, 1997, Scudder has agreed, subject to applicable state regulations,
to pay AMA Solutions, Inc. royalties in an amount equal to 5% of the management
fee received by Scudder with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. Scudder
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLink(SM) Program will be a customer of Scudder (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.

The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, as well as
analyses from brokers and dealers who may execute portfolio transactions for the
Adviser's clients. However, the Adviser regards this information and material as
an adjunct to its own research activities. Scudder's international investment
management team travels the world, researching hundreds of companies. In
selecting the securities in which the Fund may invest, the conclusions and
investment decisions of the Adviser with respect to the Fund are based primarily
on the analyses of its own research department.

Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to the Fund.

35
<PAGE>

The Investment Management Agreement between the Fund and the Adviser is
dated August 12, 1996 and was approved by the Trustees on September 10, 1997 and
by the initial shareholder of the Fund on August 1, 1996. The Investment
Management Agreement (the "Agreement") will continue in effect until September
30, 1998 and from year to year thereafter only if its continuance is approved
annually by the vote of a majority of those Trustees who are not parties to the
Agreement or interested persons of the Adviser or the Trust, cast in person at a
meeting called for the purpose of voting on such approval, and either by a vote
of the Trustees or of a majority of the outstanding voting securities of the
Fund. The Agreement may be terminated at any time without payment of penalty by
either party on sixty days' written notice, and automatically terminates in the
event of its assignment.

Under the Agreement, the Adviser regularly provides the Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objective, policies and restrictions and determines what
securities shall be purchased, held or sold and what portion of the Fund's
assets shall be held uninvested, subject to the Fund's Declaration of Trust,
By-Laws, the 1940 Act, the Code and to the Fund's investment objective, policies
and restrictions, and subject, further, to such policies and instructions as the
Board of Trustees of the Fund may from time to time establish. The Adviser also
advises and assists the officers of the Fund in taking such steps as are
necessary or appropriate to carry out the decisions of its Trustees and the
appropriate committees of the Trustees regarding the conduct of the business of
the Fund.

Under the Agreement, the Adviser renders significant administrative
services (not otherwise provided by third parties) necessary for the Fund's
operations as an open-end investment company including, but not limited to,
preparing reports and notices to the Trustees and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to the Fund (such as the Fund's transfer agent, pricing
agents, Custodian, accountants and others); preparing and making filings with
the SEC and other regulatory agencies; assisting in the preparation and filing
of the Fund's federal, state and local tax returns; preparing and filing the
Fund's federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of the Fund under applicable
federal and state securities laws; maintaining the Fund's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of the Fund; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Fund's operating budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging for, the payment of distributions and dividends and otherwise
assisting the Fund in the conduct of its business, subject to the direction and
control of the Trustees.

The Adviser pays the compensation and expenses of all Trustees, officers
and executive employees (except expenses incurred attending Board and committee
meetings outside New York, New York or Boston, Massachusetts) of the Trust
affiliated with the Adviser and makes available, without expense to the Fund,
the services of such Trustees, officers and employees of the Adviser as may duly
be elected officers of the Trust, subject to their individual consent to serve
and to any limitations imposed by law, and provides the Fund's office space and
facilities.

For these services, Micro Cap Fund will pay the Adviser an annual fee
equal to 0.75% of the Fund's average daily net assets payable monthly, provided
the Fund will make interim payments as may be requested by the Adviser not to
exceed 75% of the amount of the fee then accrued on the books of the Fund and
unpaid. The Adviser has agreed until ______________ to maintain the total
annualized expenses of the Fund at no more than 1.75% of the average daily net
assets of the Fund.

Under the Agreement the Fund is responsible for all of its other expenses
including: organizational costs, fees and expenses incurred in connection with
membership in investment company organizations; fees and expenses of the Fund's
accounting agent; brokers' commissions; legal, auditing and accounting expenses;
taxes and governmental fees; the fees and expenses of the Transfer Agent; any
other expenses of issue, sale, underwriting, distribution, redemption or
repurchase of shares; the expenses of and the fees for registering or qualifying
securities for sale; the fees and expenses of Trustees, officers and employees
of the Fund who are not affiliated with the Adviser; the cost of printing and
distributing reports and notices to stockholders; and the fees and disbursements
of custodians. The Fund may arrange to have third parties assume all or part of
the expenses of sale, underwriting and distribution of shares of the Fund. The
Fund is also responsible for its expenses of shareholders' meetings, the cost of
responding to shareholders' inquiries, and its expenses incurred in connection
with litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees of the Fund with respect thereto.

36
<PAGE>

The Agreement requires the Adviser to reimburse the Fund for all or a
portion of advances of its management fee to the extent annual expenses of the
Fund (including the management fee stated above) exceed the limitations
prescribed by any state in which the Fund's shares are offered for sale.
Management has been advised that, while most states have eliminated expense
limitations, the lowest of such limitations is presently 2 1/2% of average daily
net assets up to $30 million, 2% of the next $70 million of average daily net
assets and 1 1/2% of average daily net assets in excess of that amount. Certain
expenses such as brokerage commissions, taxes, extraordinary expenses and
interest are excluded from such limitations. Any such fee advance required to be
returned to the Fund will be returned as promptly as practicable after the end
of the Fund's fiscal year. However, no fee payment will be made to the Adviser
during any fiscal year which will cause year to date expenses to exceed the
cumulative pro rata expense limitations at the time of such payment.

In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees of the Trust who are not
"interested persons" of the Adviser are represented by independent counsel at
the Fund's expense.

None of the officers or Trustees of the Trust may have dealings with a
Fund as principals in the purchase or sale of securities, except as individual
subscribers to or holders of shares of the Fund.

Personal Investments by Employees of the Adviser

Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.

TRUSTEES AND OFFICERS

Position with
Underwriter,
Scudder
Name, Age Position Principal Investor
and Address with Trust Occupation** Services, Inc.
- ----------- ---------- ------------ --------------

Daniel President and Chairman of the Vice
Pierce+*(63) Trustee Board and President,
Managing Director Director and
of Scudder, Assistant
Stevens & Clark, Treasurer
Inc.

37
<PAGE>

Position with
Underwriter,
Scudder
Name, Age Position Principal Investor
and Address with Trust Occupation** Services, Inc.
- ----------- ---------- ------------ --------------

Paul Bancroft III (67) Trustee Venture -
1120 Cheston Lane Capitalist and
Queenstown, MD 21658 Consultant;
Retired,
President Chief
Executive Officer
and Director of
Bessemer
Securities
Corporation

Sheryle J. Bolton (51) Trustee Consultant -
560 White Plains Road
Tarrytown, NY 10591

William T. Burgin (54) Trustee General Partner, -
P. O. Box 580 Bessemer Venture
Dover, MA 02030-0580 Partners

Thomas J. Devine (70) Trustee Consultant -
641 Lexington Avenue,
28th Floor
New York, NY 10022

Keith R. Fox (43) Trustee President, Exeter -
10 East 53rd Street Capital
New York, NY 10022 Management
Corporation

William H. Luers (68) Trustee President, The -
993 Fifth Avenue Metropolitan
New York, NY 10028 Museum of Art

Wilson Nolen (70) Trustee Consultant (1989 -
1120 Fifth Avenue until present);
New York, NY 10128 Corporate Vice
President of
Becton, Dickinson
& Company,
manufacturer of
medical and
scientific
products (until
June 1989)

Kathryn L. Trustee, Vice Managing Director Vice President
Quirk++ (44) President and of Scudder,
Assistant Stevens & Clark,
Secretary Inc.

Robert W. Lear (80) Honorary Executive-in-Resi -
429 Silvermine Road Trustee dence, Visiting
New Canaan, CT 06840 Professor,
Columbia
University
Graduate School
of Business

Robert G. Stone, Honorary Chairman of the -
Jr. (74) Trustee Board and
405 Lexington Director, Kirby
Avenue, Corporation
39th Floor (inland and
New York, NY 10174 offshore marine
transportation
and diesel
repairs)

38
<PAGE>

Position with
Underwriter,
Scudder
Name, Age Position Principal Investor
and Address with Trust Occupation** Services, Inc.
- ----------- ---------- ------------ --------------

Edmund R. Honorary Advisory Managing -
Swanberg++ (75) Trustee Director of
Scudder, Stevens
& Clark, Inc.

Peter Chin++ (55) Vice Principal of -
President Scudder, Stevens
& Clark, Inc.

James M. Vice Vice President of -
Eysenbach@ (35) President Scudder, Stevens
& Clark, Inc.

Philip S. Vice Managing Director -
Fortuna++ (39) President of Scudder,
Stevens & Clark,
Inc.

Jerard K. Vice Managing Director -
Hartman++ (64) President of Scudder,
Stevens & Clark,
Inc.

