SCUDDER SECURITIES TRUST, N-30D, 1998-10-29

SCUDDER SECURITIES TRUST
N-30D, 1998-10-29

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Scudder
Micro Cap
Fund

Annual Report
August 31, 1998

Pure No-Load(TM) Funds

A pure no-load(TM) (no sales charges) mutual fund which seeks long-term growth
of capital by investing primarily in a diversified portfolio of U.S. micro-cap
stocks.

SCUDDER (logo)

<PAGE>

Scudder Micro Cap Fund

- --------------------------------------------------------------------------------
Date of Inception: 8/12/96 Total Net Assets as of Ticker Symbol: SCMCX
8/31/98: $102.5 million
- --------------------------------------------------------------------------------

o For the twelve-month period ended August 31, 1998, Scudder Micro Cap Fund
returned -13.96%, exceeding the -20.03% average total return of micro-cap funds
according to Lipper Analytical Services.

o As corporate earnings growth appeared to be slowing in the wake of the
emerging markets crises, investors sought the relative safety of U.S. Treasury
securities and familiar large-cap growth stocks.

o Smaller issues and micro-cap stocks, in particular, declined sharply as
investors set aside the attractive fundamentals of many companies in this
sector.

Table of Contents

3 Letter from the Fund's President 27 Financial Highlights
4 Performance Update 28 Notes to Financial Statements
5 Portfolio Summary 31 Report of Independent Accountants
6 Portfolio Management Discussion 32 Tax Information
9 Glossary of Investment Terms 32 Officers and Trustees
10 Investment Portfolio 33 Investment Products and Services
24 Financial Statements 34 Scudder Solutions

2 - Scudder Micro Cap Fund

<PAGE>

Letter from the Fund's President

Dear Shareholders,

Over the 12-month period, the economic crisis in the emerging markets
spread across the globe, causing investors to seek cover in safer havens such as
U.S. Treasury bonds and stocks of large, familiar companies. In the process,
other securities such as stocks of very small companies have been driven down.
In a broad-based market downdraft such as this, even shares of companies with
positive fundamentals can get hit hard.

As difficult as these sell-offs are to deal with, they can provide
extraordinary opportunities for those willing to endure short-term volatility.
Over the long-term, we believe that stocks with attractive fundamentals will
ultimately be recognized and rewarded in the marketplace. In this challenging
climate, we believe that investors should remain focused on long-term investment
goals.

For this report, we asked fund managers James Eysenbach, Phil Fortuna, and
Calvin Young to discuss the micro-cap market and the Fund's performance for the
12-month period. By sticking with their disciplined approach to selecting
attractively valued micro-cap stocks, the Fund has continued to outperform its
benchmarks and most other micro-cap funds. Their discussion begins on page 6.

Effective October 23, 1998, the Fund has reopened to new investors. The
Fund was closed to new individual investors on September 22, 1997 to make
managing the portfolio easier and reflecting the view that maintenance of a
small asset base is in the shareholder's best interests. The Fund's managers and
Trustees believe that the Fund's current asset base is well below the level
where an increase would hamper the Fund's investment style. As a result, the
Fund is expected to close again once assets reach approximately $150 million.

Thank you for your investment in Scudder Micro Cap Fund. If you have any
questions about your Fund, please call at the number above, or visit our
Internet Web site at http://funds.scudder.com.

Sincerely,

/s/Daniel Pierce

Daniel Pierce
President,
Scudder Micro Cap Fund

3 - Scudder Micro Cap Fund

<PAGE>

Performance Update as of August 31, 1998

- ----------------------------------------
Fund Index Comparisons
- ----------------------------------------
Total Return
- ----------------------------------------
Period Growth
Ended of Average
8/31/98 $10,000 Cumulative Annual
- ----------------------------------------
Scudder Micro Cap Fund
- ----------------------------------------
1 Year $ 8,604 -13.96% -13.96%
Life of
Fund* $12,038 20.38% 9.46%
- ----------------------------------------
Russell 2000 Index
- ----------------------------------------
1 Year $ 8,058 -19.42% -19.42%
Life of
Fund* $10,608 6.08% 3.04%
- ----------------------------------------
S&P 500 Index
- ----------------------------------------
1 Year $10,813 8.13% 8.13%
Life of
Fund* $14,997 49.97% 21.84%

*The Fund commenced operations on August 12, 1996.

