SCUDDER SECURITIES TRUST, 497, 1997-01-10

SCUDDER SECURITIES TRUST
497, 1997-01-10

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This prospectus sets forth concisely the information about Scudder Small Company
Value Fund, a series of Scudder Securities Trust, an open-end management
investment company, that a prospective investor should know before investing.
Please retain it for future reference. If you require more detailed information,
a Statement of Additional Information dated January 1, 1997, as amended from
time to time, may be obtained without charge by writing Scudder Investor
Services, Inc., Two International Place, Boston, MA 02110-4103 or calling
1-800-225-2470. The Statement, which is incorporated by reference into this
prospectus, has been filed with the Securities and Exchange Commission.

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

Contents--see page 4.

Scudder Small Company Value Fund

Prospectus
January 1, 1997

A pure no-load(TM) (no sales charges) mutual fund which invests for long-term
growth of capital by seeking out undervalued stocks of small U.S. companies.

<PAGE>

Expense information

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

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

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

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

2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended August 31, 1996.

Investment management fee (after waiver) 0%**
12b-1 fees NONE
Other expenses 1.50%
Total Fund operating expenses 1.50%**

Example

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

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

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

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

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

2
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Financial highlights

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

If you would like more detailed information concerning the Fund's performance, a
complete portfolio listing and audited financial statements are available in the
Fund's Annual Report dated August 31, 1996 and may be obtained without charge by
writing or calling Scudder Investor Services, Inc.

For the Period
October 6, 1995
(commencement
of operations) to
August 31,
1996
- --------------------------------------------------------------------------------
Net asset value, beginning of period $12.00
Income from investment operations:
Net investment income .07
Net realized and unrealized gain on investment transactions 1.53
Total from investment operations 1.60
Less distributions from net investment income (.05)
Redemption fees .02
Net asset value, end of period $13.57

Total Return (%) (b) 13.54(c)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) 41
Ratio of operating expenses, net to average daily net assets (%) 1.50*
Ratio of operating expenses before expense reductions, to
average daily net assets (%) 2.61*
Ratio of net investment income to average daily net assets (%) .67*
Portfolio turnover rate (%) 33.97*
Average commission rate paid $.0364

(a) Per share amounts have been calculated using the weighted average shares
outstanding during the period.

(b) Total return is higher due to maintenance of the Fund's expenses.

* Annualized

** Not annualized

3
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A message from Scudder's chairman

Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. Today, we manage in excess of $100 billion for many private accounts and
over 50 mutual fund portfolios. We manage the mutual funds in a special program
for the American Association of Retired Persons, as well as the fund options
available through Scudder Horizon Plan, a tax-advantaged variable annuity. We
also advise The Japan Fund and nine closed-end funds that invest in countries
around the world.

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

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

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

/s/Daniel Pierce

Scudder Small Company Value Fund

Investment objective

o long-term growth of capital

Investment characteristics

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

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

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

Contents

Investment objective and policies 5
Why invest in the Fund? 6
U.S. investment experience 7
What are the Fund's special risks? 7
Additional information about policies
and investments 7
Distribution and performance information 10
Fund organization 11
Transaction information 11
Purchases 12
Exchanges and redemptions 13
Shareholder benefits 18
Trustees and Officers 21
Investment products and services 22
How to contact Scudder 23

4
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Investment objective and policies

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

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

Investments

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

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

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

For temporary defensive purposes, the Fund may invest without limit in cash and
cash equivalents when the Adviser deems such a position advisable in light of
economic or market conditions. More information about these investment
techniques is provided under "Additional information about policies and
investments."

5
<PAGE>

Investment objective and policies (cont'd)

Value investment approach

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

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

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

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

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

Why invest in the Fund?

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

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

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

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

6
<PAGE>

U.S. investment experience

The Adviser is one of America's largest independent investment managers and has
been involved in U.S. stock investing since its founding over 75 years ago. As
of June 30, 1996, Scudder managed in excess of $23 billion in U.S. equity
securities, including over $6 billion in domestically-oriented growth mutual
funds. The Adviser manages Scudder Development Fund, one of America's first
small company mutual funds, Scudder Micro Cap Fund and Scudder 21st Century
Growth Fund.

What are the Fund's special risks?

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

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

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

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

Additional information about policies and investments

Investment restrictions

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

The Fund may not borrow money except as a temporary measure for extraordinary or
emergency purposes and may not make loans except through the lending of
portfolio securities, the purchase of debt securities or through repurchase
agreements.

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

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

Common stocks

Under normal circumstances, the Fund invests primarily in common stocks. Common
stock is issued by companies to raise cash for business purposes and represents
a proportionate interest in the issuing companies. Therefore, the Fund
participates in the success or failure of any company in which it holds stock.
The market values of equity securities can fluctuate

7
<PAGE>

Additional information about policies and investments (cont'd)

significantly, reflecting the business performance of the issuing company,
investor perception and general economic or financial market movements. Smaller
companies are especially sensitive to these factors and may even become
valueless. Despite the risk of price volatility, however, common stocks also
offer the greatest potential for gain on investment, compared to other classes
of financial assets such as bonds or cash equivalents.

Convertible securities

The convertible securities in which the Fund may invest consist of bonds, notes,
debentures and preferred stocks which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock. Prior to
their conversion, convertible securities may have characteristics similar to
nonconvertible securities of the same type.

Repurchase agreements

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

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

Strategic Transactions and derivatives

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

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

8
<PAGE>

into only for bona fide hedging, risk management or portfolio management
purposes and not for speculative purposes. Please refer to "Risk
factors--Strategic Transactions and derivatives" for more information.

Risk factors

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

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

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

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

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

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

9
<PAGE>

Additional information about policies and investments (cont'd)

of the initial premium. Losses resulting from the use of Strategic Transactions
would reduce net asset value, and possibly income, and such losses can be
greater than if the Strategic Transactions had not been utilized. The Strategic
Transactions that the Fund may use and some of their risks are described more
fully in the Fund's Statement of Additional Information.

Distribution and performance information

Dividends and capital gains distributions

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

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

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

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

Performance information

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

10
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Fund organization

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

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

Investment adviser

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

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

The Adviser has agreed to maintain the annualized expenses of the Fund at no
more than 1.50% of the average daily net assets of the Fund until December 31,
1997.

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

Scudder, Stevens & Clark, Inc. is located at 345 Park Avenue, New York, New
York.

Transfer agent

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

Underwriter

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

Fund accounting agent

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

Custodian

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

Transaction information

Purchasing shares

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

(Continued on page 14)

11
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Purchases
<TABLE>
<S> <C> <C>

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

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

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

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

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

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

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

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

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

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

</TABLE>

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Exchanges and redemptions

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

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

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

Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:

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

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

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

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

13
<PAGE>

Transaction information (cont'd)

(Continued from page 11)

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

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

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

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

Your wire instructions must also include:

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

- -- the account number of the fund, and

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

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

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

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

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

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

If you purchase shares by "AutoBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you

14
<PAGE>

purchase shares and there are insufficient funds in your bank account, the
purchase will be canceled and you will be subject to any losses or fees incurred
in the transaction. "AutoBuy" transactions are not available for Scudder IRA
accounts and most other retirement plan accounts.

Exchanging and redeeming shares

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

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

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

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

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

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

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

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

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

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

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

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

15
<PAGE>

Transaction information (cont'd)

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

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

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

Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $50,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.

Telephone transactions

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

Share price

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

Processing time

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

16
<PAGE>

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

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

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

Purchase restrictions

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

Tax information

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

Tax identification number

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

Minimum balances

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

Third party transactions

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

17
<PAGE>

Transaction information (cont'd)

Redemption-in-kind

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

Shareholder benefits

Experienced professional management

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

A team approach to investing

Scudder Small Company Value Fund is managed by a team of Scudder investment
professionals, who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund's portfolio. Scudder believes its team approach benefits
Fund investors by bringing together many disciplines and leveraging Scudder's
extensive resources.

Philip S. Fortuna, Lead Portfolio Manager, joined Scudder in 1986 as manager of
institutional equity accounts. He became director of quantitative research in
1987 and served as director of investment operations from 1993 to 1994. James M.
Eysenbach, Portfolio Manager, joined Scudder in 1991 as a senior quantitative
analyst and is currently director of quantitative research for Scudder. Mr.
Eysenbach has more than ten years investment research and management experience.

SAIL(TM)--Scudder Automated Information Line

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

Investment flexibility

Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. Telephone and
fax redemptions and exchanges are subject to termination and their terms are
subject to change at any time by the Fund or the transfer agent. In some cases,
the transfer agent or Scudder Investor Services, Inc. may impose additional
conditions on telephone transactions.

Dividend reinvestment plan

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

18
<PAGE>
Shareholder statements

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

Shareholder reports

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

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

Newsletters

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

Scudder Funds Centers

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

T.D.D. service for the hearing impaired

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

19
<PAGE>

Scudder tax-advantaged retirement plans

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

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

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

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

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

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

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

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

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

20
<PAGE>

Trustees and Officers

Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and Consultant
Thomas J. Devine
Trustee; Consultant
Keith R. Fox
Trustee; President, Exeter Capital
Management Corporation
Dudley H. Ladd*
Trustee

Dr. Wilson Nolen
Trustee; Consultant

Kathryn L. Quirk*
Trustee

Dr. Gordon Shillinglaw
Trustee; Professor Emeritus of Accounting,
Columbia University
Graduate School of Business

Robert W. Lear
Honorary Trustee; Executive-in-Residence,
Visiting Professor, Columbia University
Graduate School of Business
Robert G. Stone, Jr.
Honorary Trustee; Chairman of the Board
and Director, Kirby Corporation
Edmund R. Swanberg*
Honorary Trustee
Peter Chin*
Vice President
James M. Eysenbach*
Vice President
Philip S. Fortuna*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
David S. Lee*
Vice President
Roy C. McKay*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Richard W. Desmond*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.

21
<PAGE>

Investment products and services

The Scudder Family of Funds++

Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust

Tax Free Money Market+
Scudder Tax Free Money Fund

Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*

Tax Free+
Scudder 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 GNMA Fund
Scudder Income Fund
Scudder Zero Coupon 2000 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

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

Growth
Scudder Classic Growth Fund
Scudder Quality Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund

Global Growth
Worldwide
Scudder Global Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Gold Fund

Regional
Scudder Greater Europe Growth Fund
Scudder Emerging Markets Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund

Retirement Programs
IRA
SEP IRA
SIMPLE 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 First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.

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 from expected
least to most risk. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *Not available in all states. +++A
no-load variable annuity contract provided by Charter National Life Insurance
Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are
traded on various stock exchanges.

<PAGE>

How to contact Scudder

Account Service and Information:

For existing account service and transactions

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

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

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

For personalized information about your Scudder accounts, exchanges and
redemptions

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

Investment Information:

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

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

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

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

Scudder Brokerage Services:

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

1-800-700-0820

Please address all correspondence to:

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

Or Stop by a Scudder Funds Center:
Many shareholders enjoy the personal, one-on-one service of the Scudder
Funds Centers. Check for a Funds Center near you--they can be found in
the following cities:

Boca Raton Chicago San Francisco
Boston New York

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

* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees and
expenses. Please read it carefully before you invest or send money.

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

<PAGE>

SCUDDER SMALL COMPANY VALUE FUND

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

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

STATEMENT OF ADDITIONAL INFORMATION

January 1, 1997

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

This Statement of Additional Information is not a prospectus and should
be read in conjunction with the Prospectus of Scudder Small Company Value Fund
dated January 1, 1997, as amended from time to time, a copy of which may be
obtained without charge by writing to Scudder Investor Services, Inc., Two
International Place, Boston, Massachusetts 02110-4103.

<PAGE>

TABLE OF CONTENTS
Page

<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies....................................................................1
Investments and Investment Techniques........................................................................2
Investment Restrictions.....................................................................................12

PURCHASES............................................................................................................14
Additional Information About Opening An Account.............................................................14
Additional Information About Making Subsequent Investments..................................................14
Additional Information About Making Subsequent Investments by AutoBuy.......................................14
Checks......................................................................................................15
Wire Transfer of Federal Funds..............................................................................15
Share Price.................................................................................................15
Share Certificates..........................................................................................16
Other Information...........................................................................................16

EXCHANGES AND REDEMPTIONS............................................................................................16
Exchanges...................................................................................................16
Special Redemption and Exchange Information.................................................................17
Redemption by Telephone.....................................................................................17
Redemption by AutoSell......................................................................................18
Redemption by Mail or Fax...................................................................................19
Redemption-In-Kind..........................................................................................19
Other Information...........................................................................................19

FEATURES AND SERVICES OFFERED BY THE FUND............................................................................20
The Pure No-Load(TM) Concept................................................................................20
Dividends and Capital Gain Distribution Options.............................................................21
Diversification.............................................................................................21
Scudder Funds Centers.......................................................................................21
Reports to Shareholders.....................................................................................22
Transaction Summaries.......................................................................................22

THE SCUDDER FAMILY OF FUNDS..........................................................................................22

SPECIAL PLAN ACCOUNTS................................................................................................26
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and
Self-Employed Individuals..............................................................................26
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals.........26
Scudder IRA: Individual Retirement Account.................................................................26
Scudder 403(b) Plan.........................................................................................27
Automatic Withdrawal Plan...................................................................................27
Group or Salary Deduction Plan..............................................................................28
Automatic Investment Plan...................................................................................28
Uniform Transfers/Gifts to Minors Act.......................................................................28
Scudder Savings Incentive Match Plans for Employees: SIMPLE IRA'S...........................................29

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................29

PERFORMANCE INFORMATION..............................................................................................29
Average Annual Total Return.................................................................................29
Cumulative Total Return.....................................................................................30
Total Return................................................................................................30
Capital Change..............................................................................................30
Comparison of Fund Performance..............................................................................30
Internet access.............................................................................................32

i
<PAGE>

TABLE OF CONTENTS (continued)

FUND ORGANIZATION....................................................................................................34

INVESTMENT ADVISER...................................................................................................35
Personal Investments by Employees of the Adviser............................................................38

TRUSTEES AND OFFICERS................................................................................................38

REMUNERATION.........................................................................................................40

DISTRIBUTOR..........................................................................................................41

TAXES................................................................................................................42

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

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

ADDITIONAL INFORMATION...............................................................................................46
Experts.....................................................................................................46
Shareholder Indemnification.................................................................................47
Other Information...........................................................................................47

FINANCIAL STATEMENTS.................................................................................................48

</TABLE>
ii

<PAGE>

THE FUND'S INVESTMENT OBJECTIVE AND POLICIES

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

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

General Investment Objective and Policies

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

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

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

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

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

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

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

Investments and Investment Techniques

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

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

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

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

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

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

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

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

Small Co. Stocks Large Co. Stocks
---------------- ----------------
1925 $1 $1
1926 $1 $1
1927 $1 $2
1928 $2 $2
1929 $1 $2
1930 $1 $2
1931 $0 $1
1932 $0 $1
1933 $1 $1
1934 $1 $1
1935 $1 $2
1936 $2 $2
1937 $1 $2
1938 $1 $2
1939 $1 $2
1940 $1 $2
1941 $1 $2
1942 $2 $2
1943 $2 $2
1944 $3 $3
1945 $6 $4
1946 $5 $4
1947 $5 $4
1948 $5 $4
1949 $6 $5
1950 $8 $6
1951 $9 $8
1952 $10 $9
1953 $9 $9
1954 $15 $14
1955 $18 $19
1956 $19 $20
1957 $16 $18
1958 $25 $25
1959 $30 $28
1960 $29 $28
1961 $37 $36
1962 $32 $33
1963 $38 $40
1964 $44 $47
1965 $59 $53
1966 $54 $48
1967 $86 $59
1968 $114 $66
1969 $88 $60
1970 $84 $62
1971 $102 $71
1972 $106 $85
1973 $69 $73
1974 $51 $53
1975 $83 $73
1976 $127 $91
1977 $150 $84
1978 $175 $90
1979 $247 $106
1980 $319 $141
1981 $340 $134
1982 $456 $162
1983 $610 $199
1984 $625 $211
1985 $793 $279
1986 $876 $331
1987 $810 $348
1988 $1,058 $406
1989 $1,253 $534
1990 $1,018 $517
1991 $1,428 $676
1992 $1,663 $727
1993 $1,983 $800
1994 $1,981 $811
1995 $2,455 $1,114

Source: Ibbotson Associates(1)

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

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

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

# Months Russell 2000(R) Growth Russell 2000(R) Value Russell 2000(R)
<S> <C> <C> <C> <C>
Down Months 80 -5.1% -3.1% -4.1%
Up Months 133 5.0% 4.1% 4.5%
All Months 213 1.1% 1.3% 1.2%
(annualized) -- 13.7% 17.1% 15.5%

</TABLE>

* Earliest performance for the Russell Indices.