Thomas W. Joseph+ Vice Principal of Vice
(58) President Scudder, Stevens President,
& Clark, Inc. Director,
Treasurer and
Assistant Clerk

Thomas F. Vice Principal of Clerk
McDonough+ (50) President and Scudder, Stevens
Secretary & Clark, Inc.
Assistant
Treasurer

Pamela A. Vice Managing Director -
McGrath+ (43) President and of Scudder,
Treasurer Stevens & Clark,
Inc.

Roy C. McKay++ (54) Vice Managing Director -
President of Scudder,
Stevens & Clark,
Inc.

Edward J. Vice Principal of Assistant
O'Connell++ (52) President and Scudder, Stevens Treasurer
Assistant & Clark, Inc.
Treasurer

Richard W. Assistant Vice President of Vice President
Desmond++ (61) Secretary Scudder, Stevens
& Clark, Inc.

* Mr. Pierce and Ms. Quirk are considered by the Fund and counsel to be
persons who are "interested persons" of the Adviser or of the Fund, within
the meaning of the Investment Company Act of 1940, as amended.
** Unless otherwise stated, all the Trustees and officers have been
associated with their respective companies for more than five years, but
not necessarily in the same capacity.
# Ms. Quirk is a member of the Executive Committee for the Trust, which may
exercise all of the powers of the Trustees when they are not in session.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
@ Address: 101 California Street, Suite 4100, San Francisco, CA 94111-5886

The Trustees and officers of the Fund also serve in similar capacities
with other Scudder Funds.

All Trustees and officers as a group owned less than 1% of the Fund's
outstanding shares as of the commencement of operations.

39
<PAGE>

REMUNERATION

Responsibilities of the Board-Board and Committee Meetings

The Independent Trustees met 16 times during 1996, including Board and
Committee meetings and meetings to review each Fund's contractual arrangements
as described above.

Compensation of Officers and Trustees

Name Scudder Securities Trust* All Scudder Funds
---- ------------------------- -----------------

40
<PAGE>

Growth Fund commenced operations on September 9, 1996. Scudder Financial
Services Fund commenced operations on September 30, 1997. As of January 1,
1998, Scudder Health Care Fund and Scudder Technology Fund each had not
commenced operations.

DISTRIBUTOR

The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a subsidiary of
the Adviser, a Delaware corporation. The Trust's underwriting agreement dated
September 30, 1995 will remain in effect until September 30, 1998 and from year
to year thereafter only if their continuance is approved annually by a majority
of the members of the Board of Trustees who are not parties to such agreement or
interested persons of any such party and either by vote of a majority of the
Board of Trustees or a majority of the outstanding voting securities of the
Fund. The underwriting agreement was last approved by the Trustees on September
10, 1997.

Under the underwriting agreement, the Fund is responsible for: the payment
of all fees and expenses in connection with the preparation and filing with the
SEC of its registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering the Fund as a broker or dealer in
various states, as required; the fees and expenses of preparing, printing and
mailing prospectuses annually to existing shareholders (see below for expenses
relating to prospectuses paid by the Distributor); notices, proxy statements,
reports or other communications to shareholders of the Fund; the cost of
printing and mailing confirmations of purchases of shares and any prospectuses
accompanying such confirmations; any issuance taxes and/or any initial transfer
taxes; a portion of shareholder toll-free telephone charges and expenses of
shareholder service representatives; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
a portion of the cost of computer terminals used by both the Fund and the
Distributor.

The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Fund to the public.
The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a Rule 12b-1 Plan is in effect
which provides that the Fund shall bear some or all of such expenses.

Note: Although the Fund does not currently have a 12b-1 Plan, and the Trustees
have no current intention of adopting one, the Fund would also pay those
fees and expenses permitted to be paid or assumed by the Fund pursuant to
a 12b-1 Plan, if any, were adopted by the Fund, notwithstanding any other
provision to the contrary in the underwriting agreement.

As agent, the Distributor currently offers shares of the Fund on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.

41
<PAGE>

TAXES

(See "Distribution and performance information-Dividends and capital
gains distributions" and "Transaction information-Tax information, Tax
identification number" in the Fund's prospectus.)

The Fund has elected to be treated as a regulated investment company under
Subchapter M of the Code, or a predecessor statute and has qualified as such
since its inception. It intends to continue to qualify for such treatment. Such
qualification does not involve governmental supervision or management of
investment practices or policy.

A regulated investment company qualifying under Subchapter M of the Code
is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.

The Fund is subject to a 4% nondeductible excise tax on amounts required
to be but not distributed under a prescribed formula. The formula requires
payment to shareholders during a calendar year of distributions representing at
least 98% of the Fund's ordinary income for the calendar year, at least 98% of
the excess of its capital gains over capital losses (adjusted for certain
ordinary losses) realized during the one-year period ending October 31 during
such year, and all ordinary income and capital gains for prior years that were
not previously distributed.

Investment company taxable income generally is made up of dividends,
interest and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net realized capital gains for a fiscal year are computed
by taking into account any capital loss carryforward of the Fund.

If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a proportionate share of federal income taxes paid
by the Fund on such gains as a credit against the shareholder's federal income
tax liability, and will be entitled to increase the adjusted tax basis of the
shareholder's Fund shares by the difference between the shareholder's pro rata
share of such gains and the shareholder's tax credit. If the Fund makes such an
election, it may not be treated as having met the excise tax distribution
requirement.

Distributions of investment company taxable income are taxable to
shareholders as ordinary income.

Dividends from domestic corporations are not expected to comprise a
substantial part of the Fund's gross income. If any such dividends constitute a
portion of the Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the 70% deduction for dividends received by
corporations. Shareholders will be informed of the portion of dividends which so
qualify. The dividends-received deduction is reduced to the extent the shares of
the Fund with respect to which the dividends are received are treated as
debt-financed under federal income tax law and is eliminated if the shares are
deemed to have been held for less than 46 days.

Distributions of the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of the length of time the shares of the Fund have been held by such
shareholders. Such distributions are not eligible for the dividends-received
deduction. Any loss realized upon the redemption of shares held at the time of
redemption for six months or less will be treated as a long-term capital loss to
the extent of any amounts treated as distributions of long-term capital gain
during such six-month period.

42
<PAGE>

October, November or December with a record date in such a month will be deemed
to have been received by shareholders on December 31, if paid during January of
the following year. Redemptions of shares, including exchanges for shares of
another Scudder fund, may result in tax consequences (gain or loss) to the
shareholder and are also subject to these reporting requirements.

An individual may make a deductible IRA contribution of up to $2,000 or,
if less, the amount of the individual's earned income for any taxable year only
if (i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,250 to IRAs for an individual and his or her nonearning spouse) for that
year. There are special rules for determining how withdrawals are to be taxed if
an IRA contains both deductible and nondeductible amounts. In general, a
proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, annual contributions may be made to a
spousal IRA even if the spouse has earnings in a given year if the spouse elects
to be treated as having no earnings (for IRA contribution purposes) for the
year.

Distributions by the Fund result in a reduction in the net asset value of
the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.

The Fund intends to qualify for and may make the election permitted under
Section 853 of the Code so that shareholders may (subject to limitations) be
able to claim a credit or deduction on their federal income tax returns for, and
will be required to treat as part of the amounts distributed to them, their pro
rata portion of qualified taxes paid by the Fund to foreign countries (which
taxes relate primarily to investment income). The Fund may make an election
under Section 853 of the Code, provided that more than 50% of the value of the
total assets of the Fund at the close of the taxable year consists of securities
in foreign corporations. The foreign tax credit available to shareholders is
subject to certain limitations imposed by the Code.

If the Fund does not make the election permitted under section 853 any
foreign taxes paid or accrued will represent an expense to the Fund which will
reduce its investment company taxable income. Absent this election, shareholders
will not be able to claim either a credit or a deduction for their pro rata
portion of such taxes paid by the Fund, nor will shareholders be required to
treat as part of the amounts distributed to them their pro rata portion of such
taxes paid.

Equity options (including covered call options written on portfolio stock)
and over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general, no loss will
be recognized by the Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e. long-term or short-term) will generally depend, in the case of a lapse or
sale of the option, on the Fund's holding period for the option, and in the case
of the exercise of a put option, on the Fund's holding period for the underlying
property. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of any property
in the Fund's portfolio similar to the property underlying the put option. If
the Fund writes an option, no gain is recognized upon its receipt of a premium.
If the option lapses or is closed out, any gain or loss is treated as short-term
capital gain or loss. If the option is exercised, the character of the gain or
loss depends on the holding period of the underlying stock.

Positions of the Fund which consist of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into

43
<PAGE>

long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by the Fund.

Many futures and forward contracts entered into by the Fund and listed
nonequity options written or purchased by the Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), will be governed by Section 1256 of the Code. Absent a
tax election to the contrary, gain or loss attributable to the lapse, exercise
or closing out of any such position generally will be treated as 60% long-term
and 40% short-term capital gain or loss, and on the last trading day of the
Fund's fiscal year, all outstanding Section 1256 positions will be marked to
market (i.e., treated as if such positions were closed out at their closing
price on such day), with any resulting gain or loss recognized as 60% long-term
and 40% short-term capital gain or loss. Under Section 988 of the Code,
discussed below, foreign currency gain or loss from foreign currency-related
forward contracts, certain futures and options and similar financial instruments
entered into or acquired by the Fund will be treated as ordinary income or loss.