- ----------------------------------------
Growth of a $10,000 Investment
- ----------------------------------------
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:

Scudder Micro Cap Fund
Year Amount
- ----------------------
8/96* $10,000
11/96 $10,414
2/97 $11,355
5/97 $11,762
8/97 $13,910
11/97 $14,690
2/98 $15,150
5/98 $15,758
8/98 $11,968

Russell 2000 Index
Year Amount
- ----------------------
8/96* $10,000
11/96 $10,652
2/97 $10,880
5/97 $11,552
8/97 $12,896
11/97 $13,147
2/98 $14,138
5/98 $14,004
8/98 $10,392

S&P 500 Index
Year Amount
- ----------------------
8/96* $10,000
11/96 $11,675
2/97 $12,254
5/97 $13,210
8/97 $14,066
11/97 $15,006
2/98 $16,546
5/98 $17,266
8/98 $15,210

The Standard & Poor's (S&P) 500 Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New
York Stock Exchange, American Stock Exchange, and Nasdaq Stock Market.
The Russell 2000 Index is an unmanaged capitalization-weighted measure
of approximately 2000 small U.S. stocks. Index returns assume reinvestment
of dividends and, unlike Fund returns, do not reflect any fees or expenses.

- ----------------------------------------
Returns and Per Share Information
- ----------------------------------------

A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.

Yearly periods ended August 31

1996 1997 1998
- -------------------------------------------------------------------------
Net Asset Value $12.07 $16.77 $14.37
- -------------------------------------------------------------------------
Income Dividends $ -- $ .02 $ --
- -------------------------------------------------------------------------
Capital Gains Distributions $ -- $ -- $ .07
- -------------------------------------------------------------------------
Fund Total Return (%) .58 39.10 -13.96
- -------------------------------------------------------------------------
Russell 2000 Index Total Return (%) 2.08 28.95 -19.42
- -------------------------------------------------------------------------

Performance is historical and assumes reinvestment of all dividends and
capital gains and is not indicative of future results. Total return and
principal value will fluctuate, so an investor's shares, when redeemed,
may be worth more or less than when purchased. If the Adviser had not
maintained the Fund's expenses, the total return for the life of Fund period
would have been lower.

4 - Scudder Micro Cap Fund
<PAGE>

Portfolio Summary as of August 31, 1998

- ----------------------------------------
Asset Allocation
- ----------------------------------------

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

Common Stocks 99%
Cash Equivalents 1%
- ----------------------------------------
100%
- ----------------------------------------

The Fund seeks to be
fully invested in U.S.
micro-cap stocks.

- ----------------------------------------
Sectors/Largest Holdings
(Excludes 1% Cash Equivs.)
- ----------------------------------------

1. FINANCIAL (18%)
First Cash, Inc.
Operator of pawn shops

2. MANUFACTURING (15%)
American Locker Group, Inc.
Manufacturer of coin, key, and
electronically controlled storage lockers

3. CONSUMER DISCRETIONARY (14%)
Garden Fresh Restaurant Corp.
Operator of salad buffet restaurant
chain

4. TECHNOLOGY (10%)
Bull Run Corp.
Manufacturer of dot matrix printers

5. SERVICE INDUSTRIES (7%)
Automobile Protection Corp.
Provider of extended vehicle service
contracts

6. CONSUMER STAPLES (7%)
Chock Full O'Nuts Corp.
Producer of coffees, teas, peanut
products

7. HEALTH (6%)
GP Strategies Corp.
Manufacturer of medical, health care,
and consumer products

8. UTILITIES (5%)
Florida Public Utilities Co.
Distributor of electricity, natural, and
propane gas and water

9. CONSTRUCTION (4%)
Noland Corp.
Plumbing, heating, cooling, electrical
and water products and systems

10.DURABLES (4%)
Engineered Support Systems,
Inc.
Manufacturer of nuclear, biological,
and chemical defense systems

- ----------------------------------------------------------------------
Stock Characteristics
- ----------------------------------------------------------------------

Fund as Russell
Micro Cap % of 2000
Median Values Fund Universe Universe Index
- -----------------------------------------------------------------------------
Market Capitalization
($ millions) 44 45 96% 358
Price/Earnings 12.7 22.2 57% 17.4
Return On Equity (3 year) 10.5 6.6 160% 12.0
Sales Growth (5 year) 13.0 12.9 101% 19.5

The Fund was not subject to style drift, as its
median market capitalization remained significantly
below that of the micro-cap universe.