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

3
<PAGE>

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

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

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

Small Cap Value Outperforms Small Stocks Over Long Term

o By 1.6% Points Annualized (1979-9/1996)

o In 120 of 202 (59%) Rolling 12 Month Periods

o In 149 of 154 (97%) Rolling 60 Month Periods

60 Months Annualized Return Difference:
Ending R-2000 Value -- R-2000
- ------ ----------------------

12/83 0.0158
12/84 0.0512
12/85 0.0748
12/86 0.0504
12/87 0.0451
12/88 0.0369
12/89 0.0083
12/90 0.0017
12/91 -0.0083
12/92 0.0071
12/93 0.0081
12/94 0.0158
12/95 0.0192
9601 0.0216
9602 0.0183
9603 0.0184
9604 0.0102
9605 0.0071
9606 0.0115
9607 0.0218
9608 0.0201
9609 0.0191

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

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

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

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

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

4
<PAGE>

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

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

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

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

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

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

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

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

5
<PAGE>

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

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

Borrowing. As a matter of fundamental policy, the Fund is authorized to borrow
money from banks and other entities in an amount equal to up to 33 1/3% of the
Fund's net assets for purposes of liquidity and to provide for redemptions and
distributions. No purchase of securities will be made while such borrowings
exceed 5% of the Fund's net assets. The Fund will borrow only when the Adviser
believes that borrowing will benefit the Fund after taking into account
considerations such as the costs of the borrowing. The Fund does not expect to
borrow for investment purposes, to increase return or leverage the portfolio.
Borrowing by the Fund will involve special risk considerations. Although the
principal of the Fund's borrowings will be fixed, the Fund's assets may change
in value during the time a borrowing is outstanding, thus increasing exposure to
capital risk.

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

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

6
<PAGE>

there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes.

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

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

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

With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument

7
<PAGE>

through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.

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

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

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

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

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

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

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<PAGE>

security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold.

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

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

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

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

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

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<PAGE>

Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, and multiple
interest rate transactions and any combination of futures, options, currency and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.

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

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

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

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

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<PAGE>

Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate liquid high
grade assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade securities at
least equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. For example, a call option written by the Fund will require the Fund to
hold the securities subject to the call (or securities convertible into the
needed securities without additional consideration) or to segregate liquid
high-grade securities sufficient to purchase and deliver the securities if the
call is exercised. A call option sold by the Fund on an index will require the
Fund to own portfolio securities which correlate with the index or to segregate
liquid high grade assets equal to the excess of the index value over the
exercise price on a current basis. A put option written by the Fund requires the
Fund to segregate liquid, high grade assets equal to the exercise price.

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

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

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

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

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

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<PAGE>

Investment Restrictions

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

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

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

(1) with respect to 75% of its total assets, taken at market
value, purchase more than 10% of the outstanding voting
securities of any one issuer or invest more than 5% of the
value of its total assets in the securities of any one issuer,
except obligations issued or guaranteed by the U.S.
Government, its agencies, or instrumentalities and except
securities of other investment companies;

(2) borrow money except as a temporary measure for extraordinary
or emergency purposes or except in connection with reverse
repurchase agreements, provided that the Fund maintains asset
coverage of 300% for all borrowings;

(3) purchase or sell real estate; (except that the Fund may invest
in (i) securities of companies which deal in real estate or
mortgages, and (ii) securities secured by real estate or
interests therein, and that the Fund reserves freedom of
action to hold and to sell real estate acquired as a result of
the Fund's ownership of securities); or purchase or sell
physical commodities or contracts relating to physical
commodities;

(4) act as an underwriter of securities issued by others, except
to the extent that it may be deemed an underwriter in
connection with the disposition of portfolio securities of the
Fund;

(5) make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent the entry into repurchase
agreements and the purchase of debt securities in accordance
with its investment objective and investment policies may be
deemed to be loans;

(6) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur and except for
shares of the separate classes or series of the Trust,
provided that collateral arrangements with respect to
currency-related contracts, futures contracts, options or
other permitted investments, including deposits of initial and
variation margin, are not considered to be the issuance of
senior securities for purposes of this restriction; and

(7) purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase
to be invested in the securities of one or more issuers having
their principal business activities in the same industry,
provided that there is no limitation with respect to
investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (for the
purposes of this restriction, telephone companies are
considered to be in a separate industry from gas and electric
public utilities, and wholly-owned finance companies are
considered to be in the industry of their parents if their
activities are primarily related to financing the activities
of their parents).

As a matter of nonfundamental policy, the Fund will not:

(a) purchase or retain securities of any open-end investment
company, or securities of closed-end investment companies
except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchases, or

12
<PAGE>

except when such purchase, though not made in the open market,
is part of a plan of merger, consolidation, reorganization or
acquisition of assets; in any event the Fund may not purchase
more than 3% of the outstanding voting securities of another
investment company, may not invest more than 5% of its total
assets in another investment company, and may not invest more
than 10% of its total assets in other investment companies;

(b) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;

(c) purchase or retain securities of an issuer any of whose
officers, directors, trustees or security holders is an
officer, director or trustee of the Fund or a member, officer,
director or trustee of the investment adviser of the Fund if
one or more of such individuals owns beneficially more than
one-half of one percent (1/2%) of the outstanding shares or
securities or both (taken at market value) of such issuer and
such individuals owning more than one-half of one percent
(1/2%) of such shares or securities together own beneficially
more than 5% of such shares or securities or both;

(d) purchase securities on margin or make short sales unless, by
virtue of its ownership of other securities, it has the right
to obtain securities equivalent in kind and amount to the
securities sold at no added cost and, if the right is
conditional, the sale is made upon the same conditions, except
in connection with arbitrage transactions, and except that the
Fund may obtain such short-term credits as may be necessary
for the clearance of purchases and sales of securities;

(e) invest more than 15% of its net assets in securities which are
not readily marketable, the disposition of which is restricted
under Federal securities laws, or in repurchase agreements not
terminable within 7 days, and the Fund will not invest more
than 10% of its total assets in restricted securities;

(f) purchase securities of any issuer with a record of less than
three years continuous operations, including predecessors and
equity securities which are not readily marketable if such
purchase would cause the investments of the Fund in all such
issuers to exceed 5% of the total assets of the Fund taken at
market value, except U.S. Government securities or securities
of such issuers which are rated by at least one nationally
recognized statistical rating organization;

(g) buy options on securities or financial instruments unless the
aggregate premiums paid on all such options held by the Fund
at any time do not exceed 20% of the Fund's net assets; or
sell put options on securities if, as a result, the aggregate
value of the obligations underlying such put options would
exceed 50% of the Fund's net assets;

(h) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to all futures contracts
entered into on behalf of the Fund and the premiums paid for
options on futures contracts does not exceed 5% of the fair
market value of the Fund's total assets; provided, that in the
case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in computing
the 5% limit;

(i) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which
own or invest in such interests);

(j) purchase warrants if as a result warrants taken at the lower
of cost or market value would represent more than 5% of the
value of the Fund's total net assets or more than 2% of its
net assets in warrants that are not listed on the New York or
American Stock Exchanges or on an exchange with comparable
listing requirements (for this purpose, warrants attached to
securities will be deemed to have no value);

(k) purchase or sell real estate limited partnership interests; or

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<PAGE>

(l) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Fund's total assets at the
time any loan is made; all loans of portfolio securities will
be fully collateralized and marked to market daily. The Fund
has no current intention of making loans of portfolio
securities that would amount to greater than 5% of the Fund's
total assets.

PURCHASES

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

Additional Information About Opening An Account

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

Shareholders of other Scudder funds who have submitted an account
application and have a certified Taxpayer Identification Number, clients having
a regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call, the investor will be asked to
indicate the Fund name, amount to be wired ($2,500 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the taxpayer identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, State Street Bank and Trust Company, Boston, MA
02110, ABA Number 011000028, DDA Account Number: 9903-5552. The investor must
give the Scudder fund name, account name and the new account number. Finally,
the investor must send the completed and signed application to the Fund
promptly.

The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.

Additional Information About Making Subsequent Investments

Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by members of the NASD, by banks, and by established
shareholders (except by Scudder Individual Retirement Account (IRA), Scudder
Horizon Plan, Scudder Profit Sharing and Money Purchase Pension Plans, and
Scudder 401(k) and Scudder 403(b) Plan holders). Orders placed in this manner
may be directed to any office of the Distributor listed in the Fund's
prospectus. A confirmation of the purchase will be mailed out promptly following
receipt of a request to buy. Federal regulations require that payment be
received within three business days. If payment is not received within that
time, the order is subject to cancellation. In the event of such cancellation or
cancellation at the purchaser's request, the purchaser will be responsible for
any loss incurred by a Fund or the principal underwriter by reason of such
cancellation. If the purchaser is a shareholder, the Trust shall have the
authority, as agent of the shareholder, to redeem shares in the account in order
to reimburse the Fund or the principal underwriter for the loss incurred. Net
losses on such transactions which are not recovered from the purchaser will be
absorbed by the principal underwriter. Any net profit on the liquidation of
unpaid shares will accrue to the Fund.

Additional Information About Making Subsequent Investments by AutoBuy

Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the AutoBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000 but not less than $250. To
purchase shares by AutoBuy, shareholders should call before 4 p.m. eastern time.
Proceeds in the amount of your purchase will be transferred from your bank
checking account two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
purchased at the net asset value per share calculated at the close of trading on

14
<PAGE>

the day of your call. AutoBuy requests received after the close of regular
trading on the Exchange will begin their processing and be purchased at the net
asset value calculated the following business day. If you purchase shares by
AutoBuy and redeem them within seven days of the purchase, the Fund may hold the
redemption proceeds for a period of up to seven business days. If you purchase
shares and there are insufficient funds in your bank account the purchase will
be canceled and you will be subject to any losses or fees incurred in the
transaction. AutoBuy transactions are not available for Scudder IRA accounts and
most other retirement plan accounts.

In order to request purchases by AutoBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish AutoBuy may so indicate on the application.
Existing shareholders who wish to add AutoBuy to their account may do so by
completing an AutoBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.

The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.

Checks

A certified check is not necessary, but checks are only accepted
subject to collection at full face value U.S. funds and must be drawn on, or
payable through, a U.S. bank.

If shares of the Fund are purchased by a check which proves to be
uncollectible, the Trust reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Trust or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Trust will have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from, or restricted in, placing future orders in any of the
Scudder funds.

Wire Transfer of Federal Funds

To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).

The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by State
Street Bank and Trust Company (the "Custodian") of "wired funds," but the right
to charge investors for this service is reserved.

Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Martin Luther King, Jr. Day (the 3rd Monday in
January), Columbus Day (the 2nd Monday in October) and Veterans Day (November
11). Investors are not able to purchase shares by wiring federal funds on such
holidays because the Custodian is not open to receive such federal funds on
behalf of the Fund.

Share Price

Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on each day during
which the Exchange is open for trading. Orders received after the close of
regular trading on the Exchange will receive the next business day's net asset
value. If the order has been placed by a member of the NASD, other than the
Distributor, it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to Scudder Service Corporation (the
"Transfer Agent") by the close of regular trading on the Exchange.

15
<PAGE>

Share Certificates

Due to the desire of the Trust's management to afford ease of
redemption, certificates will not be issued to indicate ownership in the Fund.

Other Information

If purchases or redemptions of Fund shares are arranged and settlement
is made at the investor's election through a member of the NASD other than the
Distributor, that member may, at its discretion, charge a fee for that service.

The Board of Trustees and the Distributor, each has the right to limit
the amount of purchases by and to refuse to sell to any person, and each may
suspend or terminate the offering of shares of the Fund at any time.

The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information
(e.g. from exempt organizations, certification of exempt status) will be
returned to the investor.

The Trust may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.

EXCHANGES AND REDEMPTIONS

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

Exchanges

Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange may be
either an additional investment into an existing account or may involve opening
a new account in the other fund. When an exchange involves a new account, the
new account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration, tax
identification number, address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more. If the
account receiving the exchange proceeds is to be different in any respect, the
exchange request must be in writing and must contain an original signature
guarantee as described under "Transaction information--Exchanging and redeeming
shares--Signature guarantees" in the Fund's prospectus.

Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.

Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder Fund to an
existing account in another Scudder Fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.

There is no charge to the shareholder for any exchange described above.
However, shares that are exchanged may be subject to the Fund's 1% redemption
fee. (See "Special Redemption and Exchange Information." An exchange into

16
<PAGE>

another Scudder fund is a redemption of shares, and therefore may result in tax
consequences (gain or loss) to the shareholder, and the proceeds of such an
exchange may be subject to backup withholding. (See "TAXES.")

Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Trust employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Trust does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trust will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. The Trust, the Fund and the Transfer Agent each reserves the right to
suspend or terminate the privilege of exchanging by telephone or fax at any
time.

The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated.

Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.

Special Redemption and Exchange Information

In general, shares of the Fund may be exchanged or redeemed at net
asset value. However, shares of the Fund held for less than one year are
redeemable at a price equal to 99% of the then current net asset value per
share. This 1% discount, referred to in the prospectus and this statement of
additional information as a redemption fee, directly affects the amount a
shareholder who is subject to the discount receives upon exchange or redemption.
It is intended to encourage long-term investment in the Fund, to avoid
transaction and other expenses caused by early redemptions and to facilitate
portfolio management. The fee is not a deferred sales charge, is not a
commission paid to the Adviser or its subsidiaries, and does not benefit the
Adviser in any way. The Fund reserves the right to modify the terms of or
terminate this fee at any time.

The redemption discount will not be applied to (a) a redemption of
shares of the Fund outstanding for one year or more, (b) shares purchased
through certain Scudder retirement plans, including 401(k) plans, 403(b) plans,
457 plans, Keogh accounts, and Profit Sharing and Money Purchase Pension Plans
provided, however, if such shares are purchased through a broker, financial
institution or recordkeeper maintaining an omnibus account for the shares, such
waiver may not apply. (Before purchasing shares, please check with your account
representative concerning the availability of the fee waiver.) In addition, this
waiver does not apply to IRA and SEP-IRA accounts. (c) a redemption of
reinvestment shares (i.e., shares purchased through the reinvestment of
dividends or capital gains distributions paid by the Fund), or (d) a redemption
of shares by the Fund upon exercise of its right to liquidate accounts (i)
falling below the minimum account size by reason of shareholder redemptions or
(ii) when the shareholder has failed to provide tax identification information.
For this purpose and without regard to the shares actually redeemed, shares will
be treated as redeemed as follows: first, reinvestment shares; second, purchased
shares held one year or more; and third, purchased shares held for less than one
year. Finally, if a redeeming shareholder acquires Fund shares through a
transfer from another shareholder, applicability of the discount, if any, will
be determined by reference to the date the shares were originally purchased, and
not from the date of transfer between shareholders.

Redemption by Telephone

Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $50,000 and have the proceeds mailed
to their address of record. Shareholders may also request to have the proceeds
mailed or wired to their predesignated bank account. In order to request wire
redemptions by telephone, shareholders must have completed and returned to the
Transfer Agent the application, including the designation of a bank account to
which the redemption proceeds are to be sent.

17
<PAGE>

(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate
section on the application.

(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder Pension and Profit-Sharing, Scudder 401(k) and Scudder
403(b) Planholders) who wish to establish telephone redemption
to a predesignated bank account or who want to change the bank
account previously designated to receive redemption payments
should either return a Telephone Redemption Option Form
(available upon request) or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. An original signature and an original
signature guarantee are required for each person in whose name
the account is registered.

If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.

Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a participant in
the Federal Reserve System, redemption proceeds must be wired through a
commercial bank which is a correspondent of the savings bank. As this may delay
receipt by the shareholder's account, it is suggested that investors wishing to
use a savings bank discuss wire procedures with their bank and submit any
special wire transfer information with the telephone redemption authorization.
If appropriate wire information is not supplied, redemption proceeds will be
mailed to the designated bank.