Subchapter M of the Code requires the Fund to realize less than 30% of its
annual gross income from the sale or other disposition of stock, securities and
certain options, futures and forward contracts held for less than three months.
The Fund's options, futures and forward transactions may increase the amount of
gains realized by the Fund that are subject to this 30% limitation. Accordingly,
the amount of such transactions that may undertake may be limited.

Positions of the Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or nonequity option
or other position governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, the operation of which may cause deferral of losses,
adjustments in the holding periods of securities and conversion of short-term
capital losses into long-term capital losses, certain tax elections exist for
them which reduce or eliminate the operation of these rules. The Fund will
monitor its transactions in options, foreign currency futures and forward
contracts and may make certain tax elections in connection with these
investments.

Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues interest or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain options, futures and forward contracts, gains or
losses attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of disposition are
also treated as ordinary gain or loss. These gains or losses, referred to under
the Code as "Section 988" gains or losses, may increase or decrease the amount
of the Fund's investment company taxable income to be distributed to its
shareholders as ordinary income.

If the Fund invests in stock of certain foreign investment companies, the
Fund may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.

The Fund may be able to make an election, in lieu of being taxable in the
manner described above, to include annually in income its pro rata share of the
ordinary earnings and net capital gain of the foreign investment company,
regardless of whether it actually received any distributions from the foreign
company. These amounts would be included in the Fund's investment company
taxable income and net capital gain which, to the extent distributed by the Fund
as ordinary or capital gain dividends, as the case may be, would not be taxable
to the Fund. In order to make this election, the Fund would be required to
obtain certain annual information from the foreign investment companies in

44
<PAGE>

which it invests, which in many cases may be difficult to obtain. The Fund may
make an election with respect to those foreign investment companies which
provide the Fund with the required information.

If the Fund invests in certain high yield original issue discount
obligations issued by corporations, a portion of the original issue discount
accruing on the obligation may be eligible for the deduction for dividends
received by corporations. In such event, dividends of investment company taxable
income received from the Fund by its corporate shareholders, to the extent
attributable to such portion of accrued original issue discount, may be eligible
for this deduction for dividends received by corporations if so designated by
the Fund in a written notice to shareholders.

The Fund will be required to report to the Internal Revenue Service all
distributions of investment company taxable income and capital gains as well as
gross proceeds from the redemption or exchange of Fund shares, except in the
case of certain exempt shareholders. Under the backup withholding provisions of
Section 3406 of the Code, distributions of investment company taxable income and
capital gains and proceeds from the redemption or exchange of the shares of a
regulated investment company may be subject to withholding of federal income tax
at the rate of 31% in the case of non-exempt shareholders who fail to furnish
the investment company with their taxpayer identification numbers and with
required certifications regarding their status under the federal income tax law.
Withholding may also be required if the Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.

Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.

The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. persons, i.e., U.S. citizens and residents
and U.S. corporations, partnerships, trusts and estates. Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.

Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.

PORTFOLIO TRANSACTIONS

Brokerage Commissions

To the maximum extent feasible, the Adviser places orders for portfolio
transactions for the Fund through the Distributor which in turn places orders on
behalf of the Fund with issuers, underwriters or other brokers and dealers. The
Distributor receives no commissions, fees or other remuneration from the Fund
for this service. Allocation of brokerage is supervised by the Adviser.

The primary objective of the Adviser in placing orders for the purchase and
sale of securities for the Fund's portfolio is to obtain the most favorable net
results taking into account such factors as price, commission where applicable
(negotiable in the case of U.S. national securities exchange transactions but
which is generally fixed in the case of foreign exchange transactions) size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by the Fund to reported commissions paid by
others. The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.

45
<PAGE>

securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for the Fund to
pay a brokerage commission (to the extent applicable) in excess of that which
another broker might have charged for executing the same transaction solely on
account of the receipt of research, market or statistical information. The
Adviser will not place orders with brokers or dealers on the basis that the
broker or dealer has or has not sold shares of the Fund. In effecting
transactions in over-the-counter securities, orders are placed with the
principal market makers for the security being traded unless, after exercising
care, it appears that more favorable results are available otherwise.

The Fund's purchases of securities which are traded in the
over-the-counter market are generally placed by the Adviser with primary market
makers for these securities on a net basis, without any brokerage commission
being paid by the Fund. Such trading does, however, involve transaction costs.
Transactions with dealers serving as primary market makers reflect the spread
between the bid and asked prices. Purchases of underwritten issues may be made
which will include an underwriting fee paid to the underwriter.

Although certain research, market and statistical information from brokers
and dealers can be useful to the Fund and to the Adviser, it is the opinion of
the Adviser that such information will only supplement the Adviser's own
research effort since the information must still be analyzed, weighed, and
reviewed by the Adviser's staff. Such information may be useful to the Adviser
in providing services to clients other than the Fund, and not all such
information will be used by the Adviser in connection with the Fund. Conversely,
such information provided to the Adviser by brokers and dealers through whom
other clients of the Adviser effect securities transactions may be useful to the
Adviser in providing services to the Fund.

The Trustees intend to review from time to time whether the recapture for
the benefit of the Fund of some portion of the brokerage commissions or similar
fees paid by the Fund on portfolio transactions is legally permissible and
advisable.

Portfolio Turnover

The Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. A higher rate
involves greater brokerage transaction expenses to the Fund and may result in
the realization of net capital gains, which would be taxable to shareholders
when distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective. Under normal
investment conditions, it is anticipated that the portfolio turnover rate in the
Fund's initial fiscal year will not exceed 75%.

NET ASSET VALUE

The net asset value of shares of the Fund is computed as of the close of
regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of the Fund, less
all liabilities, by the total number of shares outstanding.

46
<PAGE>

approximates market value. If it is not possible to value a particular debt
security pursuant to these valuation methods, the value of such security is the
most recent bid quotation supplied by a bona fide marketmaker. If it is not
possible to value a particular debt security pursuant to the above methods, the
Adviser may calculate the price of that debt security, subject to limitations
established by the Board.

An exchange traded options contract on securities, currencies, futures and
other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.

Following the valuations of securities or other portfolio assets in terms
of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.

ADDITIONAL INFORMATION

Experts

The Financial Highlights of the Fund will be included in the Fund's
prospectus, and the Financial Statement incorporated by reference in this
Statement of Additional Information, in reliance on the report of Coopers &
Lybrand, L.L.P., One Post Office Square, Boston, Massachusetts 02109,
independent accountants, and given on the authority of that firm as experts in
accounting and auditing.

Other Information

Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in the light of its other portfolio holdings and
tax considerations and should not be construed as recommendations for similar
action by other investors.

The CUSIP number of Micro Cap Fund is 8111 96 302.

The Fund has a fiscal year end of August 31.

Dechert Price & Rhoads acts as general counsel for the Fund.

The Fund employs State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 as Custodian.

Costs of $26,600 incurred by the Fund in conjunction with its organization
are amortized over the five year period beginning August 12, 1996.

47
<PAGE>

Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts, 02107-2291, a subsidiary of the Adviser, is the transfer
and dividend disbursing agent for the Fund. Service Corporation also serves as
shareholder service agent and provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans. The
Fund pays Service Corporation an annual fee for each account maintained for a
participant.

Annual service fees are paid by the Fund to Scudder Trust Company, Two
International Place, Boston, Massachusetts 02110-4103, an affiliate of the
Adviser, for certain retirement plan accounts.

Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts 02110-4103, a subsidiary of the Adviser, computes net asset values
for the Fund. The Fund pays Scudder Fund Accounting Corporation an annual fee
equal to 0.065% of the first $150 million of average daily net assets, 0.04% of
such assets in excess of $150 million and 0.02% of such assets in excess of $1
billion, plus holding and transaction charges for this service.

FINANCIAL STATEMENTS

The financial statements, including the Investment Portfolio of Micro Cap
Fund, together with the Report of Independent Accountants, and Financial
Highlights, are incorporated by reference and attached hereto in the Annual
Report to Shareholders of the Fund dated August 31, 1997, and are deemed to be
part of this Statement of Additional Information.

<PAGE>

Scudder Micro Cap Fund

Annual Report
August 31, 1997

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.

SCUDDER LOGO

<PAGE>

In Brief

o For the twelve-month period ended August 31, 1997, Scudder Micro Cap Fund
provided a total return of 39.10%, exceeding the 31.37% average total
return of micro-cap funds according to Lipper Analytical Services, Inc. for
the same period.

o While large-cap stocks led the equity markets for most of the twelve
months, micro-cap stocks narrowed the gap towards the end of the period, as
market sentiment shifted in favor of smaller-cap stocks.

o In keeping with a plan in place since the Fund's inception, Scudder Micro
Cap Fund closed to new individual investors on September 22, 1997. Existing
shareholders and participants in qualified retirement plans may continue to
make additional investments.