For more complete details about the Fund's Investment Portfolio, see page 10.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings are
available upon request.

5 - Scudder Micro Cap Fund
<PAGE>

Portfolio Management Discussion

In the following interview, James M. Eysenbach, Philip S. Fortuna, and Calvin S.
Young, portfolio managers of Scudder Micro Cap Fund, discuss the Fund's strategy
and market environment during the fiscal period.

Q: How did the Fund perform?

A: It's been a difficult period for equity investors, especially for the
smallest capitalization issues such as micro-cap stocks. Yet, the Fund
outperformed not only micro-cap benchmarks, but also small-cap benchmarks, such
as the Russell 2000 Index. For the 12-month period, the Fund returned -13.96%
versus -20.03% for the average micro-cap fund according to Lipper Analytical
Services and -19.42% for the unmanaged Russell 2000 Index. Competitively, the
Fund ranked among the top 25% of 44 micro-cap funds for the 12 months.

Q: Why was the period so negative for micro-cap stocks?

A: Small and micro-cap stocks have been weighed down by decelerating U.S.
growth, deepening troubles in Asia, and a devaluation of the Russian currency in
August, which sent shocks through the world's financial markets. While the
Fund's holdings have limited direct exposure to the foreign markets, micro-caps
were significantly affected by the broad worldwide sell-off. This "flight to
quality" has been primarily concentrated in U.S. Treasury securities, but also
favored large-cap U.S. growth companies because many investors believed that
their stocks would hold up better in an environment of slowing corporate profit
growth, global disinflation, and uncertainty.

Q: Yet, the Fund outperformed on a relative basis. What contributed to the
Fund's performance?

A: Our investment strategy is focused on adding value in three areas: security
selection, portfolio risk control, and efficient trading. All three areas were
important in this market environment. Over the past year, micro-cap stocks in
the utilities, construction, and finance sectors all reported positive returns,
while those in metals and minerals, technology, and healthcare were down more
than 30%. This wide spread in performance provided a significant opportunity to
add value relative to the market.

Q: Which sectors helped or hurt the Fund's performance?

A: Our modest overweighting in the three best performing sectors helped our
relative performance significantly. We overweighted utilities (up 20%),
construction (up 9%), and financial (up 8%). It also helped that we were
underweighted in two of the three worst performing sectors: technology (down
34%) and healthcare (down 32%). We held a market weighting in the metals and
minerals sector (down 38%), but our holdings there fell somewhat less. Overall,
our stock picks outperformed within the majority of sectors, particularly in
consumer staples (-4% vs. -18%), healthcare (-13% vs. -32%) and energy (-9% vs.
- -30%).

Q: You say that portfolio risk control and efficient trading also contributed to
performance. How did they help during the period?

A: Risk control is important in seeking to provide more stable returns over time
and to ensure that a few bad stock picks don't ruin performance. We attempt to
control risk in a number of ways. One way is through our emphasis on stocks with

6 - Scudder Micro Cap Fund

<PAGE>

below-average P/Es. This has the potential to provide a degree of downside
protection relative to other micro-cap stocks in a market selloff. We also limit
individual security risk by holding a large number of securities (approximately
300) in the portfolio and investing no more than 2% of assets in any one
security. Taken together, we think these risk control measures are the reason
the Fund declined less than the micro-cap market and other micro-cap funds for
the period.

The third factor we believe can help performance is efficient trading. We take a
longer term perspective when evaluating stocks, thus our turnover of less than
40% per year is relatively low for a micro-cap fund. We also keep a tight rein
on transaction costs, typically paying less than four cents per share on stock
trades. An additional advantage of holding a large number of stocks is that it
provides more flexibility when trading. At any given time we can spread our
purchases across a greater number of stocks, thus being less likely to push up
the price we have to pay. This is especially important when trading micro-cap
stocks due to their lower liquidity.

Q: The Fund has just completed its two-year anniversary. How would you assess
its longer term performance?

