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%
- ----------------------------------------
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
- ----------------------
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
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 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 MICRO CAP
<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 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>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Miscellaneous 0.3%
Florida Public Utilities Co. ............................................................ 15,200 319,200
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $66,153,492) 84,845,636
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0% (Cost $73,582,881) (a) 92,275,025
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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>
(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
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.
The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed consistently by the Fund in the
preparation of its financial statements.
Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the 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 which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required.
Redemption Fees. In general, shares of the Fund may be redeemed at net asset
value. However, upon the redemption or exchange of shares held by shareholders
for less than one year, a fee of 1% of the 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.
26 -- SCUDDER MICRO CAP FUND
<PAGE>
Distribution of Income and Gains. Distributions of net investment income, if
any, are made annually. During any particular year net realized gains from
investment transactions, in excess of available capital loss carryforwards,
would be taxable to the Fund if not distributed and, therefore, will be
distributed to shareholders annually. An additional distribution may be made to
the extent necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.
Other. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.
B. Purchases and Sales of Securities
During the 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.
27 -- SCUDDER MICRO CAP FUND
<PAGE>
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 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.
28 -- SCUDDER MICRO CAP FUND
<PAGE>
Report of Independent Accountants
To the Trustees of Scudder Securities Trust and the Shareholders of Scudder
Micro Cap Fund:
We have audited the accompanying statement of assets and liabilities of Scudder
Micro Cap Fund, including the investment portfolio, as of August 31, 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.
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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Micro Cap Fund as of August 31, 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
29 -- SCUDDER MICRO CAP FUND
<PAGE>
This Page
intentionally
left blank.
30 - SCUDDER MICRO CAP FUND
<PAGE>
31 - SCUDDER MICRO CAP FUND
<PAGE>
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.
32 - SCUDDER MICRO CAP 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)
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, Stevens & Clark, Inc., are traded on various stock exchanges.
33 - SCUDDER MICRO CAP 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.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
34 - SCUDDER MICRO CAP 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>
35 - SCUDDER MICRO CAP FUND
<PAGE>
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the investment
industry. In 1928, we introduced the nation's first no-load mutual fund. Today
we offer over 40 pure no load(TM) funds, including the first international
mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
This information must be preceded or accompanied by a
current prospectus.
Portfolio changes should not be considered recommendations
for action by individual investors.
SCUDDER
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