Table of Contents

3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Glossary of Investment Terms
10 Investment Portfolio
22 Financial Statements
25 Financial Highlights
26 Notes to Financial Statements
29 Report of Independent Accountants
32 Officers and Trustees
33 Investment Products and Services
34 Scudder Solutions

2-SCUDDER MICRO CAP FUND
<PAGE>

Letter from the Fund's President

<PAGE>

Dear Shareholders,

We are pleased to present the annual report for Scudder Micro Cap Fund for
the twelve-month period ended August 31, 1997.

The Fund's first complete fiscal year provided shareholders with strong
returns that exceeded the performance of our benchmarks and other micro-cap
funds. Small- and micro-cap stock performance began to accelerate towards the
end of the period, a shift in sentiment supported by questions about the
sustainability of sales and earnings growth rates at some large companies, and
the relatively attractive valuations of many smaller-cap issues, especially
micro-cap stocks. In this environment, our disciplined approach to investing in
America's smallest public companies has been particularly rewarding to Fund
shareholders. A complete discussion of your Fund's activities begins on page 6.

Many of you are to thank for the growth and success of Scudder Micro Cap
Fund during its first year of operations. This has resulted in the Fund
surpassing $100 million in total assets, a point at which we planned to close
the Fund to new individual investors. In keeping with this plan, which has been
in place since the Fund's commencement of operations on August 12, 1996, the
Fund closed to new individual investors, effective September 22, 1997. However,
existing shareholders and participants in qualified retirement plans may
continue to make additional investments.

We believe closing the Fund to new investors should make managing the
Fund's portfolio easier at this time and preserve the Fund's ability to stay
focused on America's smallest companies. The Fund's Trustees may decide to
reopen the Fund at some point in the future based on market conditions and other
factors.

For those of you who are interested in new Scudder products, we recently
introduced Scudder International Growth and Income Fund, which pursues a
yield-oriented approach to investing in international equities. The Fund seeks
to provide long-term growth of capital plus current income. Investors who desire
international exposure but wish to take a more conservative approach may
appreciate the Fund's emphasis on dividend-paying stocks of established
companies listed on foreign exchanges. For further information on this new fund,
please turn to page 35.

Thank you for your investment in Scudder Micro Cap Fund. If you have any
questions about your Fund, please call Scudder Investor Relations at
1-800-225-2470, or visit our Internet Web site at http://funds.scudder.com.

Sincerely,

/s/Daniel Pierce
Daniel Pierce
President,
Scudder Micro Cap Fund

3 - SCUDDER MICRO CAP FUND
<PAGE>

Performance Update as of August 31, 1997

- ----------------------------------------
Fund Index Comparisons
- ----------------------------------------
Total Return
- ----------------------------------------
Period Growth
Ended of Average
8/31/97 $10,000 Cumulative Annual
- ----------------------------------------
Scudder Micro Cap Fund
Ticker Symbol: SCMCX
- ----------------------------------------
1 Year $13,910 39.10% 39.10%
Life of
Fund** $13,991 39.91% 37.84%
- ----------------------------------------
Russell 2000 Index
- ----------------------------------------
1 Year $12,895 28.95% 28.95%
Life of
Fund** $13,163 31.63% 29.85%
- ----------------------------------------
S&P 500 Index
- ----------------------------------------
1 Year $14,064 40.64% 40.64%
Life of
Fund** $13,870 38.70% 36.47%

Scudder Micro Cap Fund
Year Amount
- ----------------------
8/96* $10,000
11/96 $10,414
2/97 $11,355
5/97 $11,762
8/97 $13,910

Russell 2000 Index
Year Amount
- ----------------------
8/96* $10,000
11/96 $10,652
2/97 $10,880
5/97 $11,552
8/97 $12,896

S&P 500 Index
Year Amount
- ----------------------
8/96* $10,000
11/96 $11,675
2/97 $12,254
5/97 $13,210
8/97 $14,066

The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Nasdaq Stock Market.
The Russell 2000 Index is an unmanaged capitalization-weighted measure
of approximately 2000 small U.S. stocks. Index returns assume reinvestment
of dividends and, unlike Fund returns, do not reflect any fees or expenses.

* The Fund commenced operations on August 12, 1996. The graphed Index
comparison begins August 31, 1996.

- ----------------------------------------
Returns and Per Share Information
- ----------------------------------------

A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.

Yearly periods ended August 31

1996** 1997
- --------------------------------------------------------------------------------
Net Asset Value $12.07 $16.77
- --------------------------------------------------------------------------------
Income Dividends $ -- $ .02
- --------------------------------------------------------------------------------
Fund Total Return (%) .58 39.10
- --------------------------------------------------------------------------------
Russell 2000 Index Total Return (%) 2.08 28.95
- --------------------------------------------------------------------------------
Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, the total return for the one year and life
of Fund periods would have been lower.

** The Fund commenced operations on August 12, 1996.

4 - SCUDDER MICRO CAP FUND
<PAGE>

Portfolio Summary as of August 31, 1997

- ----------------------------------------
Asset Allocation
- ----------------------------------------

A graph in the form of a pie chart appears
here, illustrating the exact data points
in the below table.

Common Stocks 92%
Cash Equivalents 8%
- ----------------------------------------
100%
- ----------------------------------------

Cash abnormally high due to strong fund
subscriptions.

- ----------------------------------------
Sectors/Largest Holdings
(Excludes 8% Cash Equivs.)
- ----------------------------------------

1. Financial (22%)
MSB Bancorp, Inc.
Savings bank holding company

2. Manufacturing (13%)
Badger Meter, Inc.
Manufacturer of water meters and
other flow measurement and control
devices

3. Consumer Discretionary (13%)
Fred's, Inc "A"
General merchandise discount store chain

4. Technology (8%)
IEC Electronics Corp.
Manufacturer complex printed circuit
boards

5. Service Industries (7%)
URS Corp.
Infrastructure projects including
transportation, pollution control,
water resources; hazardous waste
management

6. Consumer Staples (6%)
Hain Food Group, Inc..
Provider of specialty food products

7. Durables (5%)
Ducommun, Inc.
Manufacturer of components and
sub-assemblies for aerospace and
wireless telecommunications industries

8. Construction (4%)
Engle Homes, Inc.
Design and construction of single
family homes, townhouses and
condominiums

9. Health (4%)
National Patent Development Corp.
Manufacturer and distributor of
medical health care and consumer
products

10.Energy (3%)
NS Group, Inc.
Producer of tubular and bar steel,
carbon and alloy products

- ----------------------------------------------------------------------
Stock Characteristics
- ----------------------------------------------------------------------

Fund as
Micro Cap % of
Median Values Fund Universe Universe
- ----------------------------------------------------------------------
Market Capitalization ($ millions) 56 55 102%
Price/Earnings 16.4 33.6 49%
Sales Growth (5 year) 14.5 14.2 102%
Return On Equity (3 year) 10.7 6.4 167%

Reflecting the Fund's emphasis on stocks with very
small market capitalizations, the portfolio's average
market-cap is less than one quarter of the overall
small-cap market.

For more complete details about the Fund's Investment Portfolio, see page 10.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.

5 - SCUDDER MICRO CAP FUND
<PAGE>

Portfolio Management Discussion

In the following interview, James M. Eysenbach and Philip S. Fortuna, portfolio
managers of Scudder Micro Cap Fund, discuss the Fund's strategy and market
environment during the fiscal period.

Q: How did the Fund perform?

A: The Fund provided a total return of 39.10% for the trailing twelve-month
period ended August 31, 1997, exceeding the 29.15% return of micro-cap stocks as
measured by the DFA U.S. 9-10 Index Fund and the 31.37% median return of
micro-cap funds as reported by Lipper Analytical Services, Inc. for the same
period. This performance reflects an increase in net asset value from $12.07 to
$16.77, and an income distribution of $0.02 per share.

Q: How do you view this performance?

A: We are pleased the Fund has gotten off to a good start. The Fund's
disciplined approach to uncovering undervalued opportunities among micro-cap
stocks has been particularly rewarding during the first full fiscal year.
Large-cap stocks have dominated market returns over most of the year. However,
towards the end of the twelve-month period, we began to see a change as
micro-cap performance accelerated, bringing the Fund's returns nearly in line
with large-cap stocks. Meanwhile, the Fund's volatility has been among the
lowest of any fund in the micro-cap category. Of course, one year is a
relatively short investment horizon; we would suggest a minimum of five years
for evaluating the performance of any micro-cap stock fund.

Q: What do you invest in?