The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.

Redemption by AutoSell

Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the AutoSell program may sell shares of the Fund by telephone. To sell shares
by AutoSell, shareholders should call before 4 p.m. eastern time. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, shares will be redeemed at the net asset value per share calculated at
the close of trading on the day of your call. AutoSell requests received after
the close of regular trading on the Exchange will begin their processing and be
redeemed at the net asset value calculated the following business day. AutoSell
transactions are not available for Scudder IRA accounts and most other
retirement plan accounts.

In order to request redemptions by AutoSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish AutoSell may so indicate on the application.
Existing shareholders who wish to add AutoSell to their account may do so by
completing an AutoSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.

The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.

18
<PAGE>

Redemption by Mail or Fax

In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).

It is suggested that shareholders holding shares registered in other
than individual names contact the Transfer Agent prior to any redemptions to
ensure that all necessary documents accompany the request. When shares are held
in the name of a corporation, trust, fiduciary, agent, attorney or partnership,
the Transfer Agent requires, in addition to the stock power, certified evidence
of authority to sign. These procedures are for the protection of shareholders
and should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within five business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays in
payment of more than seven days for shares tendered for repurchase or redemption
may result, but only until the purchase check has cleared.

The requirements for IRA redemptions are different from those for
regular accounts. For more information please call 1-800-225-5163.

Redemption-In-Kind

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

Other Information

If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder will receive, in addition to the net asset
value thereof, all declared but unpaid dividends thereon. The value of shares
redeemed or repurchased may be more or less than the shareholder's cost
depending on the net asset value at the time of redemption or repurchase. A wire
charge may be applicable for redemption proceeds wired to an investor's bank
account. Redemptions of shares, including an exchange into another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and the
proceeds of such redemptions may be subject to backup withholding. (see
"TAXES.")

Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.

The determination of net asset value and a shareholder's right to
redeem shares and to receive payment may be suspended at times and a
shareholder's right to redeem shares and to receive payment may be suspended at
times during which (a) the Exchange is closed, other than customary weekend and
holiday closings, (b) trading on the Exchange is restricted for any reason, (c)
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) a
governmental body having jurisdiction over the Fund may by order permit such a
suspension for the protection of the Trust's shareholders; provided that
applicable rules and regulations of the SEC (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in (b), (c) or
(d) exist.

Shareholders should maintain a share balance worth at least $2,500,
which amount may be changed by the Board of Trustees. Scudder retirement plans
have similar or lower minimum share balance requirements. A shareholder may open
an account with at least $1,000, if an automatic investment plan of $100/month
is established. Shareholders who maintain a non-fiduciary account balance of
less than $2,500 in the Fund, without establishing an automatic investment plan,
will be assessed an annual $10.00 per fund charge with the fee to be paid to the
Fund. The $10.00 charge will not apply to shareholders with a combined household

19
<PAGE>

account balance in any of the Scudder Funds of $25,000 or more. The Fund
reserves the right, following 60 days' written notice to shareholders, to redeem
all shares in accounts below $250, including accounts of new investors, where a
reduction in value has occurred due to a redemption or exchange out of the
account. The Fund will mail the proceeds of the redeemed account to the
shareholder. Reductions in value that result solely from market activity will
not trigger an involuntary redemption. Retirement accounts and certain other
accounts will not be assessed the $10.00 charge or be subject to automatic
liquidation.

FEATURES AND SERVICES OFFERED BY THE FUND

(See "Shareholder benefits" in the Fund's prospectus.)

The Pure No-Load(TM) Concept

Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its funds from the
vast majority of mutual funds available today. The primary distinction is
between load and no-load funds.

Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.

A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.

A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Rules of Fair Practice, a mutual fund
can call itself a "no-load" fund only if the 12b-1 fee and/or service fee does
not exceed 0.25% of a fund's average annual net assets.

Because Scudder funds do not pay any asset-based sales charges or
service fees, Scudder developed and trademarked the phrase pure no-load(TM) to
distinguish Scudder funds from other no-load mutual funds. Scudder pioneered the
no-load concept when it created the nation's first no-load fund in 1928, and
later developed the nation's first family of no-load mutual funds.

The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder pure no-load fund over investing the same amount
in a load fund that collects an 8.50% front-end load, a load fund that collects
only a 0.75% 12b-1 and/or service fee, and a no-load fund charging only a 0.25%
12b-1 and/or service fee. The hypothetical figures in the chart show the value
of an account assuming a constant 10% rate of return over the time periods
indicated and reinvestment of dividends and distributions.

20
<PAGE>
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------
Scudder No-Load Fund with
YEARS Pure No-Load(TM) 8.50% Load Fund Load Fund with 0.75% 0.25% 12b-1
Fund 12b-1 Fee Fee
- ------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C>
10 $ 25,937 $ 23,733 $ 24,222 $ 25,354
- ------------------------------------------------------------------------------------------------------------------

15 41,772 38,222 37,698 40,371
- ------------------------------------------------------------------------------------------------------------------

20 67,275 61,557 58,672 64,282
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

Investors are encouraged to review the fee tables on page 2 of the
Fund's prospectus for more specific information about the rates at which
management fees and other expenses are assessed.

Dividends and Capital Gain Distribution Options

Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of the Fund. A change of instructions for the method
of payment must be received by the Transfer Agent at least five days prior to a
dividend record date. Shareholders may change their dividend option either by
calling 1-800-225-5163 or by sending written instructions to the Transfer Agent.
Please include your account number with your written request. See "How to
contact Scudder" in the Prospectus for the address.

Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of the Fund.

Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.

Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.

Diversification

Your investment represents an interest in a large, diversified
portfolio of securities. Diversification may protect you against the possible
risks of concentrating in fewer securities or in a specific market sector.

Scudder Funds Centers

Investors may visit any of the Funds Centers maintained by the
Distributor. The Centers are designed to provide individuals with services
during any business day. Investors may pick up literature or obtain assistance
with opening an account, adding monies or special options to existing accounts,
making exchanges within the Scudder Family of Funds, redeeming shares or opening
retirement plans. Checks should not be mailed to the Centers but to "The Scudder
Funds" at the address listed under "How to contact Scudder" in the Prospectus.

21
<PAGE>

Reports to Shareholders

The Fund issues shareholders unaudited semiannual financial statements
and annual financial statements audited by independent accountants, including a
list of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights.

Transaction Summaries

Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.

THE SCUDDER FAMILY OF FUNDS

(See "Investment products and services" in the Fund's prospectus.)

The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist investors in
choosing a Scudder fund, descriptions of the Scudder funds' objectives follow.
Initial purchases in each Scudder fund must be at least $2,500 or $1,000 in the
case of IRAs. Subsequent purchases must be for $100 or more. Minimum investments
for special plan accounts may be lower.

MONEY MARKET

Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital, and consistent therewith, to maintain the liquidity of
capital and to provide current income through investment in a
supervised portfolio of short-term debt securities. SCIT intends to
seek to maintain a constant net asset value of $1.00 per share,
although in certain circumstances this may not be possible.

Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and consistent therewith to provide current income
through investment in a supervised portfolio of U.S. Government and
U.S. Government guaranteed obligations with maturities of not more than
762 calendar days. The Fund intends to seek to maintain a constant net
asset value of $1.00 per share, although in certain circumstances this
may not be possible.

INCOME

Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued in
emerging markets.

Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.

Scudder GNMA Fund seeks to provide investors with high current income
from a portfolio of high-quality GNMA securities.

Scudder High Yield Bond Fund seeks to provide a high level of current
income and, secondarily, capital appreciation through investment
primarily in below investment grade domestic debt securities.

Scudder Income Fund seeks to earn a high level of income consistent
with the prudent investment of capital through a flexible investment
program emphasizing high-grade bonds.

Scudder International Bond Fund seeks to provide income from a
portfolio of high-grade bonds denominated in foreign currencies. As a
secondary objective, the Fund seeks protection and possible enhancement

22
<PAGE>

of principal value by actively managing currency, bond market and
maturity exposure and by security selection.

Scudder Short Term Bond Fund seeks to provide a higher and more stable
level of income than is normally provided by money market investments,
and more price stability than investments in intermediate- and
long-term bonds.

Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with the minimization of
reinvestment risks through investments primarily in zero coupon
securities.

TAX FREE MONEY MARKET

Scudder Tax Free Money Fund ("STFMF") is designed to provide investors
with income exempt from regular federal income tax while seeking
stability of principal. STFMF seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may
not be possible.

Scudder California Tax Free Money Fund* is designed to provide
California taxpayers income exempt from California state and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.

Scudder New York Tax Free Money Fund* is designed to provide New York
taxpayers income exempt from New York state, New York City and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.

TAX FREE

Scudder High Yield Tax Free Fund seeks to provide high income which is
exempt from regular federal income tax by investing in municipal
securities.

Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.

Scudder Managed Municipal Bonds seeks to provide income which is exempt
from regular federal income tax primarily through investments in
long-term municipal securities with an emphasis on high grade.

Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation by investing in high-grade municipal securities of
intermediate maturities.

Scudder California Tax Free Fund* seeks to provide income exempt from
both California and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
California state, municipal and local government obligations.

Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide as
high a level of income exempt from Massachusetts personal and regular
federal income tax as is consistent with a high degree of principal
stability.

Scudder Massachusetts Tax Free Fund* seeks to provide income exempt
from both Massachusetts and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
Massachusetts state, municipal and local government obligations.

- -------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
23
<PAGE>

Scudder New York Tax Free Fund* seeks to provide income exempt from New
York state, New York City and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
investments in New York state, municipal and local government
obligations.

Scudder Ohio Tax Free Fund* seeks to provide income exempt from both
Ohio and regular federal income taxes through the professional and
efficient management of a portfolio consisting of Ohio state, municipal
and local government obligations.

Scudder Pennsylvania Tax Free Fund* seeks to provide income exempt from
both Pennsylvania and regular federal income taxes through a portfolio
consisting of Pennsylvania state, municipal and local government
obligations.

GROWTH AND INCOME

Scudder Balanced Fund seeks to provide a balance of growth and income,
as well as long-term preservation of capital, from a diversified
portfolio of equity and fixed income securities.

Scudder Growth and Income Fund seeks to provide long-term growth of
capital, current income, and growth of income through a portfolio
invested primarily in common stocks and convertible securities by
companies which offer the prospect of growth of earnings while paying
current dividends.

GROWTH

Scudder Classic Growth Fund seeks long-term growth of capital with
reduced share price volatility compared to other growth mutual funds.

Scudder Development Fund seeks to achieve long-term growth of capital
primarily through investments in marketable securities, principally
common stocks, of relatively small or little-known companies which in
the opinion of management have promise of expanding their size and
profitability or of gaining increased market recognition for their
securities, or both.

Scudder Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.

Scudder Global Discovery Fund seeks above-average capital appreciation
over the long term by investing primarily in the equity securities of
small companies located throughout the world.

Scudder Global Fund seeks long-term growth of capital primarily through
a diversified portfolio of marketable equity securities selected on a
worldwide basis. It may also invest in debt securities of U.S.
and foreign issuers. Income is an incidental consideration.

Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.

Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.

Scudder International Fund seeks long-term growth of capital through
investment principally in a diversified portfolio of marketable equity
securities selected primarily to permit participation in non-U.S.
companies and economies with prospects for growth. It also invests in
fixed-income securities of foreign governments and companies, with a
view toward total investment return.

- -------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
24
<PAGE>

Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a broad and flexible investment program
emphasizing common stocks.

Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.

Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-cap stocks.

Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.

Scudder Quality Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of
seasoned, financially strong U.S. growth companies.

Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.

Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in securities of emerging growth companies poised
to be leaders in the 21st century.

Scudder Value Fund seeks long-term growth of capital through investment
in undervalued equity securities.

The Japan Fund, Inc. seeks capital appreciation through investment in
Japanese securities, primarily in common stocks of Japanese companies.

ASSET ALLOCATION

Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio will, under normal market conditions, invest
substantially in a select mix of Scudder bond mutual funds, but will
have some exposure to Scudder equity mutual funds.

Scudder Pathway Series: Balanced Portfolio seeks a balance of growth
and income by investing in a select mix of Scudder money market, bond
and equity mutual funds.

Scudder Pathway Series: Growth Portfolio seeks to provide investors
with long-term growth of capital. In pursuing this objective, the
Portfolio will, under normal market conditions, invest predominantly in
a select mix of Scudder equity mutual funds designed to provide
long-term growth.

Scudder Pathway Series: International Portfolio seeks maximum total
return. Total return consists of any capital appreciation plus dividend
income and interest. To achieve this objective, the Portfolio invests
in a select mix of international and global Scudder Funds.

The net asset values of most Scudder Funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder Funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.

The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a

25
<PAGE>

service representative of Scudder Investor Relations; easy telephone exchanges
into other Scudder funds; shares redeemable at net asset value at any time.

SPECIAL PLAN ACCOUNTS

(See "Scudder tax-advantaged retirement plans," "Purchases--By
Automatic Investment Plan" and "Exchanges and redemptions--By
Automatic Withdrawal Plan" in the Fund's prospectus.)

Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. It is
advisable for an investor considering the funding of the investment plans
described below to consult with an attorney or other investment or tax adviser
with respect to the suitability requirements and tax aspects thereof.

Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRA's other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.

None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.

Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals

Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code.

Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals

Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.

Scudder IRA: Individual Retirement Account

Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.

A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible

26
<PAGE>

contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.

An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (beginning in 1997, up to $2,000 per individual for married couples if only
one spouse has earned income). All income and capital gains derived from IRA
investments are reinvested and compound tax-deferred until distributed. Such
tax-deferred compounding can lead to substantial retirement savings.

The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5, 10,
and 15%. (At withdrawal, accumulations in this table will be taxable.)
<TABLE>
<CAPTION>

Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution

- ----------------------------------------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------------------------------
Contributions 5% 10% 15%
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>

This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming average
annual returns of 5, 10 and 15%. (At withdrawal, a portion of the accumulation
in this table will be taxable.)
<TABLE>
<CAPTION>

Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket

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

Starting Annual Rate of Return
Age of ---------------------------------------------------------------------------
Contributions 5% 10% 15%
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>

Scudder 403(b) Plan

Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.

Automatic Withdrawal Plan

Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Payments are mailed at the end
of each month. The check amounts may be based on the redemption of a fixed
dollar amount, fixed share amount, percent of account value or declining
balance. The Plan provides for income dividends and capital gains distributions,
if any, to be reinvested in additional shares. Shares are then liquidated as
necessary to provide for withdrawal payments. Since the withdrawals are in
amounts selected by the investor and have no relationship to yield or income,

27
<PAGE>

payments received cannot be considered as yield or income on the investment and
the resulting liquidations may deplete or possibly extinguish the initial
investment. Requests for increases in withdrawal amounts or to change payee must
be submitted in writing, signed exactly as the account is registered and contain
signature guarantee(s) as described under "Transaction information--Redeeming
shares--Signature guarantees" in the Fund's prospectus. Any such requests must
be received by the Fund's transfer agent by the 15th of the month in which such
change is to take effect. An Automatic Withdrawal Plan may be terminated at any
time by the shareholder, the Trust or its agent on written notice, and will be
terminated when all shares of the Fund under the Plan have been liquidated or
upon receipt by the Trust of notice of death of the shareholder.

An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.

Group or Salary Deduction Plan

An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Trust and its agents reserve the right to establish a maintenance
charge in the future depending on the services required by the investor.

The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.

Automatic Investment Plan

Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.

The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.

Uniform Transfers/Gifts to Minors Act

Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.

The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.

28
<PAGE>

Scudder Savings Incentive Match Plans for Employees: SIMPLE IRA'S

Shares of the Fund may be purchased as the underlying investment for a
"SIMPLE IRA". A SIMPLE IRA is an IRA into which both an individual and the
individual's employer may make contributions. The individual may elect to make
pre-tax contributions, calculated as a percentage of compensation, to a SIMPLE
IRA, up to $6,000 a year. Subject to certain limits, the employer may either
match a portion of your contributions, or may make a contribution equal to 2% of
the employee's compensation without regard to the amount the employee
contributes under the SIMPLE IRA. Individuals will be immediately 100% vested in
all contributions made to a SIMPLE IRA.