A: We seek long-term growth of capital by investing primarily in America's
smallest publicly-traded stocks, otherwise known as micro-cap stocks. These
stocks typically have market capitalizations (market-caps) of $180 million or
less at the time of purchase. To give you an idea of their size relative to
other stocks: computer maker Intel has a market-cap of $152 billion, the S&P 500
has a median market-cap of $6 billion and the Russell 2000, a small-cap index,
has a median market-cap of $461 million. These compare to the Fund's median
market-cap of only $56 million. A company's market-cap is determined by
multiplying its stock price times the number of shares outstanding.

Q: How else are micro-cap stocks different from large-cap stocks?

A: Micro-cap companies tend to have higher business risks than more established
companies, such as untested management, less diversified product lines, and
limited financial resources. As a result, these companies are often avoided and
not widely followed by investors. We believe this creates opportunities for
investors who understand and can manage these risks. One of the ways we attempt
to control these risks is by holding more than 250 micro-cap issues in the
portfolio. We also closely monitor the Fund's overall risk profile and attempt
to keep volatility below that of the overall universe of micro-cap stocks.

Q: Smaller-cap issues have a reputation of being more volatile than large-cap
issues. How did the Fund measure up during the period?

A: The Fund displayed lower volatility, whether measured against the micro-cap
universe (the DFA U.S. 9-10 Index Fund) or the large-cap S&P 500 Index. The
Fund's overall volatility, as measured by the standard deviation of returns over

6 - SCUDDER MICRO CAP FUND
<PAGE>

the twelve-month period, has been about 20-30% less than that of micro-cap
stocks and the S&P 500.

Q: What makes micro-cap stocks attractive to investors?

A: We believe this segment contains many opportunities for capital appreciation
and diversification. Because micro-cap stocks are among the smallest issues,
they are often overlooked by many analysts and investors. More than 7,000 U.S.
companies are traded on leading national stock exchanges, but most equity mutual
funds invest primarily in the 3,000 largest companies. By contrast, Scudder
Micro Cap Fund's investment universe is comprised of the smallest domestic
issues, totaling about 4,000 stocks. Historically, these micro-cap stocks have
provided higher average returns than larger-cap stocks.

Q: What is your investment strategy?

A: In pursuing capital appreciation from micro-cap stocks, we utilize a
disciplined, quantitative approach. We seek to add value through quantitative
stock analysis, portfolio construction and efficient trading. We do not attempt
to add value through market timing, either by moving between stocks and cash or
among various segments of the equity markets. Instead, we attempt to keep the
Fund essentially fully invested in U.S. micro-cap stocks. This approach is
consistently applied and does not change significantly from one reporting period
to the next.

7 - SCUDDER MICRO CAP FUND
<PAGE>

Q: How do you select stocks for the portfolio?

A: Our highly systematic approach starts with collecting extensive financial
information on thousands of individual companies. Using a proprietary investment
model, we analyze valuations, growth rates, price momentum, and risk
characteristics in a consistent, objective way. We compare each stock to a broad
universe of micro-cap companies and rank it based on relative attractiveness.
Next, there is the highly complex decision of determining which combination of
stocks to hold and how much to weight them in the portfolio. We employ the
assistance of a computer model to assess the many possibilities and identify the
portfolio with the highest potential return for a given level of risk. Finally,
we work with our traders to determine the most efficient means of executing our
purchase and sale decisions. This is a critical step because the typical bid/ask
spread (the difference between the current buying and selling price of a
security) for micro-caps averages 4-5% of the stock price.

Q: What is your outlook for micro-cap stocks?

A: We believe micro-cap stocks have an important place in the portfolios of many
long-term investors. Valuations are compelling versus large-cap stocks, and
micro-cap stocks can provide meaningful diversification in an investor's
portfolio. While a repeat of the Fund's 39% first-year return is probably
unrealistic, sales and earnings have become harder to sustain at some large
companies. We believe selected micro-cap stocks should continue to provide
attractive returns to investors who understand the risks and have sufficiently
long-term investment horizons of at least five years.

Scudder Micro Cap Fund:
A Team Approach to Investing

8 - SCUDDER MICRO CAP
<PAGE>
Glossary of Investment Terms

GROWTH STOCK Stock of a company that has
displayed above average earnings growth
and is expected to continue to increase
profits rapidly going forward.

(Sources: Scudder; Barron's Dictionary of Finance and Investment Terms)

9 - SCUDDER MICRO CAP FUND
<PAGE>

Investment Portfolio as of August 31, 1997

<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 3.7%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 8/29/97 at 5.53%, to be
repurchased at $3,432,108 on 9/2/97, collateralized by a $3,409,000 U.S. Treasury ----------
Bond, 6.375%, 7/15/99 (Cost $3,430,000) ............................................... 3,430,000 3,430,000
----------

Short-Term Notes 4.3%
- ------------------------------------------------------------------------------------------------------------------------------
----------
Federal Home Loan Mortgage Corp. Discount Note, 9/2/97 (Cost $3,999,389) ................ 4,000,000 3,999,389
----------
<CAPTION>
Shares
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 92.0%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 12.8%
Apparel & Shoes 1.1%
Cache, Inc.* ............................................................................ 85,400 277,550
Hyde Athletic Industries, Inc. "B"* ..................................................... 44,600 195,125
Michael Anthony Jewelers, Inc.* ......................................................... 94,500 283,500
Pubco Corp.* ............................................................................ 28,100 302,075
----------
1,058,250
----------
Department & Chain Stores 1.5%
Drug Emporium, Inc.* .................................................................... 68,300 307,350
Duckwall-ALCO Stores, Inc.* ............................................................. 31,000 422,375
Fred's, Inc. "A" ........................................................................ 26,300 522,713
Rose's Holdings, Inc.* .................................................................. 142,900 192,022
----------
1,444,460
----------
Home Furnishings 1.2%
Ameriwood Industries International Corp.* ............................................... 34,000 191,250
Baldwin Piano & Organ Co.* .............................................................. 20,100 298,988
National Picture & Frame Co.* ........................................................... 17,000 183,813
Seaman Furniture Co.* ................................................................... 17,490 421,946
----------
1,095,997
----------
Hotels & Casinos 1.0%
Amerihost Properties, Inc.* ............................................................. 24,200 151,250
International Thoroughbred Breeders, Inc.* .............................................. 56,300 225,200
Sonesta International Hotels Corp. "A" .................................................. 24,200 229,900
Supertel Hospitality, Inc.* ............................................................. 27,100 271,000
----------
877,350
----------
Recreational Products 2.5%
Allen Organ Co. "B" ..................................................................... 12,600 492,975
Datamarine International, Inc.* ......................................................... 20,000 100,000
</TABLE>

The accompanying notes are an integral part of the financial statements.

10 -- SCUDDER MICRO CAP FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Equity Marketing, Inc.* ................................................................. 13,200 313,500
Escalade, Inc.* ......................................................................... 20,900 201,163
Fountain Powerboat Industries, Inc.* .................................................... 22,300 331,713
Holiday RV Superstores, Inc.* ........................................................... 123,700 212,609
Marker International* ................................................................... 25,000 106,250
Polk Audio, Inc.* ....................................................................... 34,100 306,900
Rexhall Industries, Inc.* ............................................................... 45,120 242,520
----------
2,307,630
----------
Restaurants 2.1%
Benihana, Inc. "A"* ..................................................................... 30,400 361,000
DenAmerica Corp.* ....................................................................... 125,800 283,050
Garden Fresh Restaurant Corp.* .......................................................... 39,000 477,750
Max & Erma's Restaurants, Inc.* ......................................................... 61,700 401,050
Skyline Chili, Inc. ..................................................................... 41,100 262,013
Timber Lodge Steakhouse, Inc.* 33,100 153,088
----------
1,937,951
----------
Specialty Retail 3.4%
Amplicon, Inc. .......................................................................... 15,600 413,400
Bell Microproducts, Inc.* ............................................................... 38,100 347,663
Brookstone, Inc.* ....................................................................... 29,900 302,738
D.I.Y. Home Warehouse, Inc.* ............................................................ 112,900 352,813
Natural Wonders, Inc.* .................................................................. 46,700 192,638
Perfumania, Inc.* ....................................................................... 81,200 218,225
Rent-Way, Inc.* ......................................................................... 24,900 451,313
S & K Famous Brands, Inc.* .............................................................. 25,600 352,000
Southern Electronics Corp.* ............................................................. 14,000 211,750
Transnet Corp.* ......................................................................... 73,000 260,063
----------
3,102,603
----------
Consumer Staples 6.2%
Consumer Electronic & Photographic Products 0.7%
Cobra Electronics Corp.* ................................................................ 84,300 611,175
----------
Food & Beverage 3.6%
Chock Full O'Nuts Corp.* ................................................................ 77,800 539,738
Foodarama Supermarkets, Inc.* ........................................................... 14,100 240,581
Hain Food Group, Inc.* .................................................................. 63,500 650,875
J & J Snack Foods Corp.* ................................................................ 22,300 345,650
</TABLE>

The accompanying notes are an integral part of the financial statements.