If amounts are distributed from a SIMPLE IRA account during the two year
period beginning on the date the employee first participates in the SIMPLE
salary reduction arrangement, a 25% penalty tax will be imposed on such
distribution. Also during that two year period, the SIMPLE IRA account can be
rolled over tax-free only to another SIMPLE IRA account. After that two year
period has passed, distributions from a SIMPLE IRA instead will be subject
generally to the rules applicable to other IRAs; for example, they may be rolled
over tax-free into any individual retirement plan, they will be subject to the
10% penalty tax on early distributions that are made before the individual
reaches age 59-1/2, and they will be fully taxed when withdrawn.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

(See "Distribution and performance
information--Dividends and capital gains
distributions" in the Fund's prospectus.)

The Fund intends to follow the practice of distributing substantially
all of its investment company taxable income, which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
The Fund may follow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, the Fund may retain all or part of such gain for reinvestment, after
paying the related federal income taxes for which the shareholders may claim a
credit against their federal income tax liability. If the Fund does not
distribute the amount of capital gains and/or ordinary income required to be
distributed by an excise tax provision of the Code, the Fund may be subject to
that excise tax. In certain circumstances, the Fund may determine that it is in
the interest of shareholders to distribute less than the required amount. (See
"TAXES.")

The Fund intends to distribute investment company taxable income and
any net realized capital gains resulting from Fund investment activity in
November or December each year. Both types of distributions will be made in
shares of the Fund and confirmations will be mailed to each shareholder unless a
shareholder has elected to receive cash, in which case a check will be sent.
Distributions of investment company taxable income and net realized capital
gains are taxable (see "TAXES"), whether made in shares or cash.

PERFORMANCE INFORMATION

(See "Distribution and performance information--Performance
information" in the Fund's prospectus.)

From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures will be calculated in the following manner:

Average Annual Total Return

Average Annual Total Return is the average annual compound rate of
return for the periods of one year and the life of the Fund, all ended on the
last day of a recent calendar quarter. Average annual total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by finding the average
annual compound rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):

29
<PAGE>

T = (ERV/P)^1/n - 1
Where:

P = a hypothetical initial investment of $1,000
T = Average Annual Total Return
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.

Cumulative Total Return

Cumulative Total Return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
Total Return quotations reflect changes in the price of the Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative Total Return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (Cumulative Total Return is then expressed as
a percentage):

C = (ERV/P) -1
Where:

C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.

Cumulative Total Return for the period ended August 31, 1996

Life of Fund

13.54%

Total Return

Total Return is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative Total Return.

Capital Change

Capital Change measures the return from invested capital including
reinvested capital gains distributions. Capital change does not include the
reinvestment of income dividends.

Quotations of the Fund's performance are historical and are not
intended to indicate future performance. An investor's shares when redeemed may
be worth more or less than their original cost. Performance of the Fund will
vary based on changes in market conditions and the level of the Fund's expenses.

Comparison of Fund Performance

A comparison of the quoted non-standard performance offered for various
investments is valid only if performance is calculated in the same manner. Since
there are different methods of calculating performance, investors should
consider the effects of the methods used to calculate performance when comparing
performance of the Fund with performance quoted with respect to other investment
companies or types of investments.

In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or

30
<PAGE>

interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, the Russell 2000 Index, and statistics published by the Small
Business Administration.

From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations such as,
Investment Company Data, Inc. ("ICD"), Lipper Analytical Services, Inc.
("Lipper"), CDA Investment Technologies, Inc. ("CDA"), Morningstar, Inc., Value
Line Mutual Fund Survey and other independent organizations. When these
organizations' tracking results are used, the Fund will be compared to the
appropriate fund category, that is, by fund objective and portfolio holdings, or
to the appropriate volatility grouping, where volatility is a measure of a
fund's risk. For instance, a Scudder growth fund will be compared to funds in
the growth fund category; a Scudder income fund will be compared to funds in the
income fund category; and so on. Scudder funds (except for money market funds)
may also be compared to funds with similar volatility, as measured statistically
by independent organizations.

From time to time, in marketing and other Fund literature, Trustees and
officers of the Fund, the Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.

The Fund may be advertised as an investment choice in Scudder's college
planning program. The description may contain illustrations of projected future
college costs based on assumed rates of inflation and examples of hypothetical
fund performance, calculated as described above.

Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.

Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.

Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.

A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth

31
<PAGE>

funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.

Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity securities.

Internet access

World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.

The site is designed for interactivity, simplicity and maneuverability.
A section entitled "Planning Resources" provides information on asset
allocation, tuition, and retirement planning to users who fill out interactive
"worksheets." Investors can easily establish a "Personal Page," that presents
price information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both Scudder and Lipper Analytical Services, Inc. are
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.

Scudder has communicated with shareholders and other interested parties
on Prodigy since 1988 and has participated since 1994 in GALT's Networth
"financial marketplace" site on the Internet. The firm made Scudder Funds
information available on America Online in early 1996.

Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.

Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.

An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.

A Call MeTM feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call MeTM feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.

Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Fund include the following:

American Association of Individual Investors' Journal, a monthly publication of
the AAII that includes articles on investment analysis techniques.

Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.

32
<PAGE>

Banxquote, an on-line source of national averages for leading money market and
bank CD interest rates, published on a weekly basis by Masterfund, Inc. of
Wilmington, Delaware.

Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.

Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing abroad.

CDA Investment Technologies, Inc., an organization which provides performance
and ranking information through examining the dollar results of hypothetical
mutual fund investments and comparing these results against appropriate market
indices.

Consumer Digest, a monthly business/financial magazine that includes a "Money
Watch" section featuring financial news.

Financial Times, Europe's business newspaper, which features from time to time
articles on international or country-specific funds.

Financial World, a general business/financial magazine that includes a "Market
Watch" department reporting on activities in the mutual fund industry.

Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.

Fortune, a national business publication that periodically rates the performance
of a variety of mutual funds.

The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign equity
market performance to U.S. stock market performance.

Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.

IBC Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC's Government Money
Fund Average."

Ibbotson Associates, Inc., a company specializing in investment research and
data.

Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.

Investor's Business Daily, a daily newspaper that features financial, economic,
and business news.

Kiplinger's Personal Finance Magazine, a monthly investment advisory publication
that periodically features the performance of a variety of securities.

Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a weekly
publication of industry-wide mutual fund averages by type of fund.

Money, a monthly magazine that from time to time features both specific funds
and the mutual fund industry as a whole.

Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.

33
<PAGE>

Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.

The New York Times, a nationally distributed newspaper which regularly covers
financial news.

The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.

No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.

Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.

Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.

Smart Money, a national personal finance magazine published monthly by Dow Jones
and Company, Inc. and The Hearst Corporation. Focus is placed on ideas for
investing, spending and saving.

Success, a monthly magazine targeted to the world of entrepreneurs and growing
business, often featuring mutual fund performance data.

United Mutual Fund Selector, a semi-monthly investment newsletter, published by
Babson United Investment Advisors, that includes mutual fund performance data
and reviews of mutual fund portfolios and investment strategies.

USA Today, a leading national daily newspaper.

U.S. News and World Report, a national news weekly that periodically reports
mutual fund performance data.

Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.

The Wall Street Journal, a Dow Jones and Company, Inc. newspaper which regularly
covers financial news.

Wiesenberger Investment Companies Services, an annual compendium of information
about mutual funds and other investment companies, including comparative data on
funds' backgrounds, management policies, salient features, management results,
income and dividend records and price ranges.

Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.

Worth, a national publication put out 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.

FUND ORGANIZATION

(See "Fund organization" in the Fund's prospectus.)

The Fund is a series of Scudder Securities Trust, formerly Scudder
Development Fund, a Massachusetts business trust established under a Declaration
of Trust dated October 16, 1985, as amended. The Trust's predecessor was
organized as a Delaware corporation in 1970. The Trust's authorized capital
consists of an unlimited number of shares of beneficial interest of $0.01 par
value, all of which are of one class and have equal rights as to voting,
dividends and liquidation. The Trust's shares are currently divided into four
series, Scudder Development Fund, Scudder Micro Cap Fund, Scudder 21st Century
Growth Fund and Scudder Small Company Value Fund. The Trustees have the

34
<PAGE>

authority to issue additional series of shares and to designate the relative
rights and preferences as between the different series. Each share of each Fund
has equal rights with each other share of that Fund as to voting, dividends and
liquidation. All shares issued and outstanding will be fully paid and
nonassessable by the Trust, and redeemable as described in this Statement of
Additional Information and in each Fund's prospectus.

The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.

Shares of the Trust entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting that
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series.

The Trustees, in their discretion, may authorize the division of shares
of the Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution. The Trustees have no present
intention of taking the action necessary to effect the division of shares into
separate classes, nor of changing the method of distribution of shares of the
Fund.

The Declaration of Trust provides that obligations of the Fund are not
binding upon the Trustees individually but only upon the property of the Fund,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Fund will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Fund. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.

INVESTMENT ADVISER

(See "Fund organization--Investment adviser" in the Fund's prospectus.)

Scudder, Stevens & Clark, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Fund. This organization is one of the
most experienced investment counsel firms in the U.S. It was established as a
partnership in 1919 and pioneered the practice of providing investment counsel
to individual clients on a fee basis. In 1928 it introduced the first no-load
mutual fund to the public. In 1953 the Adviser introduced Scudder International
Fund, Inc., the first mutual fund available in the U.S. investing
internationally in securities of issuers in several foreign countries. The firm
reorganized from a partnership to a corporation on June 28, 1985.

The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,

35
<PAGE>

Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder Institutional Fund,
Inc., Scudder International Fund, Inc., Scudder Investment Trust, Scudder
Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder Pathway Series, Scudder Securities Trust,
Scudder State Tax Free Trust, Scudder Tax Free Money Fund, Scudder Tax Free
Trust, Scudder U.S. Treasury Money Fund, Scudder Variable Life Investment Fund,
Scudder World Income Opportunities Fund, Inc., The Argentina Fund, Inc., The
Brazil Fund, Inc., The First Iberian Fund, Inc., The Korea Fund, Inc., The Japan
Fund, Inc. and The Latin America Dollar Income Fund, Inc. Some of the foregoing
companies or trusts have two or more series.

The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $12 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.

The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. In this work, the Adviser
utilizes certain reports and statistics from a wide variety of sources,
including brokers and dealers who may execute portfolio transactions for the
Fund and other clients of the Adviser, but conclusions are based primarily on
investigations and critical analyses by the Adviser's own research specialists.

Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view toward achieving their respective investment
objectives and after consideration of such factors as their current holdings,
availability of cash for investment and the size of their investments generally.
Frequently, a particular security may be bought or sold for only one client or
in different amounts and at different times for more than one but less than all
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In addition, purchases
or sales of the same security may be made for two or more clients on the same
day. In such event, such transactions will be allocated among the clients in a
manner believed by the Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Adviser in the interest of achieving
the most favorable net results to the Fund.

The Investment Management Agreement (the "Agreement") dated October 6,
1995 was approved by the Trustees of the Fund on September 6, 1995 and by the
initial shareholder of the Fund on October 4, 1995. The Agreement will continue
in effect until September 30, 1997 and from year to year thereafter only if its
continuance is approved annually by the vote of a majority of those Trustees who
are not parties to such Agreement or interested persons of the Adviser or the
Fund, cast in person at a meeting called for the purpose of voting on such
approval, and either by a vote of the Fund's Trustees or of a majority of the
outstanding voting securities of the Fund. The Agreement may be terminated at
any time without payment of penalty by either party on sixty days' written
notice, and automatically terminates in the event of its assignment.

Under the Agreement, the Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objective, policies and restrictions and determines what securities
shall be purchased, held or sold and what portion of the Fund's assets shall be
held uninvested, subject always to the provisions of the Fund's Declaration of
Trust and By-Laws, the 1940 Act, the Code and to the Fund's investment
objective, policies and restrictions, and subject, further, to such policies and
instructions as the Board of Trustees of the Fund may from time to time
establish. The Adviser also advises and assists the officers of the Fund in
taking such steps as are necessary or appropriate to carry out the decisions of
its Trustees and the appropriate committees of the Trustees regarding the
conduct of the business of the Fund.

Under the Agreement, the Adviser renders significant administrative
services (not otherwise provided by third parties) necessary for the Fund's
operations as an open-end investment company including, but not limited to,
preparing reports and notices to the Trustees and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to the Fund (such as the Fund's transfer agent, pricing
agents, custodian, accountants and others); preparing and making filings with
the SEC and other regulatory agencies; assisting in the preparation and filing

36
<PAGE>

of the Fund's federal, state and local tax returns; preparing and filing the
Fund's federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of the Fund under applicable
federal and state securities laws; maintaining the Fund's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of the Fund; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Fund's operating budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging for, the payment of distributions and dividends and otherwise
assisting the Fund in the conduct of its business, subject to the direction and
control of the Trustees.

The Adviser pays the compensation and expenses (except those for
attending Board and committee meetings outside New York, New York and Boston,
Massachusetts) of all Trustees, officers and executive employees of the Fund
affiliated with the Adviser, and makes available, without expense to the Fund,
the services of such directors, officers and employees of the Adviser as may
duly be elected officers of the Fund, subject to their individual consent to
serve and to any limitations imposed by law, and provides the Fund's office
space and facilities.

For these services the Fund pays the Adviser a fee equal to an annual
rate of 0.75% of the Fund's average daily net assets payable monthly, provided
the Fund will make such interim payments as may be requested by the Adviser not
to exceed 75% of the amount of the fee then accrued on the books of the Fund and
unpaid. The Adviser has agreed until December 31, 1997 to maintain the total
annualized expenses of the Fund at no more than 1.50% of the average daily net
assets of the Fund. For the fiscal period October 6, 1995 (commencement of
operations) to August 31, 1996, the Adviser did not impose any portion of its
management fee amounting to $171,544.

Under the Agreement, the Fund is responsible for all of its other
expenses including: fees and expenses incurred in connection with membership in
investment company organizations; broker's commissions, legal, auditing and
accounting expenses; the calculation of net asset value; taxes and governmental
fees; the fees and expenses of the Transfer Agent; the cost of preparing share
certificates or any other expenses including expenses of issuance, redemption or
repurchase of shares; the expenses of and the fees for registering or qualifying
securities for sale; the fees and expenses of Trustees, officers and employees
of the Fund who are not affiliated with the Adviser; the cost of printing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians. The Fund may arrange to have third parties assume all or part of
the expenses of sale, underwriting and distribution of shares of the Fund. The
Fund is also responsible for expenses of shareholders' meetings, the cost of
responding to shareholders' inquiries and expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees with respect thereto.

The Agreement also provides that the Fund may use any name derived from
the name "Scudder, Stevens & Clark" only as long as the Agreement or any
extension, renewal or amendment thereof remains in effect.

In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees of the Fund who are not
"interested persons" of the Adviser are represented by independent counsel at
the Fund's expense.

The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.

Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.

None of the Trustees or officers of the Fund may have dealings with the
Fund as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Fund.

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<PAGE>

Personal Investments by Employees of the Adviser

Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
<TABLE>
<CAPTION>

TRUSTEES AND OFFICERS

Name Position Position with Underwriter,
and Address with Fund Principal Occupation** Scudder Investor Services, Inc.
- ----------- --------- ---------------------- -------------------------------
<S> <C> <C> <C>
Daniel Pierce+* (62) President and Chairman of the Board and Vice President, Director and
Trustee Managing Director of Scudder, Assistant Treasurer
Stevens & Clark, Inc.

Paul Bancroft III (66) Trustee Venture Capitalist and --
1120 Cheston Lane Consultant; Retired, President
Queenstown, MD 21658 Chief Executive Officer and
Director of Bessemer Securities
Corporation

Thomas J. Devine (70) Trustee Consultant --
641 Lexington Avenue,
28th Floor
New York, NY 10022

Keith R. Fox (42) Trustee President, Exeter Capital --
10 East 53rd Street Management Corporation
New York, NY 10022

Dudley H. Ladd+#* (52) Trustee Managing Director of Scudder, Director and Senior Vice
Stevens & Clark, Inc. President

Dr. Wilson Nolen (70) Trustee Consultant (1989 until --
1120 Fifth Avenue present); Corporate Vice
New York, NY 10128 President of Becton, Dickinson
& Company, manufacturer of
medical and scientific products
(until June 1989)

Kathryn L. Quirk++#* (44) Trustee Managing Director of Scudder, Vice President
Stevens & Clark, Inc.