11 -- SCUDDER MICRO CAP FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Schultz Sav-O Stores, Inc. .............................................................. 21,100 514,313
Seaway Food Town, Inc. .................................................................. 17,800 356,000
Suprema Specialties, Inc.* .............................................................. 85,000 276,250
Village Super Market, Inc. "A"* ......................................................... 23,400 204,750
Westbrae Natural, Inc.* ................................................................. 48,300 156,975
----------
3,285,132
----------
Package Goods/Cosmetics 0.7%
Allou Health & Beauty, Inc. "A"* ........................................................ 33,800 259,838
BeautiControl Cosmetics, Inc. ........................................................... 13,900 125,100
Nutramax Products, Inc.* ................................................................ 19,800 267,300
----------
652,238
----------
Textiles 1.2%
Dyersburg Corp. ......................................................................... 49,100 540,100
Premiumwear, Inc. ....................................................................... 51,300 221,231
Worldtex, Inc.* ......................................................................... 49,000 315,406
----------
1,076,737
----------
Health 4.1%
Biotechnology 0.2%
Synbiotics Corp.* ....................................................................... 59,400 211,613
----------
Health Industry Services 0.9%
Caretenders Healthcorp* ................................................................. 36,300 281,325
Healthcare Services Group, Inc.* ........................................................ 29,400 398,738
Staff Buildings, Inc. "A"* .............................................................. 67,200 189,000
----------
869,063
----------
Hospital Management 0.2%
National Home Health Care Corp.* ........................................................ 40,442 212,321
----------
Medical Supply & Specialty 2.8%
Akorn, Inc.* ............................................................................ 62,600 158,456
Gamma Biologicals, Inc. ................................................................. 73,900 341,788
Moore Medical Corp.* .................................................................... 22,200 244,200
National Patent Development Corp.* ...................................................... 52,220 580,948
Osteotech, Inc.* ........................................................................ 14,800 271,950
Polymedica Industries, Inc. ............................................................. 22,200 266,400
Superior Surgical Manufacturing Co., Inc. ............................................... 30,100 462,788
Trans Leasing International, Inc. ....................................................... 30,000 273,750
----------
2,600,280
----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

12 -- SCUDDER MICRO CAP FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Communications 0.2%
Telephone/Communications
Hector Communications Corp. ............................................................. 20,600 164,800
----------
Financial 21.7%
Banks 16.9%
Andover Bancorp, Inc. ................................................................... 13,600 414,800
CENFED Financial Corp. .................................................................. 4,950 163,350
CFX Corp. ............................................................................... 10,420 211,005
Centennial Bancorp* ..................................................................... 8,283 199,827
CoBancorp, Inc. ......................................................................... 12,500 340,625
Coastal Bancorp, Inc. ................................................................... 9,800 289,100
Columbia Banking System, Inc.* .......................................................... 11,760 280,770
Community Bankshares, Inc. .............................................................. 7,000 293,125
Eagle Financial Corp. ................................................................... 23,212 789,208
FNB Rochester Corp.* .................................................................... 19,000 313,500
Fed One Bancorp ......................................................................... 11,100 222,000
First Citizens Corp.* ................................................................... 3,500 112,000
First Essex Bancorp ..................................................................... 15,800 264,650
First Georgia Holding, Inc. ............................................................. 10,000 77,500
First Mutual Savings Bank ............................................................... 16,340 343,140
First Oak Brook Bancshares, Inc. "A"* ................................................... 10,300 319,300
First Republic Bancorp, Inc.* ........................................................... 13,100 309,488
FirstFederal Financial Services Corp. ................................................... 6,000 246,000
Foothill Independent Bancorp ............................................................ 25,110 360,956
Granite State Bankshares, Inc. .......................................................... 22,650 458,663
HMN Financial, Inc.* .................................................................... 13,300 325,850
Haven Bancorp, Inc. ..................................................................... 6,100 231,038
Hingham Institution for Savings ......................................................... 14,600 354,050
Hudson Chartered Bancorp, Inc.* ......................................................... 8,250 236,156
Lawrence Savings Bank* .................................................................. 34,400 391,300
MSB Bancorp, Inc. ....................................................................... 34,800 809,100
Medford Savings Bank .................................................................... 11,800 371,700
Merchants Bancorp, Inc. ................................................................. 8,700 391,500
Mid Continent Bancshares, Inc. .......................................................... 8,300 246,925
Mutual Savings Bank F.S.B.* ............................................................. 24,600 258,300
New Milford Bank & Trust Co. ............................................................ 17,100 273,600
</TABLE>

The accompanying notes are an integral part of the financial statements.

13 -- SCUDDER MICRO CAP FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Northrim Bank ........................................................................... 36,385 400,235
Parkvale Financial Corp. ................................................................ 15,550 454,838
People's Bancshares, Inc. ............................................................... 14,400 241,200
PonceBank ............................................................................... 8,000 167,500
Progress Financial Corp. ................................................................ 12,285 181,204
Provident Bankshares Corp. .............................................................. 4,599 206,955
SJNB Financial Corp. .................................................................... 11,000 292,875
Second Bancorp, Inc. .................................................................... 11,600 243,600
Skaneateles Bancorp, Inc. ............................................................... 16,400 373,100
Southwest Bancorp, Inc. ................................................................. 5,500 115,500
State Financial Services Corp. "A" ...................................................... 24,440 525,460
Sterling Bancorp ........................................................................ 22,700 436,975
Sterling Bancshares, Inc. ............................................................... 11,000 198,000
Surety Capital Corp.* ................................................................... 62,400 343,200
The Bank of Southington ................................................................. 9,100 182,000
Tolland Bank ............................................................................ 17,866 305,955
Warren Bancorp, Inc. .................................................................... 18,000 315,000
Washington Savings Bank, F.S.B. ......................................................... 27,500 185,625
West Coast Bancorp ...................................................................... 18,475 484,969
----------
15,552,717
----------
Insurance 2.5%
ACCEL International Corp.* .............................................................. 74,100 259,350
Amwest Insurance Group, Inc. ............................................................ 10,900 171,675
Cotton States Life Insurance ............................................................ 29,150 433,606
Investors Title Co. ..................................................................... 18,300 320,250
Penn-America Group, Inc. ................................................................ 21,050 384,163
Siebels Bruce Group, Inc.* .............................................................. 35,800 281,925
Southern Security Life Insurance Co.* ................................................... 11,500 90,563
Standard Management Corp.* .............................................................. 44,800 338,800
----------
2,280,332
----------
Business Finance 0.5%
Advest Group, Inc. ...................................................................... 19,000 432,250
----------
Other Financial Companies 0.4%
First Cash, Inc.* ....................................................................... 48,900 336,188
----------
Real Estate 1.4%
AMREP Corp.* ............................................................................ 56,400 274,950
</TABLE>

The accompanying notes are an integral part of the financial statements.

14 -- SCUDDER MICRO CAP FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Atlantic Gulf Communities Corp.* ........................................................ 32,300 181,688
Grubb & Ellis Co.* ...................................................................... 37,300 550,175
New Mexico & Arizona Land Co.* .......................................................... 15,950 267,163
----------
1,273,976
----------
Media 0.4%
Broadcasting & Entertainment
Vaughn Communications, Inc. ............................................................. 43,700 327,750
----------
Service Industries 7.1%
Environmental Services 1.6%
GZA GeoEnvironmental Technologies, Inc.* ................................................ 83,800 309,013
Scope Industries, Inc. .................................................................. 6,700 366,825
URS Corp.* .............................................................................. 32,400 520,425
Versar, Inc.* ........................................................................... 62,300 241,413
----------
1,437,676
----------
Investment 1.1%
H.D. Vest, Inc.* ........................................................................ 36,900 184,500
Kinnard Investment, Inc.* ............................................................... 55,200 320,850
M.H. Meyerson & Co, Inc. ................................................................ 37,400 211,544
Scott & Stringfellow Financial, Inc. .................................................... 14,450 335,963
----------
1,052,857
----------
Miscellaneous Commercial Services 3.4%
American Physicians Service Group, Inc.* ................................................ 23,600 165,200
Automobile Protection Corp.* ............................................................ 81,300 396,338
Business Resource Group* ................................................................ 61,400 260,950
Failure Group, Inc.* .................................................................... 37,500 271,875
General Employment Enterprises, Inc. .................................................... 30,170 486,491
Halifax Corp. ........................................................................... 27,150 285,075
Joule, Inc.* ............................................................................ 37,200 162,750
LCS Industries, Inc. .................................................................... 19,300 308,800
RCM Technologies, Inc. .................................................................. 31,400 423,900
Unapix Entertainment, Inc. .............................................................. 95,700 418,688
----------
3,180,067
----------
Miscellaneous Consumer Services 0.6%
ACE Cash Express, Inc.* ................................................................. 19,850 325,044
Children's Discovery Centers of America, Inc.* .......................................... 33,300 245,588
----------
570,632
----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

15 -- SCUDDER MICRO CAP FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Printing/Publishing 0.4%
Tufco Technologies, Inc. ................................................................ 45,100 372,075
----------
Durables 4.7%
Aerospace 1.4%
Ducommun, Inc.* ......................................................................... 16,200 603,450
ECC International Corp. ................................................................. 58,300 233,200
Engineered Support Systems, Inc. ........................................................ 22,300 423,700
----------
1,260,350
----------
Automobiles 1.0%
AirSensors, Inc.* ....................................................................... 33,500 322,438
Hilite Industries, Inc.* ................................................................ 38,200 224,425
Motorcar Parts & Accessories, Inc.* ..................................................... 22,300 426,488
----------
973,351
----------
Construction/Agricultural Equipment 0.8%
Portec, Inc. ............................................................................ 21,500 259,344
Terex Corp.* ............................................................................ 20,300 438,988
----------
698,332
----------
Leasing Companies 0.3%
PLM International, Inc.* ................................................................ 52,800 293,700
----------
Telecommunications Equipment 0.7%
Comdial Corp.* .......................................................................... 31,400 247,275
TCI International, Inc.* ................................................................ 58,000 300,875
Technical Communications, Inc.* ......................................................... 18,100 131,225
----------
679,375
----------
Miscellaneous 0.5%
Fansteel, Inc. .......................................................................... 49,500 439,313
----------
Manufacturing 13.3%
Chemicals 0.8%
AG Services of America, Inc.* ........................................................... 10,500 200,813
Aceto Corp. ............................................................................. 28,700 513,013
----------
713,826
----------
Containers & Paper 0.4%
Applied Extrusion Technologies, Inc.* ................................................... 40,600 370,475
----------
Electrical Products 1.4%
Bel Fuse, Inc.* ......................................................................... 16,200 289,575
SL Industries, Inc. ..................................................................... 40,300 413,075
</TABLE>

The accompanying notes are an integral part of the financial statements.

16 -- SCUDDER MICRO CAP FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sage Laboratories, Inc. ................................................................. 15,300 214,200
Valley Forge Corp. ...................................................................... 17,400 411,075
----------
1,327,925
----------
Industrial Specialty 7.1%
Ault, Inc.* ............................................................................. 57,800 469,625
Badger Meter, Inc. ...................................................................... 18,000 882,000
Binks Manufacturing Co. ................................................................. 8,000 349,000
Ceradyne, Inc.* ......................................................................... 30,000 193,125
Dynamic Materials Corp.* ................................................................ 28,900 296,225
Foster (LB) Co. "A"* .................................................................... 60,100 308,013
Graham Corp.* ........................................................................... 18,500 338,781
Insteel Industries, Inc. ................................................................ 59,000 438,813
Interlake Corp.* ........................................................................ 77,300 439,644
Kinark Corp.* ........................................................................... 93,500 315,563
Met-Pro Corp. ........................................................................... 26,300 429,019
Rotonics Manufacturing, Inc. ............................................................ 123,600 185,400
Sifco Industries, Inc. .................................................................. 25,400 490,538
Talley Industries, Inc.* ................................................................ 32,400 295,650
Temtex Industries, Inc.* ................................................................ 61,600 207,900
Tokheim Corp.* .......................................................................... 29,600 419,950
Trion, Inc. ............................................................................. 42,700 189,481
Vitronics Corp.* ........................................................................ 199,500 274,313
----------
6,523,040
----------
Machinery/Components/Controls 1.4%
Chicago Rivet & Machine Co.* ............................................................ 8,900 559,588
Devlieg-Bullard, Inc.* .................................................................. 69,700 274,444
Farrel Corp.* ........................................................................... 57,900 180,938
Trans-Industries, Inc.* ................................................................. 31,400 282,600
----------
1,297,570
----------
Office Equipment/Supplies 1.4%
Dixon Ticonderoga Co.* .................................................................. 27,500 378,125
Gradco Systems, Inc.* ................................................................... 40,300 292,175
TAB Products Co. ........................................................................ 51,000 605,625
----------
1,275,925
----------
Specialty Chemicals 0.8%
Balchem Corp. "B" ....................................................................... 23,600 342,200
</TABLE>

The accompanying notes are an integral part of the financial statements.

17 -- SCUDDER MICRO CAP FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Melamine Chemicals, Inc. ................................................................ 23,500 367,188
----------
709,388
----------
Technology 7.8%
Computer Software 1.2%
Comnet Corp.* ........................................................................... 23,400 181,350
Data Systems & Software, Inc.* .......................................................... 80,100 490,613
FDP Corp. ............................................................................... 8,200 63,550
Scan Optics, Inc.* ...................................................................... 43,400 379,750
----------
1,115,263
----------
Diverse Electronic Products 1.3%
Aseco Corp.* ............................................................................ 23,700 413,269
Impact Systems, Inc. .................................................................... 153,900 250,088
SBS Technologies, Inc.* ................................................................. 10,200 219,300
WPI Group, Inc.* ........................................................................ 35,300 311,081
----------
1,193,738
----------
EDP Peripherals 1.1%
Bull Run Corp.* ......................................................................... 71,100 168,863
Equitrac Corp.* ......................................................................... 23,500 381,875
Interlink Electronics, Inc.* ............................................................ 25,000 162,500
Printronix, Inc.* ....................................................................... 18,400 310,500
----------
1,023,738
----------
Electronic Components/Distributors 2.0%
Alpha Technologies Group, Inc.* ......................................................... 64,500 233,813
American Technical Ceramics Corp.* ...................................................... 29,300 421,188
IEC Electronics Corp. (New)* ............................................................ 33,200 676,450
Jaco Electronics, Inc.* ................................................................. 33,400 248,413
MATEC Corp.* ............................................................................ 23,100 98,175
Nu Horizons Electronics, Inc.* .......................................................... 27,300 214,988
----------
1,893,027
----------
Military Electronics 0.1%
Datron Systems, Inc.* ................................................................... 4,500 55,688
----------
Precision Instruments 1.6%
DSP Technology, Inc.* ................................................................... 57,100 449,663
Instron Corp. ........................................................................... 29,300 487,113
Micrion Corp.* .......................................................................... 13,000 305,500
</TABLE>

The accompanying notes are an integral part of the financial statements.

18 -- SCUDDER MICRO CAP FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
O. I. Corporation* ...................................................................... 56,900 259,606
----------
1,501,882
----------
Semiconductors 0.5%
Diodes, Inc.* ........................................................................... 33,000 424,875
----------
Energy 3.0%
Oil & Gas Production 1.4%
Hallwood Energy Partners, L.P. .......................................................... 37,100 296,800
Key Production Co., Inc.* ............................................................... 57,400 688,800
Resource America, Inc. "A" .............................................................. 8,200 326,975
----------
1,312,575
----------
Oilfield Services/Equipment 1.6%
American Oilfield Divers, Inc.* ......................................................... 35,700 673,838
Dawson Geophysical Co.* ................................................................. 22,300 485,025
Industrial Holdings, Inc. ............................................................... 22,900 290,544
----------
1,449,407
----------
Metals & Minerals 2.1%
Steel & Metals
Bayou Steel Corp.* ...................................................................... 81,900 409,500
Friedman Industries, Inc.* .............................................................. 49,525 458,106
NS Group, Inc.* ......................................................................... 39,600 1,039,500
----------
1,907,106
----------
Construction 4.4%
Building Materials 0.7%
A.P. Green Industries, Inc. ............................................................. 36,800 377,200
Genlyte Group, Inc.* .................................................................... 18,900 302,400
----------
679,600
----------
Building Products 0.8%
Baltek Corp.* ........................................................................... 38,300 344,700
Shelter Components Corp. ................................................................ 26,900 363,150
----------
707,850
----------
Homebuilding 1.3%
Engle Homes, Inc. ....................................................................... 32,400 453,600
Kit Manufacturing Company* .............................................................. 20,900 193,325
Lindal Cedar Homes, Inc.* ............................................................... 82,400 324,450
Starrett Corp. .......................................................................... 23,800 255,850
----------
1,227,225
----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

19 -- SCUDDER MICRO CAP FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Miscellaneous 1.6%
ACMAT Corp. "A"* ........................................................................ 21,600 337,500
Instituform East, Inc.* ................................................................. 129,900 308,513
MYR Group, Inc. ......................................................................... 22,200 449,550
Turner Corp.* ........................................................................... 17,900 360,238
----------
1,455,801
----------
Transportation 2.4%
Air Freight 0.6%
Golden Eagle Group, Inc.* ............................................................... 60,300 143,213
Hudson General Corp. .................................................................... 9,400 373,650
----------
516,863
----------
Airlines 0.5%
Mercury Air Group, Inc. ................................................................. 71,200 431,650
----------
Railroads 0.3%
Providence & Worcester Railroad Co. ..................................................... 20,500 269,063
----------
Trucking 0.7%
MTL, Inc.* .............................................................................. 14,800 384,800
Morgan Group, Inc. "A" .................................................................. 2,900 28,275
Trism, Inc.* ............................................................................ 64,900 275,825
----------
688,900
----------
Miscellaneous 0.3%
Travel Ports of America, Inc. ........................................................... 80,600 302,250
----------
Utilities 1.8%
Electric Utilities 1.0%
Unitil Corp. ............................................................................ 16,700 367,400
Upper Peninsular Energy Corp. ........................................................... 25,500 586,500
----------
953,900
----------
Natural Gas Distribution 0.0%
Roanoke Gas Co. ......................................................................... 1,400 23,100
----------
Water Supply 0.5%
Dominguez Services Corp. ................................................................ 7,400 186,850
Southwest Water Co. ..................................................................... 23,880 319,395
----------
506,245
----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

20 -- SCUDDER MICRO CAP FUND
<PAGE>

* Non-income producing security.
(a) The cost for federal income tax purposes was $73,582,881. At August 31,
1997, net unrealized appreciation for all securities based on tax cost was
$18,692,144. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $20,360,023 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,667,879.