Dr. Gordon Shillinglaw (71) Trustee Professor Emeritus of --
Columbia University Accounting, Columbia University
196 Villard Avenue Graduate School of Business
Hastings-on-Hudson
New York, NY 10706

38
<PAGE>

Name Position Position with Underwriter,
and Address with Fund Principal Occupation** Scudder Investor Services, Inc.
- ----------- --------- ---------------------- -------------------------------

Robert W. Lear (79) Honorary Trustee Executive-in-Residence, --
429 Silvermine Road Visiting Professor, Columbia
New Canaan, CT 06840 University Graduate School of
Business

Robert G. Stone, Jr. (73) Honorary Trustee Chairman of the Board and --
405 Lexington Avenue, Director, Kirby Corporation
39th Floor (inland and offshore marine
New York, NY 10174 transportation and diesel
repairs)

Edmund R. Swanberg++ (75) Honorary Trustee Advisory Managing Director of --
Scudder, Stevens & Clark, Inc.

Peter Chin++ (54) Vice President Principal of Scudder, Stevens & --
Clark, Inc.

James M. Eysenbach@ (34) Vice President Vice President of Scudder, --
Stevens & Clark, Inc.

Philip S. Fortuna++ (39) Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.

Jerard K. Hartman++ (63) Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.

Thomas W. Joseph+ (57) Vice President Principal of Scudder, Stevens & Vice President, Director,
Clark, Inc. Treasurer and Assistant Clerk

David S. Lee+ (62) Vice President Managing Director of Scudder, President, Director and
Stevens & Clark, Inc. Assistant Treasurer

Thomas F. McDonough+ (49) Vice President Principal of Scudder, Stevens & Clerk
and Secretary Clark, Inc.

Pamela A. McGrath+ (43) Vice President Managing Director of Scudder, --
and Treasurer Stevens & Clark, Inc.

Roy C. McKay++ (53) Vice President Managing Director of Scudder, --
Stevens & Clark, Inc.

Edward J. O'Connell++ (51) Vice President Principal of Scudder, Stevens & Assistant Treasurer
and Assistant Clark, Inc.
Treasurer

Richard W. Desmond++ (60) Assistant Vice President of Scudder, Vice President
Secretary Stevens & Clark, Inc.

</TABLE>
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<PAGE>

* Messrs. Ladd, Pierce and Ms. Quirk are considered by the Fund and
counsel to be persons who are "interested persons" of the Adviser or of
the Fund, within the meaning of the Investment Company Act of 1940, as
amended.
** Unless otherwise stated, all the Trustees and officers have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
# Mr. Ladd and Ms. Quirk are members of the Executive Committee, which
may exercise all of the powers of the Trustees when they are not in
session.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
@ Address: 101 California Street, Suite 4100, San Francisco, CA
94111-5886

The Trustees and Officers of the Fund also serve in similar capacities
with other Scudder Funds.

As of November 30, 1996, all Directors and officers as a group owned
beneficially (as that term is defined in Section 13(d) of the Securities
Exchange Act of 1934) 135,084 shares, or 4.04% of the shares of the Fund.

Certain accounts for which the Adviser acts as investment adviser owned
319,545 shares in the aggregate, or 9.55% of the outstanding shares on November
30, 1996. The Adviser may be deemed to be the beneficial owner of such shares
but disclaims any beneficial ownership in such shares.

To the best of the Fund's knowledge, as of November 30, 1996, no person
owned beneficially more than 5% of the Fund's outstanding shares except as
stated above.

REMUNERATION

Several of the officers and Trustees of the Trust may be officers or
employees of the Adviser, or of the Distributor, the Transfer Agent, Scudder
Trust Company, or Scudder Fund Accounting Corporation, from whom they receive
compensation, as a result of which they may be deemed to participate in the fees
paid by the Trust. The Trust pays no direct remuneration to any officer of the
Trust. However, each of the Trust's Trustees who is not affiliated with the
Adviser will be compensated for all expenses relating to Trust business
(specifically including travel expenses relating to Trust business). Each of
these unaffiliated Trustees receives an annual Trustee's fee of $4,000 plus $400
for each attended each Trustees' meeting, audit committee meeting or meeting
held for the purpose of considering arrangements between the Fund and the
Adviser or any of its affiliates. Each unaffiliated Trustee also receives $150
per committee meeting attended other than those set forth above. For the fiscal
period ended August 31, 1996, the Fund paid such Trustees $45,631.

The following table shows the aggregate compensation received by each
unaffiliated Trustee during 1995 from Scudder Small Company Value Fund and from
all Scudder Funds as a group.

Scudder
Name Securities Trust* All Scudder Funds
---- ----------------- -----------------

Paul Bancroft III, $9,422 $143,358 (16 funds)
Trustee

Thomas J. Devine, $9,972 $156,058 (18 funds)
Trustee

Keith Fox, $9,822 $87,508 (10 funds)
Trustee

Dr. Wilson Nolen, $10,222 $165,608 (17 funds)
Trustee

Dr. Gordon Shillinglaw, $10,222 $119,918 (19 funds)
Trustee

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<PAGE>

Robert G. Stone, Jr.+ **, $1,272 $12,272 (2 funds)
Trustee

* Scudder Securities Trust consists of four Funds: Scudder Development Fund,
Scudder Small Company Value Fund, Scudder Micro Cap Fund and Scudder 21st
Century Growth Fund. Scudder Small Company Value Fund commenced operations
on October 6, 1995, Scudder Micro Cap Fund commenced operations on August
12, 1996 and Scudder 21st Century Growth Fund commenced operations on
September 9, 1996.

** This amount does not reflect $6,788 in pension or retirement benefits
accrued as part of Fund Complex expenses, and $6,000 in estimated annual
benefits payable upon retirement. Retirement benefits accrued and proposed
are to be paid to Mr. Stone as additional compensation for serving on the
Board of The Japan Fund, Inc.

+ Honorary Trustee of Scudder Securities Trust as of January 1, 1996.

DISTRIBUTOR

The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a subsidiary of
the Adviser, a Delaware corporation. The Trust's underwriting agreement dated
September 30, 1995 will remain in effect until September 30, 1997 and from year
to year thereafter only if its continuance is approved annually by a majority of
the Trustees who are not parties to such agreement or interested persons of any
such party and either by a vote of a majority of the Trustees or a majority of
the outstanding voting securities of the Fund. The underwriting agreement was
last approved by the Trustees on September 6, 1995.

Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of its registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering the Fund as a broker or dealer in the
various states as required; the fees and expenses of preparing, printing and
mailing prospectuses annually to existing shareholders (see below for expenses
relating to prospectuses paid by the Distributor), notices, proxy statements,
reports or other communications to shareholders of the Fund; the cost of
printing and mailing confirmations of purchases of shares and any prospectuses
accompanying such confirmations; any issuance taxes and/or any initial transfer
taxes; a portion of shareholder toll-free telephone charges and expenses of
shareholder service representatives; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
a portion of the cost of computer terminals used by both the Fund and the
Distributor.

The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of the shares of the Fund to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a 12b-1 Plan is in effect which
provides that the Fund shall bear some or all of such expenses.

NOTE: Although the Fund does not currently have a 12b-1 Plan, and the
Trustees have no current intention of adopting one, the Fund would also
pay those fees and expenses permitted to be paid or assumed by the Fund
pursuant to a 12b-1 Plan, if any, were adopted by the Fund,
notwithstanding any other provision to the contrary in the underwriting
agreement.

As agent, the Distributor currently offers the Fund's shares on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.

41
<PAGE>

TAXES

(See "Distribution and performance information--Dividends and
capital gain distributions" and "Transaction information--
Tax information, Tax identification number" in the Fund's prospectus.)

The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code or a predecessor statute, and has qualified as
such since its inception. It intends to continue to qualify for such treatment.
Such qualification does not involve governmental supervision or management of
investment practices or policy.

A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90 percent of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.

The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.

Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund. Presently, the Fund has
no capital loss carryforwards. From November 1, 1995 through August 31, 1996 the
Fund incurred $6,985 of net realized capital losses which the Fund intends to
elect to defer and treat as arising in the fiscal year ending August 31, 1997.

If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a relative share of federal income taxes paid by
the Fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between a pro rata share of such gains owned and the
individual tax credit.

Distributions of investment company taxable income are taxable to
shareholders as ordinary income.

To the extent that dividends from domestic corporations constitute a
portion of the Fund's gross income, a portion of the income distributions of the
Fund may be eligible for the deduction for dividends received by corporations.
Shareholders will be informed of the portion of dividends which so qualify. The
dividends-received deduction is reduced to the extent the shares of the Fund
with respect to which the dividends are received are treated as debt-financed
under federal income tax law, and is eliminated if either those shares or the
shares of the Fund are deemed to have been held by the Fund or the shareholder,
as the case may be, for less than 46 days.

Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of the Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.

Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.

42
<PAGE>

All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.

A qualifying individual may make a deductible IRA contribution for any
taxable year only if (i) neither the individual nor his or her spouse (unless
filing separate returns) is an active participant in an employer's retirement
plan, or (ii) the individual (and his or her spouse, if applicable) has an
adjusted gross income below a certain level ($40,050 for married individuals
filing a joint return, with a phase-out of the deduction for adjusted gross
income between $40,050 and $50,000; $25,050 for a single individual, with a
phase-out for adjusted gross income between $25,050 and $35,000). However, an
individual not permitted to make a deductible contribution to an IRA for any
such taxable year may nonetheless make nondeductible contributions up to $2,000
to an IRA (beginning in 1997, up to $2,000 per individual for married couples if
only one spouse has earned income) for that year. There are special rules for
determining how withdrawals are to be taxed if an IRA contains both deductible
and nondeductible amounts. In general, a proportionate amount of each withdrawal
will be deemed to be made from nondeductible contributions; amounts treated as a
return of nondeductible contributions will not be taxable. Also, annual
contributions may be made to a spousal IRA even if the spouse has earnings in a
given year if the spouse elects to be treated as having no earnings (for IRA
contribution purposes) for the year.

Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.

Equity options (including covered call options on portfolio stock) and
over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general, no loss is
recognized by a Fund upon payment of a premium in connection with the purchase
of a put or call option. The character of any gain or loss recognized (i.e.,
long-term or short-term) will generally depend, in the case of a lapse or sale
of the option, on the Fund's holding period for the option, and in the case of
an exercise of a put option, on the Fund's holding period for the underlying
stock. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying stock or substantially identical stock in the Fund's portfolio. If
the Fund writes a put or call option, no gain is recognized upon its receipt of
a premium. If the option lapses or is closed out, any gain or loss is treated as
a short-term capital gain or loss. If a call option is exercised, any resulting
gain or loss is a short-term or long-term capital gain or loss depending on the
holding period of the underlying stock. The exercise of a put option written by
the Fund is not a taxable transaction for the Fund.

Many futures and forward contracts entered into by the Fund and all
listed non-equity options written or purchased by the Fund (including options on
futures contracts and options on broad-based stock indices) will be governed by
Section 1256 of the Code. Absent a tax election to the contrary, gain or loss
attributable to the lapse, exercise or closing out of any such position
generally will be treated as 60% long-term and 40% short-term capital gain or
loss, and on the last trading day of the Fund's fiscal year, all outstanding
Section 1256 positions will be marked to market (i.e. treated as if such
positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term capital
gain or loss. Under certain circumstances, entry into a futures contract to sell
a security may constitute a short sale for federal income tax purposes, causing
an adjustment in the holding period of the underlying security or a
substantially identical security in the Fund's portfolio.

Positions of the Fund which consist of at least one stock and at least
one other position with respect to a related security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock

43
<PAGE>

or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for certain "qualified
covered call options" on stock written by the Fund.

Positions of the Fund which consist of at least one position not
governed by Section 1256 and at least one futures or forward contract or
nonequity option governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, certain tax elections exist for them which reduce or
eliminate the operation of these rules. The Fund intends to monitor its
transactions in options and futures and may make certain tax elections in
connection with these investments.

The Fund will be required to report to the Internal Revenue Service all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.

Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.

The Fund is organized as a series of a Massachusetts business trust and
is not liable for any income or franchise tax in the Commonwealth of
Massachusetts, provided that it qualifies as a regulated investment company for
federal income tax purposes.

The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.

Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.

PORTFOLIO TRANSACTIONS

Brokerage Commissions

To the maximum extent feasible the Adviser places orders for portfolio
transactions for the Fund through the Distributor, which in turn places orders
on behalf of the Fund with issuers, underwriters or other brokers and dealers.
The Distributor receives no commissions, fees or other remuneration from the
Fund for this service.
Allocation of brokerage is supervised by the Adviser.

The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund's portfolio is to obtain the most favorable
net results, taking into account such factors as price, commission where
applicable (negotiable in the case of U.S. national securities exchange
transactions), size of order, difficulty of execution and skill required of the
executing broker/dealer. The Adviser seeks to evaluate the overall
reasonableness of brokerage commissions paid (to the extent applicable) through

44
<PAGE>

the familiarity of the Distributor with commissions charged on comparable
transactions, as well as by comparing commissions paid by the Fund to reported
commissions paid by others. The Adviser reviews on a routine basis commission
rates, execution and settlement services performed, making internal and external
comparisons.

When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
brokers and dealers who supply market quotations to the custodian of the Fund
for appraisal purposes; or who supply research, market and statistical
information to the Fund or the Adviser. The term "research, market and
statistical information" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities, and analyses
and reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts. The Adviser is not
authorized when placing portfolio transactions for the Fund to pay a brokerage
commission (to the extent applicable) in excess of that which another broker
might have charged for executing the same transaction solely on account of the
receipt of research, market or statistical information. The Adviser does not
place orders with brokers or dealers on the basis that the broker or dealer has
or has not sold shares of the Fund. In effecting transactions in
over-the-counter securities, orders are placed with the principal market makers
for the security being traded unless, after exercising care, it appears that
more favorable results are available otherwise.

Although certain research, market and statistical information from
brokers and dealers can be useful to the Fund and to the Adviser, it is the
opinion of the Adviser that such information will only supplement the Adviser's
own research effort since the information must still be analyzed, weighed, and
reviewed by the Adviser's staff. Such information may be useful to the Adviser
in providing services to clients other than the Fund, and not all such
information is used by the Adviser in connection with the Fund. Conversely, such
information provided to the Adviser by brokers and dealers through whom other
clients of the Adviser effect securities transactions may be useful to the
Adviser in providing services to the Fund.

Subject also to obtaining the most favorable net results, the Adviser
may place brokerage transactions through the Fund's custodian and a credit
against the custodian fee due to the custodian equal to one-half of the
commission on any such transaction will be given. Except for implementing the
policy stated above, there is no intention to place portfolio transactions with
particular brokers or dealers or groups thereof.

In the fiscal period ended August 31, 1996, the Fund paid brokerage
commissions of $78,852. For the fiscal period ended August 31, 1996, $38,755
(68.87% of the total brokerage commissions paid) resulted from orders placed,
consistent with the policy of obtaining the most favorable net results, with
brokers and dealers who provided supplementary research information to the Fund
or the Adviser. The amount of such transactions aggregated $17,209,696 (5.7% of
all transactions).

The Trustees intend to review from time to time whether the recapture
for the benefit of the Fund of some portion of the brokerage commissions or
similar fees paid by the Fund on portfolio transactions is legally permissible
and advisable.

Portfolio Turnover

The Fund's average annual portfolio turnover rate is the ratio of the
lesser of sales or purchases to the monthly average value of the portfolio
securities owned during the year, excluding all securities with maturities or
expiration dates at the time of acquisition of one year or less. A higher rate
involves greater brokerage transaction expenses to the Fund and may result in
the realization of net capital gains, which would be taxable to shareholders
when distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective. For the fiscal
period ended August 31, 1996 the portfolio turnover rate was 33.97%.

NET ASSET VALUE

The net asset value of shares of the Fund is computed as of the close
of regular trading on the New York Stock Exchange (the "Exchange") on each day
the Exchange is open for trading. The Exchange is scheduled to be closed on the

45
<PAGE>

following holidays: New Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value per
share is determined by dividing the value of the total assets of the Fund, less
all liabilities, by the total number of shares outstanding.

An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("NASDAQ") system is
valued at its most recent sale price. Lacking any sales, the security is valued
at the high or "inside" bid quotation. The value of an equity security not
quoted on the NASDAQ System, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.

Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.

An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.

If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.

If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.

Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.

ADDITIONAL INFORMATION

Experts

The Financial Highlights of the Fund included in the prospectus and the
Financial Statements incorporated by reference in this Statement of Additional
Information have been so included or incorporated by reference in reliance on
the report of Coopers & Lybrand L.L.P., One Post Office Square, Boston,
Massachusetts 02109, independent accountants, and given on the authority of that
firm as experts in accounting and auditing.

46
<PAGE>

Shareholder Indemnification

The Trust is an organization of the type commonly known as a
Massachusetts business trust. Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Fund's property or
the acts, obligations or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of the Fund's property of any shareholder held
personally liable for the claims and liabilities which a shareholder may become
subject by reason of being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.

Other Information

Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in light of the objective and policies of the
Fund, and other factors such as its other portfolio holdings and tax
considerations, and should not be construed as recommendations for similar
action by other investors.

The name "Scudder Securities Trust" is a designation of the Trustees
for the time being under a Declaration of Trust dated October 16, 1985, as
amended from time to time, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Fund. No series
of the Trust shall be liable for the obligations of any other series. Upon the
initial purchase of shares of the Fund, the shareholder agrees to be bound by
the Trust's Declaration of Trust, as amended from time to time. The Declaration
of Trust is on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts.

The Fund has a fiscal year end of August 31.

The CUSIP number of the Fund is 811196-20-3.

The Fund employs State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 as custodian.

The firm of Dechert Price & Rhoads is counsel to the Fund.

Costs of $23,751.06 incurred by the Fund in conjunction with its
organization are amortized over the five year period beginning October 6, 1995.

Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net
asset value for the Fund. The Fund pays SFAC an annual fee equal to 0.025% of
the first $150 million of average daily net assets, 0.0075% of such assets in
excess of $150 million, 0.0045% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. For the period October 6, 1995
(commencement of operations) to August 31, 1996, SFAC did not impose a portion
of their fee amounting to $31,965 and the fee imposed amounted to $36,531.

Scudder Service Corporation ("SSC"), P.O. Box 2291, Boston,
Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer and
dividend paying agent for the Fund. The Fund pays SSC an annual fee for each
account maintained for a participant. For the period October 6, 1995
(commencement of operations) to August 31, 1996, SSC did not impose a portion of
their fee amounting to $50,693, and the fee imposed amounted to $57,935.

Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the period October 6, 1995
(commencement of operations) to August 31,1996, STC did not impose a portion of
their fee amounting to $1,082, and the fee imposed amounted to $1,236.

47
<PAGE>

The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Fund has
filed with the SEC under the Securities Act of 1933 and reference is hereby made
to the Registration Statement for further information with respect to the Fund
and the securities offered hereby. This Registration Statement and its
amendments are available for inspection by the public at the SEC in Washington,
D.C.

FINANCIAL STATEMENTS

The financial statements, including the investment portfolio, of
Scudder Small Company Value Fund, which are included on pages 17-23, inclusive,
in the Annual Report to the Shareholders of the Fund dated August 31, 1996,
together with the Report of the Independent Accountants, and Financial
Highlights, are incorporated by reference and attached hereto, and are deemed to
be a part of this Statement of Additional Information.

<PAGE>
Scudder Small Company Value Fund

Annual Report

August 31, 1996

Pure No-Load(TM) Funds

A pure no-load(TM) (no sales charges) mutual fund which offers opportunities for
long-term growth of capital by seeking undervalued stocks of small U.S.
companies.
<PAGE>

Table of Contents

2 In Brief
3 Letter from the Fund's President
4 Portfolio Summary
5 Portfolio Management Discussion
8 Investment Portfolio
17 Financial Statements
20 Financial Highlights
21 Notes to Financial Statements
24 Report of Independent Accountants
25 Officers and Trustees
26 Investment Products and Services
27 How to Contact Scudder

In Brief

o Scudder Small Company Value Fund provided a strong total return of 13.54%
from its commencement of operations on October 6, 1995, through the end of
its abbreviated fiscal year on August 31, 1996.

o At the end of August, the average price-earnings ratio for portfolio
holdings was 11.6 based on trailing 12-month earnings, or well below half
of the 27.2 ratio for the broad universe of small stocks.

o One of the key benefits of the Fund's value-oriented approach to small
stock investing -- reduced volatility -- was clearly displayed over the
period versus broad small- and large-capitalization stock indices.

2 - Scudder Small Company Value Fund

<PAGE>

Letter From the Fund's President

Dear Shareholders,

We welcome you as an investor in Scudder Small Company Value Fund and are
pleased to present the first annual report of the Fund, covering the abbreviated
fiscal year beginning with the commencement of operations on October 6, 1995 and
ended August 31, 1996. For this period, the Fund's total return was a strong
13.54%.

After an extended period of relatively unbroken market strength, U.S.
equities provided a bumpy ride for most of the interval from March through
August of 1996, as a lack of clarity with respect to the direction of the
economy caused investor sentiment to gyrate. Small stocks in particular
experienced a high level of volatility and in many cases significant declines.
Scudder Small Company Value Fund shareholders were well served by the Fund's
systematic, value-oriented approach, which is designed to outperform other more
aggressive small stock strategies in such periods.

For those of you who like to stay informed about new funds offered by
Scudder, we recently introduced three new equity funds. Scudder Classic Growth
Fund seeks long-term capital appreciation with a higher degree of principal
stability than the average growth fund. Scudder 21st Century Growth Fund takes a
more aggressive approach, focusing primarily on emerging growth companies with
the potential to benefit from the rapidly changing industrial and economic
landscape that we foresee. Scudder Micro Cap Fund invests in the dynamic
universe of America's smallest publicly traded companies. For more information
on these and other Scudder Fund products and services, please turn to page 26.

Thank you for your interest and continued investment in Scudder Small
Company Value Fund. Please do not hesitate to contact Investor Relations at
1-800-225-2470 with any questions regarding your account.

Sincerely,

/s/Daniel Pierce
Daniel Pierce
President,
Scudder Small Company Value Fund

3 - Scudder Small Company Value Fund

<PAGE>

PORTFOLIO SUMMARY as of August 31, 1996

- -----------------------------
ASSET ALLOCATION
- -----------------------------
Equity Securities 99%
Cash & Equivalents, Net 1%
- -----------------------------
100%
- -----------------------------
Total Net Assets (millions): $41.2
Net Asset Value per Share: $13.57

Fund assets are invested
in stocks of small U.S.
companies.

A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.

- -----------------------------
SECTORS/LARGEST HOLDINGS
(Excludes 1% Cash Eqv., Net)
- -----------------------------
1. FINANCIAL (26%)
Washington National Corp.
Financial services holding company
providing various types of life, health
disability insurance

2. MANUFACTURING (18%)
DT Industries, Inc.
Manufacturer of automated production
equipment and precision metal
components

3. CONSUMER DISCRETIONARY (10%)
Ross Stores, Inc.
Chain of off-price retail apparel stores

4. CONSTRUCTION (9%)
Southdown, Inc.
Cement and concrete producer

5. DURABLES (7%)
SPX Corp.
Manufacturer of automotive and
heavy-duty engine and chassis parts,
repair and maintenance equipment

6. UTILITIES (6%)
North Carolina Natural Gas Corp.
Natural gas distributor

7. TECHNOLOGY (5%)
CTS Corp.
Manufacturer of electronic and
electromechanical components

8. SERVICE INDUSTRIES (4%)
Kinder Care Learning Centers
Operator of day-care centers

9. METALS & MINERALS (4%)
Commercial Metals Co.
Producer and marketer of steel and
copper tubes, and recycling of
abandoned railroad materials

10. OTHER (11%)
RPC, Inc.
Service provider to oil and gas
companies, drilling contractors and steel
companies

- -------------------------------------------------------------------
STOCK CHARACTERISTICS
- -------------------------------------------------------------------
Fund as
% of
Russell S&P Russell
Fund 2000* 500** 2000
- ------------------------------------------------------------------
SMALL COMPANIES ($ MILLIONS)
Market Capitalization: Median 268 325 4,976 82%
Market Capitalization: Wgt. Avg. 304 532 35,989 57%
Revenues 586 549 23,557 107%

VALUE ORIENTATION
P/E: Trailing Twelve Months 11.6 27.2 18.7 43%
Price/Sales 0.5 1.0 1.2 52%
Price/Book Value 1.4 2.3 3.0 63%
Yield (Avg. Stock) 1.6% 1.4% 2.3% 110%

* The Russell 2000 Index is an unmanaged capitalization-weighted
measure of small U.S. companies whose common stocks trade on the
New York Stock Exchange, American Stock Exchange, and
NASDAQ market.

** 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 market.

The average price-earnings ratio for stocks in the
Fund of 11.6 is less than half of that for the overall
small stock market.

For more complete details about the Fund's Investment Portfolio, see page 8.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.
- -------------------------------------------------------------------------------
4 - Scudder Small Company Value Fund

<PAGE>

Portfolio Management Discussion

Dear Shareholders,

Scudder Small Company Value Fund provided a total return of 13.54% from its
commencement of operations on October 6, 1995, through its initial fiscal
year-end on August 31, 1996. This performance exceeded that of small company
value stocks in the aggregate as measured by the unmanaged Russell 2000 Value
Index, and the broad small cap market as gauged by the unmanaged Russell 2000
Index (see accompanying table).

The Russell 2000 Value Index consists of securities from the Russell 2000 Index
that display value characteristics, and is the Fund's benchmark for purposes of
performance. While comparative results for shorter periods have varied,
historically, the Russell 2000 Value Index has outperformed the Russell 2000
Index over most five-year periods.

Total Returns Since Inception of
Scudder Small Company Value Fund

10/6/95 - 8/31/96
=======================================================

Scudder Small Company Value Fund 13.54%
Russell 2000 Value Index 12.38
(small company value stocks)
Russell 2000 Index 12.19
(small company stocks)
S&P 500 Index 14.21
(large company stocks)
=======================================================

For the first several months of the Fund's fiscal period, the U.S. stock market
was buoyed by slow growth, a low rate of inflation, and the prospect of further
interest rate declines. In March, stocks began to display increased volatility
as investors reacted to conflicting signals concerning the direction of economic
growth, inflation and interest rates. While small stock returns in the aggregate
were solidly in the positive column for the period, as shown in the accompanying
table, they slightly lagged behind those of their larger-capitalization
counterparts.

A Disciplined, Value-Oriented
Approach to Small Stock Investing

Scudder Small Company Value Fund takes a distinctive approach to seeking
long-term growth of capital from investing in U.S. stocks. The Fund is designed
to provide investors with a vehicle for accessing the benefits of two techniques
that have historically provided superior long-term returns -- investing in small
stocks, and employing a value-oriented selection criteria.

The Fund's selection process begins with the narrowing of the prospective
investment universe to small U.S. companies -- those with market capitalizations
less than $1 billion. These issues are then assessed using a proprietary set of
quantitative measurements that relate to a stock's intrinsic value. In addition,
indicators of company growth and stock price momentum are evaluated. The small
stocks that are identified by our method as displaying the strongest combination
of these investment characteristics with overall acceptable risk become part of
the portfolio. The goal is to produce a portfolio of stocks of small companies
with reasonable growth prospects, purchased at discounted prices.

5 - Scudder Small Company Value Fund

<PAGE>

At the end of August, the Fund's $41.2 million in net assets was invested in 211
stocks. Consistent with the approach outlined above, the median market
capitalization of these holdings was $268 million -- similar in size to those in
the Russell 2000 Index and less than 10% of the market capitalization of the
typical S&P 500 company. With respect to the value orientation of the Fund, the
average price-earnings (p/e) ratio -- a widely used measure of stock value --
for portfolio holdings was 11.6 based on trailing 12-month earnings, or well
below half of the 27.2 ratio for the broad universe of small stocks, as
represented by the Russell 2000 Index. That a number of portfolio holdings
benefited from takeover activity over the period illustrates the potential for
stocks that display good relative value to benefit as the market comes to
appreciate their desirable investment characteristics.

At the end of August, the Fund's largest concentration was in the finance
sector, which accounted for approximately 26% of the portfolio's stock holdings.
This position is actually underweight relative to the 35% weighting of finance
stocks in the Russell 2000 Value Index. Other groups where the Fund's
value-driven process resulted in significant representation include
manufacturing and consumer discretionary stocks.

Reduced Volatility

One of the key benefits of the Fund's value-oriented approach to small stock
investing -- reduced volatility -- was clearly displayed over the period. For
example, over the first eight months of 1996, the day-to-day volatility of the
Fund's net asset value was significantly lower than the price volatility of both
the large-capitalization S&P 500 and small-cap Russell 2000 stocks, based on
standard deviation, a common measure of investment volatility. In addition, on
those days when small stocks declined (as reflected by the Russell 2000), the
Fund outperformed the overall small stock market 79% of the time. These results
are in keeping with our expectation that the Fund should, in general, outperform
the broader market during periods of equity weakness. This in turn can
contribute to the Fund's goal of providing growth of capital and competitive
returns over the long run.

Finally, we were successful in minimizing the required fiscal year-end
distribution of taxable capital gains to shareholders, selectively taking losses
on securities which had declined since being purchased by the Fund to offset
realized gains in other securities.

Looking Ahead

As the Fund's fiscal period drew to a close, there were signs that the U.S.
stock market had resumed its upward march, following a period of some months
where wild vacillations were the norm. It may be too much to expect this strong
performance to continue indefinitely; short-term volatility and periodic
corrections are part of equity investing. However, the long-term prospects for
the U.S. economy and stock market are positive, based on a number of structural
trends including moderate growth and benign inflation.

6 - Scudder Small Company Value Fund

<PAGE>
Scudder Small Company Value Fund: A Team Approach to Investing

Scudder Small Company Value Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management
process. Team members work together to develop investment strategies and
select securities for the Fund's portfolio. They are supported by Scudder's
large staff of quantitative analysts, traders and other investment specialists
who work in Scudder's offices across the United States and abroad. Scudder
believes its team approach benefits Fund investors by bringing together many
disciplines and leveraging Scudder's extensive resources.

Philip S. Fortuna, Lead Portfolio Manager, joined Scudder in 1986 as manager
of institutional equity accounts. He became director of quantitative research
in 1987 and served as director of investment operations from 1993 to 1994.
James M. Eysenbach, Portfolio Manager, joined Scudder in 1991 as a senior
quantitative analyst and is currently director of quantitative research for
Scudder. Mr. Eysenbach has more than nine years investment research and
management experience.

Your Portfolio Management Team: Philip S. Fortuna and James M. Eysenbach

Going forward, the Fund will continue to be essentially fully invested in small
U.S. stocks pursuant to its objective and our policy of not trying to "time" the
market. We will continue to apply our disciplined, value-oriented approach to
selecting a portfolio of small stocks that we believe will position the Fund to
benefit shareholders seeking long-term capital appreciation.

Sincerely,
Your Portfolio Management Team

/s/Philip S. Fortuna /s/James M. Eysenbach
Philip S. Fortuna James M. Eysenbach

7 - Scudder Small Company Value Fund

<PAGE>
INVESTMENT PORTFOLIO as of August 31, 1996
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- --------------------------------------------------------------------------------
<S> <C> <C>
REPURCHASE AGREEMENTS 3.3%
- --------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and
Trust Company dated 8/30/96 at 5.23%, to be
repurchased at $1,388,807 on 9/3/96,
collateralized by a $1,395,000 U.S. Treasury
Note, 6.125%, 5/15/98 (Cost $1,388,000) ....... 1,388,000 1,388,000

<CAPTION>
Shares
- --------------------------------------------------------------------------------
COMMON STOCKS 96.7%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY 10.1%
DEPARTMENT & CHAIN STORES 2.7%
AnnTaylor Stores Corp.* ....................... 5,900 85,550
Carson Pirie Scott & Co.* ..................... 9,900 249,975
Genovese Drug Stores, Inc. "A" ................ 18,500 228,938
Ross Stores, Inc. ............................. 9,400 361,900
Shopko Stores, Inc. ........................... 13,700 208,925
---------
1,135,288
---------
HOME FURNISHINGS 4.5%
Chromcraft Revington, Inc.* ................... 4,200 106,313
Furniture Brands International, Inc.* ......... 22,700 272,400
Haverty Furniture Co., Inc. ................... 16,200 176,175
Interface, Inc. ............................... 15,200 233,700
Oneida Ltd. ................................... 14,400 210,600
Prime Hospitality Corp.* ...................... 17,500 332,500
Thomas Industries, Inc. ....................... 11,500 209,875
Toro Co. ...................................... 11,100 346,875
---------
1,888,438
---------
RECREATIONAL PRODUCTS 0.9%
Carmike Cinemas, Inc.* ........................ 6,400 154,400
Outboard Marine Corp. ......................... 12,800 214,400
---------
368,800
---------
RESTAURANTS 0.6%
Ryan's Family Steak Houses, Inc.* ............. 29,100 243,713
---------
SPECIALTY RETAIL 1.4%
Fabri-Centers of America "A"* ................. 9,600 129,600
Inacom Corp.* ................................. 12,000 324,000
Trak Auto Corp.* .............................. 9,000 148,500
---------
602,100
---------
</TABLE>

The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Pure No-Load[Trademark] Funds Pure No-Load[Trademark] Funds Pure No-Load
- --------------------------------------------------------------------------------

8 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
- --------------------------------------------------------------------------------

<S> <C> <C>
CONSUMER STAPLES 3.O%
FOOD & BEVERAGE 2.6%
Golden Poultry Co., Inc. ....................... 24,000 252,000
Hudson Foods, Inc. "A" ......................... 8,200 111,725
Morningstar Group, Inc.* ....................... 22,100 245,863
Nash-Finch Co. ................................. 9,000 146,250
Super Food Services, Inc. ...................... 18,800 223,250
WLR Foods, Inc. ................................ 9,400 109,863
---------
1,088,951
---------

TEXTILES 0.4%
Guilford Mills, Inc. ........................... 7,600 171,950
---------
HEALTH 1.6%
BIOTECHNOLOGY 0.5%
Bio-Rad Laboratories, Inc. "A" ................. 6,900 193,200
---------
HOSPITAL MANAGEMENT 0.3%
GranCare, Inc.* ................................ 5,700 111,863
---------
MEDICAL SUPPLY & SPECIALTY 0.8%
Bindley Western Industries, Inc. ............... 12,200 216,550
West Co., Inc. ................................. 5,700 142,500
---------
359,050
---------
COMMUNINCATIONS 0.1%
TELEPHONE/COMMUNICATIONS
Atlantic Tele-Network, Inc.* ................... 1,600 36,200
---------
FINANCIAL 25.4%
BANKS 15.4%
ALBANK Financial Corp. ......................... 7,200 209,700
Astoria Financial Corp. ........................ 6,400 171,600
Banknorth Group, Inc. .......................... 6,400 225,600
Center Financial Corp. ......................... 10,800 268,650
Chittenden Corp. ............................... 5,250 123,375
Colonial BancGroup, Inc. ....................... 7,700 262,763
Commerce Bancorp, Inc. ......................... 9,275 227,238
Community First Bankshares, Inc. ............... 12,900 304,763
Corns Bankshares, Inc. ......................... 9,500 289,750
First Citizens BancShares, Inc. "A" ............ 1,200 76,800
First Commonwealth Financial Corp. ............. 7,500 139,688
</TABLE>

9 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
- --------------------------------------------------------------------------------

<S> <C> <C>
First Indiana Corp. ............................ 8,340 192,863
FirstBank Puerto Rico .......................... 9,500 213,750
Greater New York Savings Bank* ................. 15,100 171,763
HUBCO, Inc. .................................... 13,100 271,825
Hancock Holding Co. ............................ 6,700 242,875
InterWest Bancorp, Inc. ........................ 3,600 99,900
Irwin Financial Corp. .......................... 2,900 118,175
New York Bancorp, Inc. ......................... 4,500 137,250
North Side Savings Bank ........................ 5,800 269,700
People's Heritage Financial Group, Inc. ........ 9,400 206,800
RCSB Financial, Inc. ........................... 7,900 212,313
Reliance Bancorp, Inc. ......................... 9,200 157,550
Riggs National Corp. ........................... 16,900 270,400
Sovereign Bancorp, Inc. ........................ 19,320 206,483
Susquehanna Bancshares, Inc. ................... 11,500 342,125
TR Financial Corp. ............................. 7,600 215,650
USBANCORP, Inc. ................................ 9,400 343,100
Westamerica Bancorp. ........................... 4,900 238,875
Whitney Holding Corp. .......................... 9,400 289,050
---------
6,500,374
---------

INSURANCE 9.1%
Acceptance Insurance Cos., Inc.* ............... 9,500 163,875
Allied Group, Inc. ............................. 7,700 296,450
American Annuity Group, Inc. ................... 14,000 185,500
American Heritage Life Investment Corp. ........ 6,600 127,875
American Travellers Corp. ...................... 6,900 214,763
Capitol Transamerica Corp. ..................... 2,900 61,625
Delphi Financial Group, Inc. "A" ............... 2,900 87,000
First American Financial Co. ................... 4,800 153,000
Integon Corp. .................................. 12,700 258,763
Lawyers Title Corp. ............................ 12,200 254,675
Life USA Holdings, Inc.* ....................... 14,300 126,913
MAIC Holdings, Inc.* ........................... 4,580 148,850
MMI Companies, Inc. ............................ 7,800 249,600
Nymagic, Inc. .................................. 1,700 31,875
Presidential Life Corp. ........................ 22,200 216,450
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
- --------------------------------------------------------------------------------

<S> <C> <C>
Reliable Life Insurance Co. ........................ 1,800 118,800
Security-Connecticut Corp. ......................... 6,600 199,650
Stewart Information Services Corp. ................. 4,500 93,375
Trenwick Group, Inc. ............................... 6,000 319,500
United Fire & Casualty Co. ......................... 6,100 183,000
Washington National Corp. .......................... 12,200 353,800
---------
3,845,339
---------

CONSUMER FINANCE 0.4%
Webster Financial Corp. ............................ 5,100 164,475
---------
OTHER FINANCIAL COMPANIES 0.5%
Bay View Capital Corp. ............................. 5,200 192,400
---------
MEDIA 0.6%
BROADCASTING & ENTERTAINMENT
AMC Entertainment, Inc.* ........................... 8,100 148,838
Value Vision International, Inc. "A"* .............. 20,900 120,175
---------
269,013
---------

SERVICE INDUSTRIES 4.2%
ENVIRONMENTAL SERVICES 0.5%
Sevenson Environmental Services, Inc. .............. 11,800 215,350
---------
INVESTMENT 1.3%
BHC Financial, Inc. ................................ 8,000 114,000
Jefferies Group, Inc. .............................. 8,400 254,100
McDonald & Co. Investments ......................... 9,800 194,775
---------
562,875
---------

MISCELLANEOUS COMMERCIAL SERVICES O.7%
Berlitz International, Inc.* ....................... 500 11,250
Volt Information Sciences, Inc. .................... 6,000 234,000
Winthrop Resources Corp. ........................... 1,600 39,600
---------
284,850
---------

MISCELLANEOUS CONSUMER SERVICES 0.7%
Kinder Care Learning Centers* ...................... 18,800 274,950
---------
PRINTING/PUBLISHING 1.0%
Bowne & Co., Inc. .................................. 11,300 224,588
Graphic Industries, Inc. ........................... 23,600 215,350
---------
439,938
---------
</TABLE>

11 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>

<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
- --------------------------------------------------------------------------------

<S> <C> <C>
DURABLES 6.9%
AEROSPACE 0.7%
Curtiss-Wright Corp. ............................. 2,200 116,738
Tracor, Inc.* .................................... 8,500 164,688
---------
281,426
---------

AUTOMOBILES 5.0%
A.O. Smith Corp. ................................. 5,400 130,950
Coachmen Industries, Inc. ........................ 3,100 57,738
Durakon Industries, Inc.* ........................ 7,100 95,850
Myers Industries, Inc. ........................... 15,400 238,700
Oshkosh Truck Corp. "B" .......................... 13,900 168,538
SPX Corp. ........................................ 14,300 398,613
Standard Products Co. ............................ 3,600 82,800
Stant Corp. ...................................... 17,600 187,000
Titan, Wheel International, Inc. ................. 12,000 183,O00
Walbro, Inc. ..................................... 13,000 255,125
Wynn's International, Inc. ....................... 12,400 330,150
---------
2,128,464
---------

CONSTRUCTION/AGRICULTURAL EQUIPMENT 1.2%
Global Industrial Technologies, Inc.* ............ 16,300 313,775
NACCO Industries, Inc. "A" ....................... 1,000 48,500
Raymond Corp. .................................... 7,350 141,488
---------
503,763
---------

MANUFACTURING 16.9%
CHEMICALS 0.6%
Cambrex Corp. .................................... 7,950 261,356
---------
CONTAINERS & PAPER 1.1%
Mosinee Paper Corp. .............................. 9,066 256,115
Park Ohio Industries, Inc.* ...................... 15,000 217,500
---------
473,615
---------

DIVERSIFIED MANUFACTURING 3.9%
ACX Technologies, Inc. ........................... 8,100 135,675
Bearings, Inc. ................................... 9,850 284,419
International Aluminum Co. ....................... 10,900 275,225
Robbins & Myers, Inc. ............................ 6,800 149,600
Scotsman Industries, Inc. ........................ 14,800 316,350
</TABLE>

12 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
- --------------------------------------------------------------------------------

<S> <C> <C>
Tredegar Industries, Inc. ........................ 6,900 217,350
Valmont Industries ............................... 8,100 251,100
---------
1,629,719
---------

ELECTRICAL PRODUCTS 0.2%
DII Group, Inc.* ................................. 2,300 67,275
---------
HAND TOOLS 0.6%
L.S. Starrett Corp. .............................. 10,700 254,125
---------
INDUSTRIAL SPECIALTY 3.5%
American Filtrona Corp. .......................... 8,300 259,375
Barnes Group, Inc. ............................... 4,000 198,000
Central Sprinkler Corp.* ......................... 5,900 100,300
Commercial Intertech Corp. ....................... 6,000 150,000
FSI International, Inc. .......................... 8,000 86,000
Greenbrier Companies, Inc. ....................... 15,400 177,100
Kulicke & Soffa Industries, Inc. ................. 6,600 65,175
O'Sullivan Corp. ................................. 7,800 89,700
Spartech Corp. ................................... 16,400 161,950
Wyman-Gordon Co.* ................................ 8,300 173,263
---------
1,460,863
---------

MACHINERY/COMPONENTS/CONTROLS 5.0%
Amcast Industrial Corp. .......................... 13,800 244,950
DT Industries, Inc. .............................. 12,900 338,625
Gleason Corp. .................................... 1,500 59,813
Kysor Industrial Corp. ........................... 11,000 281,875
Mueller Industries, lnc .......................... 5,500 194,563
Penn Engineering & Manufacturing Corp. ........... 8,400 134,400
Penn Engineering & Manufacturing Corp."A" ........ 2,800 52,150
Reliance Steel & Aluminum Co. .................... 6,400 214,400
Sequa Corp."A"* .................................. 2,000 87,500
Varlen Corp. ..................................... 11,880 255,420
Zero Corporation ................................. 11,800 238,950
---------
2,102,646
---------

WHOLESALE DISTRIBUTORS 2.0%
A.M. Castle & Co. ................................ 10,875 241,969
Fisher Scientific International .................. 1,600 63,600
Hughes Supply, Inc. .............................. 6,900 267,375
</TABLE>

The accompanying notes are an integral part of the financial statements.
- --------------------------------------------------------------------------------
Pure No-Load[Trademark] Funds Pure No-Load[Trademark] Funds
- --------------------------------------------------------------------------------

13 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
- --------------------------------------------------------------------------------

<S> <C> <C>
Rexel, Inc.* ....................................... 19,500 270,563
-------
843,507
-------

TECHNOLOGY 4.3%
COMPUTER SOFTWARE 0.2%
MTS Systems Corp. .................................. 4,600 85,100
-------
DIVERSE ELECTRONIC PRODUCTS 0.7%
Esterline Technologies Corp.* ...................... 5,500 113,438
HADCO Corp.* ....................................... 6,300 163,013
-------
276,451
-------

EDP PERIPHERALS 0.2%
DH Technology, Inc. ................................ 2,900 71,050
-------
ELECTRONIC COMPONENTS/DISTRIBUTORS 2.1%
Augat, Inc. ........................................ 11,300 216,113
Bell Industries, Inc. .............................. 15,790 264,483
CTS Corp. .......................................... 6,9O0 281,175
Furon Corp. ........................................ 5,500 121,000
-------
882,771
-------
MILITARY ELECTRONICS 0.4%
Watkins-Johnson Co. ................................ 9,200 184,000
-------
PRECISION INSTRUMENTS 0.2%
Silicon Valley Group, Inc.* ........................ 5,600 101,500
-------
SEMICONDUCTORS 0.5%
Siliconix, Inc.* ................................... 4,300 79,550
VLSI Technology, Inc.* ............................. 8,700 121,800
-------
201,350
-------

ENERGY 3.6%
OIL & GAS PRODUCTION 0.9%
Belden & Blake Corp.* .............................. 8,800 180,400
KCS Energy, Inc. ................................... 1,700 53,550
Plains Resources, Inc.* ............................ 4,400 59,950
Tesoro Petroleum Corp. ............................. 7,400 94,350
-------
388,250
-------

OILFIELD SERVICES/EQUIPMENT 2.7%
Cliffs Drilling Co.* ............................... 5,200 148,200
Getty Petroleum Corp. .............................. 18,800 274,950
Pride Petroleum Services, Inc.* .................... 23,500 337,813
</TABLE>

14 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
- --------------------------------------------------------------------------------

<S> <C> <C>
RPC, Inc.* ................................... 31,200 347,100
---------
1,108,063
---------

METALS & MINERALS 3.6%
STEEL & METALS
Acme Metals, Inc.* ........................... 14,400 210,600
Brush Wellman, Inc. .......................... 8,800 167,200
Chaparral Steel Co. .......................... 18,300 240,188
Commercial Metals Co. ........................ 11,800 355,475
National Steel Corp."B"* ..................... 9,900 101,475
Rouge Steel Co."A" ........................... 7,100 158,863
Shiloh Industries, Inc.* ..................... 14,500 221,125
WHX Corporation* ............................. 6,700 68,675
---------
1,523,601
---------

CONSTRUCTION 9.1%
BUILDING MATERIALS 4.4%
Butler Manufacturing Co. ..................... 4,200 126,000
Fibreboard Corp. ............................. 6,600 197,175
Florida Rock Industries, Inc. ................ 11,600 307,400
Lone Star Industries, Inc. ................... 3,200 104,000
Medusa Corp. ................................. 7,600 226,100
Puerto Rican Cement Co., Inc. ................ 8,000 241,000
Southdown, Inc. .............................. 14,000 325,500
Triangle Pacific Corp.* ...................... 5,800 126,150
Universal Forest Products, Inc. .............. 16,100 211,313
---------
1,864,638
---------

BUILDING PRODUCTS 0.5%
Nortek, Inc.* ................................ 13,500 185,625
---------
HOMEBUILDING 3.7%
Beazer Homes USA, Inc.* ...................... 12,900 187,050
Champion Enterprises, Inc. ................... 9,200 174,800
Continental Homes Holding Corp. .............. 10,300 198,275
Hovnanian Enterprises, Inc."A"* .............. 30,600 193,163
MDC Holdings, Inc. ........................... 25,500 175,313
NVR, Inc.* ................................... 20,100 188,438
Skyline Corp. ................................ 10,200 258,825
U.S. Home Corp.* ............................. 8,500 190,188
---------
1,566,052
---------
</TABLE>

15 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>
<TABLE>
<CAPTION>
MARKET
SHARES VALUE($)
- --------------------------------------------------------------------------------

<S> <C> <C>
MISCELLANEOUS 0.5%
Granite Construction, Inc. ..................... 11,400 216,600
----------
TRANSPORTATION 1.9%
AIRLINES 1.0%
Alaska Air Group, Inc.* ........................ 15,200 321,100
Skywest, Inc. .................................. 5,700 97,613
----------
418,713
----------

MARINE TRANSPORTATION 0.5%
Avondale Industries, Inc.* ..................... 13,500 212,625
----------
TRUCKING 0.4%
Landstar System, Inc.* ......................... 6,200 162,750
----------
UTILITIES 5.4%
ELECTRIC UTILITIES 1.7%
Commonwealth Energy System Companies ........... 11,700 273,488
Northwestern Public Service Co. ................ 10,400 299,000
St. Joseph Light & Power Co. ................... 8,400 136,500
----------
708,988
----------

NATURAL GAS DISTRIBUTION 2.6%
Bay State Gas Co. .............................. 5,600 152,600
Energen Corp. .................................. 10,100 237,350
New Jersey Resources Corp. ..................... 5,600 160,300
North Carolina Natural Gas Corp. ............... 10,600 308,725
Northwest Natural Gas Co. ...................... 7,200 255,600
----------
1,114,575
----------

WATER SUPPLY 1.1%
Aquarion Co. ................................... 10,900 282,038
SJW Corp. ...................................... 600 22,575
Southern California Water Co. .................. 6,300 138,577
----------
443,190

- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost $37,868,706) 40,671,768
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0% (Cost $39,256,706)(a) 42,059,768
- --------------------------------------------------------------------------------
<FN>

(a) The cost for federal income tax purposes was $39,256,706. At August 31,
1996, net unrealized appreciation for all securities based on tax cost was
$2,803,062. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $4,032,736 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,229,674.