The accompanying notes are an integral part of the financial statements.

21 -- SCUDDER MICRO CAP FUND
<PAGE>

Financial Statements

Statement of Assets and Liabilities
as of August 31, 1997

<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $73,582,881) ............... $ 92,275,025
Cash ............................................................... 191,764
Receivable for Fund shares sold .................................... 914,315
Dividends and interest receivable .................................. 30,918
Receivable for investments sold .................................... 654,844
Deferred organization expenses ..................................... 11,027
Other assets ....................................................... 497
----------------
Total assets ....................................................... 94,078,390
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased .................................. 2,197,675
Payable for Fund shares redeemed ................................... 4,623
Accrued management fee ............................................. 105,023
Other payables and accrued expenses ................................ 143,665
----------------
Total liabilities .................................................. 2,450,986
--------------------------------------------------------------------------------------------
Net assets, at market value $ 91,627,404
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Unrealized appreciation on investments ............................. 18,692,144
Accumulated net realized gain ...................................... 460,440
Paid-in capital .................................................... 72,474,820
--------------------------------------------------------------------------------------------
Net assets, at market value $ 91,627,404
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price (Note A) per share
($91,627,404 / 5,463,768 outstanding shares of beneficial ----------------
interest, $.01 par value, unlimited number of shares authorized) $16.77
----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

22 -- SCUDDER MICRO CAP FUND
<PAGE>

Statement of Operations
year ended August 31, 1997

<TABLE>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $374) .................. $ 570,118
Interest ........................................................... 175,836
-----------------
745,954
Expenses:
Management fee ..................................................... 362,087
Services to shareholders ........................................... 340,407
Custodian and accounting fees ...................................... 149,135
Trustees' fees and expenses ........................................ 47,880
Auditing ........................................................... 17,500
Registration fees .................................................. 66,733
Reports to shareholders ............................................ 51,716
Legal .............................................................. 9,258
Amortization of organization expense ............................... 5,090
Other .............................................................. 5,304
-----------------
Total expenses before reductions ................................... 1,055,110
Expense reductions ................................................. (210,007)
-----------------
Expenses, net ...................................................... 845,103
---------------------------------------------------------------------------------------------
Net investment loss (99,149)
---------------------------------------------------------------------------------------------

Realized and unrealized gain on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain from investments ................................. 562,960
Net unrealized appreciation during the period on investments ....... 18,667,904
---------------------------------------------------------------------------------------------
Net gain on investment transactions 19,230,864
---------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 19,131,715
---------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

23 -- SCUDDER MICRO CAP FUND
<PAGE>

Statements of Changes in Net Assets

<TABLE>
<CAPTION>
For the Period
August 12, 1996
Year (commencement
Ended of
August 31, operations) to
Increase (Decrease) in Net Assets 1997 August 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ................................. $ (99,149) $ 4,890
Net realized gain ............................................ 562,960 --
Net unrealized appreciation on investment transactions
during the period ......................................... 18,667,904 24,240
---------------- ----------------
Net increase in net assets resulting from operations ......... 19,131,715 29,130
---------------- ----------------
Distributions to shareholders from net investment income ..... (39,615) --
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .................................... 70,826,488 7,839,168
Reinvestment of distributions ................................ 37,143 --
Cost of shares redeemed ...................................... (6,227,396) (4,097)
Redemption fees .............................................. 33,668 --
---------------- ----------------
Net increase in net assets from Fund share transactions ...... 64,669,903 7,835,071
---------------- ----------------
Increase in net assets ....................................... 83,762,003 7,864,201
Net assets at beginning of period ............................ 7,865,401 1,200
Net assets at end of period (including undistributed net ---------------- ----------------
investment income of $4,890 at August 31, 1996) ........... $91,627,404 $ 7,865,401
---------------- ----------------
Other Information
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in Fund shares
Shares outstanding at beginning of period .................... 651,850 100
---------------- ----------------
Shares sold .................................................. 5,254,231 652,092
Shares issued to shareholders in reinvestment of
distributions ............................................. 2,884 --
Shares redeemed .............................................. (445,197) (342)
---------------- ----------------
Net increase in Fund shares .................................. 4,811,918 651,750
---------------- ----------------
Shares outstanding at end of period .......................... 5,463,768 651,850
---------------- ----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

24 -- SCUDDER MICRO CAP FUND
<PAGE>

Financial Highlights

The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.

<TABLE>
<CAPTION>
Year Ended For the Period
August 31, August 12, 1996
1997 (commencement of
operations) to
August 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
---------------------------------
Net asset value, beginning of period ............................................ $12.07 $12.00
---------------------------------
Income from investment operations: .............................................. (.03) .01
Net investment income (loss)
Net realized and unrealized gain on investments ................................. 4.74 .06
---------------------------------
Total from investment operations ................................................ 4.71 .07
---------------------------------
Less distributions from net investment income ................................... (.02) --
Redemption fees ................................................................. .01 --
---------------------------------
Net asset value, end of period .................................................. $16.77 $12.07
---------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) ............................................................ 39.10(c) .58(c)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) .......................................... 92 8
Ratio of operating expenses, net to average daily net assets (%) ................ 1.75 1.75*
Ratio of operating expenses before expense reductions, to average daily net
assets (%) ................................................................... 2.19 22.06*
Ratio of net investment income (loss) to average daily net assets (%) ........... (.21) 2.58*
Portfolio turnover rate (%) ..................................................... 17.13 None
Average commission rate paid .................................................... $.0318 $.0323
</TABLE>

25 -- 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.

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 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.

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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.

B. Purchases and Sales of Securities

During the year ended August 31, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $69,080,686 and
$7,861,795, 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 December 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
year ended August 31, 1997, the Adviser did not impose a portion of its
management fee amounting to $210,007, and the fee imposed amounted to $152,080.

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Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended August 31, 1997, the amount charged to the Fund by SSC aggregated
$251,988, of which $26,114 is unpaid at August 31, 1997.

Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended August 31, 1997,
the amount charged to the Fund by STC aggregated $13,747, of which $1,589 is
unpaid at August 31, 1997.

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 year ended
August 31, 1997, the amount charged to the Fund by SFAC aggregated $84,245, of
which $6,261 is unpaid at August 31, 1997.

The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. At August 31, 1997, the
Special Servicing Agreement expense charged to the Fund amounted to $23,545.

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 year ended August 31, 1997 the Trustee fees and expenses aggregated $47,880.

D. Subsequent Event

Due to investment considerations, effective at the close of business on
September 22, 1997, the Fund suspended the sale of its shares to new individual
investors. After the close of business on September 22, 1997, shares of the Fund
are available for purchase by existing shareholders of the Fund. The Fund
remains open for investment through certain group retirement plans. The Fund's
Trustees may reopen the Fund at some point in the future.

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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, 1997, and
the related statement of operations for the year then ended, the statements of
changes in net assets, and the financial highlights for the year then ended, and
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 audits.

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, 1997, the results of its operations for
the year then ended, and the changes in its net assets, and the financial
highlights for the year then ended and 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 2, 1997

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Officers and Trustees

Daniel Pierce*
President and Trustee

Paul Bancroft III
Trustee; Venture Capitalist and Consultant

William T. Burgin*
Trustee, General Partner, Bessemer Venture Partners

Thomas J. Devine
Trustee; Consultant

Keith R. Fox
Trustee; Private Equity Investor, Exeter Capital Management Corporation

David S. Lee*
Trustee and Vice President

Wilson Nolen
Trustee; Consultant

Kathryn L. Quirk*
Trustee, Vice President and Assistant Secretary

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 Emeritus 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

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

Roy C. McKay*
Vice President

Edward J. O'Connell*
Vice President and Assistant Treasurer

Richard W. Desmond*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.

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Investment Products and Services