* Non-income producing security.
</FN>
</TABLE>

16 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>
FINANCIAL STATEMENTS

<TABLE>
STATEMENT OF ASSETS AND LIABILITIES

AS OF AUGUST 31, 1996
<CAPTION>

<S> <C> <C>
ASSETS
- -----------------------------------------------------------------------------------------------------
Investments, at market (identified cost $39,256,706) (Note A) ............ $42,059,768
Cash ..................................................................... 793
Receivable on investments sold ........................................... 445,094
Receivable on Fund shares sold ........................................... 45,202
Dividends and interest receivable ........................................ 45,704
Deferred organization expense (Note A) ................................... 19,446
-----------
Total assets ............................................................. 42,616,007

LIABILITIES
- -----------------------------------------------------------------------------------------------------
Payable for investments purchased ........................................ $ 1,239,769
Payable for Fund shares redeemed ......................................... 36,687
Accrued expenses (Note C) ................................................ 152,365
-----------
Total liabilities ........................................................ 1,428,821
-------------------------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE .............................................. $41,187,186
-------------------------------------------------------------------------------------------

NET ASSETS
- -----------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ...................................... $ 93,313
Net unrealized appreciation on investments ............................... 2,803,062
Accumulated net realized loss ............................................ (6,985)
Shares of beneficial interest ............................................ 30,342
Additional paid-in capital ............................................... 38,267,454
-------------------------------------------------------------------------------------------
NET ASSETS, AT MARKET VALUE .............................................. $41,187,186
-------------------------------------------------------------------------------------------

NET ASSET VALUE
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE, offering and redemption price (Note A) per share
($41,187,186/3,034,156 outstanding shares of beneficial interest, -----------
$.01 par value, unlimited number of shares authorized) ................. $13.57
-----------
</TABLE>

17 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>

<TABLE>
STATEMENT OF OPERATIONS

FOR THE PERIOD OCTOBER 6, 1995

(COMMENCEMENT OF OPERATIONS) TO AUGUST 31, 1996
<CAPTION>

<S> <C> <C>
INVESTMENT INCOME
- ----------------------------------------------------------------------------------------------------
Income:
Dividends ................................................................ $ 444,857
Interest ................................................................. 54,116
----------
498,973

Expenses:
Management fee (Note C) .................................................. 171,544
Services to shareholders (Note C) ........................................ 140,499
Custodian and accounting fees (Note C) ................................... 127,904
Trustees' fees and expenses (Note C) ..................................... 45,631
State registration ....................................................... 39,063
Reports to shareholders .................................................. 22,139
Auditing ................................................................. 20,200
Federal registration ..................................................... 13,302
Legal .................................................................... 11,380
Amortization of organization expense (Note A) ............................ 4,305
Other .................................................................... 4,987
----------
Total expenses before reductions ......................................... 600,954
Expense reductions (Note C) .............................................. (255,284)
----------
Expenses, net ............................................................ 345,670
------------------------------------------------------------------------------------------
NET INVESTMENT INCOME .................................................... 153,303
------------------------------------------------------------------------------------------

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS
- ----------------------------------------------------------------------------------------------------
Net realized loss from investments ....................................... (6,985)
Net unrealized appreciation during the period on investments ............. 2,803,062
Net gain on investment transactions ...................................... 2,796,077
------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................... $2,949,380
------------------------------------------------------------------------------------------
</TABLE>

18 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>

<TABLE>
Statement of Changes in Net Assets
<CAPTION>

FOR THE PERIOD
OCTOBER 6, 1995
(COMMENCEMENT
OF OPERATIONS) TO
INCREASE (DECREASE) IN NET ASSETS AUGUST 31, 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ..................................................... $ 153,303
Net realized loss from investment transactions (6,985)
Net unrealized appreciation on investment transactions during the period .. 2,803,062
-----------
Net increase in net assets resulting from operations ...................... 2,949,380
-----------
Distributions to shareholders from net investment income .................. (61,519)
-----------
Fund share transactions:
Proceeds from shares sold ................................................. 42,630,158
Net asset value of shares issued to shareholders in reinvestment of
distributions ........................................................... 59,327
Cost of shares redeemed ................................................... (4,422,357)
Redemption fees (Note A) .................................................. 30,997
-----------
Net increase in net assets from Fund share transactions ................... 38,298,125
-----------
INCREASE IN NET ASSETS .................................................... 41,185,986
Net assets at beginning of period ......................................... 1,200
NET ASSETS AT END OF PERIOD (including undistributed net investment -----------
income of $93,313) ...................................................... $41,187,186
-----------

OTHER INFORMATION
- --------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period ................................. 100
-----------
Shares sold ............................................................... 3,368,696
Shares issued to shareholders in reinvestment of distributions ............ 4,792
Shares redeemed ........................................................... (339,432)
-----------
Net increase in Fund shares ............................................... 3,034,056
-----------
Shares outstanding at end of period ....................................... 3,034,156
-----------
</TABLE>

19 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>
FINANCIAL HIGHLIGHTS

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

FOR THE PERIOD
OCTOBER 6, 1995
(COMMENCEMENT
OF OPERATIONS) TO
AUGUST 31,
1996
- ---------------------------------------------------------------------------------
<S> <C>
------
Net asset value, beginning of period .............................. $12.00
------
Income from investment operations:
Net investment income ............................................. .07
Net realized and unrealized gain on investment transactions ....... 1.53
------
Total from investment operations .................................. 1.60
------
Less distributions from net investment income ..................... (.05)
Redemption fees (Note A) .......................................... .02
------
Net asset value, end of period .................................... $13.57
------
- ---------------------------------------------------------------------------------
TOTAL RETURN (%)(b) ............................................... 13.54(c)**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ............................ 41
Ratio of operating expenses, net to average daily net assets (%) .. 1.50*
Ratio of operating expenses before expense reductions, to
average daily net assets (%) .................................... 2.61*
Ratio of net investment income to average daily net assets (%) .... .67*
Portfolio turnover rate (%) ....................................... 33.97*
Average commission rate paid ...................................... $.0364
<FN>

(a) Per share amounts have been calculated using the weighted average shares
outstanding during the period.
(b) Total return is higher due to maintenance of the Fund's expenses.
(c) Total return does not reflect the effect of the 1% redemption fee on shares
held less than one year.
* Annualized
** Not annualized
</FN>
</TABLE>

- --------------------------------------------------------------------------------
Pure No-Load[Trademark] Funds Pure No-Load[Trademark] Funds Pure No-Load
- --------------------------------------------------------------------------------

20 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>
NOTES TO FINANCIAL STATEMENTS

A. SIGNIFICANT ACCOUNTING POLICIES

Scudder Small Company Value Fund (the "Fund") is a diversified series of Scudder
Securities Trust (the "Trust"). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.

The Fund's financial statements are prepared in accordance with generally
accepted accounting principles which require the use of management estimates.
The policies described below are followed by the Fund in the preparation of its
financial statements.

SECURITY VALUATION. Portfolio securities which are traded on U.S. stock
exchanges are valued at the most recent sale price reported on the exchange on
which the security is traded most extensively. If no sale occurred, the security
is then valued at the calculated mean between the most recent bid and asked
quotations. If there are no such bid and asked quotations, the most recent bid
quotation is used. Securities quoted on the National Association of Securities
Dealers Automatic Quotation ("NASDAQ") System, for which there have been sales,
are valued at the most recent sale price reported on such system. If there are
no such sales, the value is the high or "inside" bid quotation. Securities which
are not quoted on the NASDAQ System but are traded in another over-the-counter
market are valued at the most recent sale price on such market. If no sale
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked quotations,
the most recent bid quotation shall be used. Short-term investments having a
maturity of sixty days or less are valued at amortized cost.

All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees.

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement and the underlying collateral, is equal to at least 100.5% of the
resale price.

FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required.

From November 1, 1995 through August 31, 1996 the Fund incurred $6,985 of net
realized capital losses which the Fund intends to elect to defer and treat as
arising in the fiscal year ending August 31, 1997.

REDEMPTION FEES. In general, shares of the Fund may be redeemed at net asset
value. However, upon the redemption or exchange of shares held by shareholders
for less than one year, a fee of 1% of the lower of cost or the current net
asset value of the shares will be assessed and retained by the Fund for the
benefit of the remaining shareholders. The redemption fee is accounted for as an
addition to paid-in capital.

DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax.

21 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>

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 an accrual basis.

B. PURCHASES AND SALES OF SECURITIES

During the period October 6, 1995 (commencement of operations) to August 31,
1996, purchases and sales of investment securities (excluding short-term
investments) aggregated $46,153,298 and $8,277,607, respectively.

C. RELATED PARTIES

Under the Fund's Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund pays the Adviser a fee equal to
an annual rate of 0.75% of the Fund's average daily net assets, computed and
accrued daily and payable monthly. As manager of the assets of the Fund, the
Adviser directs the investments of the Fund in accordance with its investment
objectives, policies, and restrictions. The Adviser determines the securities,
instruments, and other contracts relating to investments to be purchased, sold
or entered into by the Fund. In addition to portfolio management services, the
Adviser provides certain administrative services in accordance with the
Agreement. The 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, 1996 in order to maintain the annualized
expenses of the Fund at not more than 1.50% of average daily net assets. For the
period October 6, 1995 (commencement of operations) to August 31, 1996, the
Adviser did not impose any of its management fee amounting to $171,544.

Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
period October 6, 1995 (commencement of operations) to August 31, 1996, SSC did
not impose a portion of their fee amounting to $50,693, and the fee imposed
amounted to $57,935.

Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the period October 6, 1995
(commencement of operations) to August 31, 1996, STC did not impose a portion of
their fee amounting to $1,082, and the fee imposed amounted to $1,236.

22 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>

Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the period October
6, 1995 (commencement of operations) to August 31, 1996, SFAC did not impose a
portion of their fee amounting to $31,965, and the fee imposed amounted to
$36,531.

The Fund pays each of its Trustees not affiliated with the Adviser $4,000
annually, plus specified amounts for attended board and committee meetings. For
the period October 6, 1995 (commencement of operations) to August 31, 1996,
Trustees' fees and expenses aggregated $45,631.

D. LINES OF CREDIT

The Fund and several affiliated Funds (the "Participants") share in a $500
million revolving credit facility for temporary or emergency purposes, including
the meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated among each of the Participants. Interest is calculated based
on the market rates at the time of the borrowing. The Fund may borrow up to a
maximum of 33.33% of its net assets under the agreement. In addition, the Fund
also maintains an uncommitted line of credit.

23 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

TO THE TRUSTEES OF SCUDDER SECURITIES TRUST AND THE SHAREHOLDERS OF SCUDDER
SMALL COMPANY VALUE FUND:

We have audited the accompanying statement of assets and liabilities of Scudder
Small Company Value Fund, including the investment portfolio, as of August 31,
1996, and the related statement of operations, the statement of changes in net
assets, and the financial highlights for the period October 6, 1995
(commencement of operations) to August 31, 1996. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of August 31, 1996 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Small Company Value Fund as of August 31, 1996, the results of its
operations, the changes in its net assets, and the financial highlights for the
period October 6, 1995 (commencement of operations) to August 31, 1996, in
conformity with generally accepted accounting principles.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.
October 7, 1996

24 -- SCUDDER SMALL COMPANY VALUE FUND

<PAGE>
Officers and Trustees

Daniel Pierce*
President and Trustee

Paul Bancroft III
Trustee; Venture Capitalist and Consultant

Thomas J. Devine
Trustee; Consultant

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

Dudley H. Ladd*
Trustee

Dr. Wilson Nolen
Trustee; Consultant

Juris Padegs*
Trustee

Dr. Gordon Shillinglaw
Trustee; Professor Emeritus of Accounting, Columbia University Graduate School
of Business

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

Robert G. Stone, Jr.
Honorary Trustee; Chairman of the Board and Director, Kirby Corporation

Edmund R. Swanberg*
Honorary Trustee

Peter Chin*
Vice President

James M. Eysenbach*
Vice President

Philip S. Fortuna*
Vice President

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

David S. Lee*
Vice President

Roy C. McKay*
Vice President

Thomas F. McDonough*
Vice President and Secretary

Pamela A. McGrath*
Vice President and Treasurer

Edward J. O'Connell*
Vice President and Assistant Treasurer

Kathryn L. Quirk*
Vice President and Assistant Secretary

Richard W. Desmond*
Assistant Secretary

Coleen Downs Dinneen*
Assistant Secretary

*Scudder, Stevens & Clark, Inc.

25 - Scudder Small Company Value Fund

<PAGE>

Investment Products and Services

The Scudder Family of Funds
================================================================================
Money Market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund

Tax Free Money Market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*

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

Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund

Income
Scudder Emerging Markets Income Fund
Scudder Global Bond Fund
Scudder GNMA Fund
Scudder High Yield Bond Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund

Growth
Scudder Capital Growth Fund
Scudder Classic Growth Fund
Scudder Development Fund
Scudder Emerging Markets Growth Fund
Scudder Global Discovery Fund
Scudder Global Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Micro Cap Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Small Company Value Fund
Scudder 21st Century Growth Fund
Scudder Value Fund
The Japan Fund

Retirement Plans and Tax-Advantaged Investments
================================================================================
IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase
Pension Plans

Closed-End Funds#
================================================================================
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.

Institutional Cash Management
================================================================================
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(TM)++

For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +A portion of the income from the tax-free funds may
be subject to federal, state, and local taxes. *Not available in all states.
+++A no-load variable annuity contract provided by Charter National Life
Insurance Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are
traded on various stock exchanges. ++For information on Scudder Treasurers
Trust,(TM) an institutional cash management service that utilizes certain
portfolios of Scudder Fund, Inc. ($100,000 minimum), call 1-800-541-7703.

26 - Scudder Small Company Value Fund

<PAGE>
How to Contact Scudder

Account Service and Information

For existing account service and transactions

Scudder Investor Relations
1-800-225-5163

For personalized information about your Scudder accounts;
exchanges and redemptions; or information on any Scudder fund

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

Investment Information

To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions

Scudder Investor Relations
1-800-225-2470

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

Scudder Defined Contribution Services
1-800-323-6105

Please address all correspondence to

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

Visit the Scudder World Wide Web Site at:

http://funds.scudder.com

Or Stop by a Scudder Funds Center

Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you--they
can be found in the following cities:
Boca Raton New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale

For information on Scudder Treasurers Trust(TM), an
institutional cash management service for corporations,
non-profit organizations and trusts which utilizes certain
portfolios of Scudder Fund, Inc.* ($100,000 minimum), call:
1-800-541-7703.

For information on Scudder Institutional Funds*, funds designed
to meet the broad investment management and service needs of
banks and other institutions, call:
1-800-854-8525.

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

27 - Scudder Small Company Value Fund

<PAGE>

Celebrating Over 75 Years of Serving Investors

Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the investment
industry. In 1928, we introduced the nation's first no-load mutual fund. Today
we offer over 40 pure no load(TM) funds, including the first international
mutual fund offered to U.S. investors.

Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.

This information must be preceded or accompanied by a current prospectus.

Portfolio changes should not be considered recommendations for action by
individual investors.