A: Two years is a relatively short horizon for evaluating a stock fund, but the
Fund is off to a good start. Even after the recent decline, the Fund is up 20%
from its commencement of operations on August 12, 1996. On a relative basis, the
Fund has also performed well. For the two years ended August 31, 1998, the Fund
ranks 7th out of 29 micro-cap funds, according to Lipper Analytical Services. At
the same time, the Fund has been much less volatile than the typical micro-cap
fund and, as seen over the last year, has fallen less in down markets. Over the
long term (10 years or longer), we also seek to outperform large-cap stocks.
With the S&P 500 up over 50% since the Fund's commencement of operations, we
clearly have significant ground to make up to achieve this 10 year goal.

PRINTED DOCUMENT CONTAINS A BAR CHART HERE

BAR CHART TITLE:

Risk/Return Comparison
Monthly total returns from 8/9/96 through 8/31/98

- -----------------------------------------------------------------------
Risk
(standard deviation
Total Return of monthly returns
(annualized) annualized)
- -----------------------------------------------------------------------
Large Cap 21.79% 17.58%
(S&P 500)

Small Cap 2.92% 20.38%
(Russell 2000)

Scudder Micro
Cap Fund 9.45% 18.16%
- -----------------------------------------------------------------------

Risk (standard deviation of monthly returns annualized)

The Fund has been significantly less volatile than large- and small-cap stocks.

Q: In light of the recent weakness for small and micro-cap stocks, have you made
any adjustments to your investment disciplines?

A: While the dramatic underperformance of smaller-cap stocks can be
disconcerting, we do not believe it is reason to modify our investment
disciplines. In the past, small-cap stocks have sustained numerous periods of
underperformance and yet have still outperformed over the long run. History also

7 - Scudder Micro Cap Fund

<PAGE>

shows that performance leadership can shift abruptly. Thus, the Fund remains
focused on micro-cap stocks, as indicated by the $44 million median market cap
of the Fund's holdings.

We closely monitor our approach to stock selection, but have seen nothing to
suggest that the fundamental factors affecting stock returns over the long run
have changed dramatically. Shorter-run deviations are commonplace, but difficult
to capture systematically. Consequently, we maintain a longer-term outlook in
the search for undervalued securities -- those that are attractively priced
relative to fundamentals such as sales, earnings, and assets. As of the end of
the period, the typical holding had a P/E of less than 13x, representing a
significant discount to the market.

Q: What is your outlook for micro-cap stocks?

A: The sharp divergence between small- and large-cap stock returns has resulted
in increasingly attractive valuations for small-cap stocks. For the moment,
these attractive valuations have been secondary in an environment of increasing
risk aversion and a desire for liquidity. Nevertheless, we do not expect the
dominance of large-cap stocks to continue indefinitely. With relative valuations
looking more favorable for smaller-cap stocks than they have in over a decade,
we believe the long-term outlook is positive. As the current market turbulence
subsides -- which may not occur before year-end tax selling is completed -- we
expect that investors who are willing to focus on the long-term prospects for
U.S. micro-cap companies will be rewarded.

Scudder Micro Cap Fund:
A Team Approach to Investing

Scudder Micro Cap Fund is managed by a team of Scudder Kemper Investments,
Inc. (the "Adviser") 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 the Adviser's large staff of economists, research analysts, traders, and
other investment specialists who work in our offices across the United States
and abroad. We believe our team approach benefits Fund investors by bringing
together many disciplines and leveraging our extensive resources.

Co-lead Portfolio Managers Philip S. Fortuna and James M. Eysenbach have
responsibility for the Fund's day-to-day management and investment strategies.
Mr. Fortuna joined the Adviser in 1986 as a manager of institutional equity
accounts and is currently director of the Adviser's quantitative group.

Mr. Eysenbach joined the Adviser in 1991 as a senior quantitative analyst and
has more than 10 years investment management experience, specializing in
quantitative research, analysis, and portfolio management.

Calvin S. Young serves as Portfolio Manager for the Fund. Mr. Young joined the
Adviser in 1990 as a quantitative analyst and has more than nine years of
investment industry experience with a special focus on small companies.

8 - Scudder Micro Cap Fund

<PAGE>
Glossary of Investment Terms

FUNDAMENTAL RESEARCH Analysis of companies based on the projected
impact of management, products, sales, and earnings
on balance sheets and income statements. Distinct
from technical analysis, which evaluates the
attractiveness of a stock based on historical price
and trading volume movements, rather than the
financial results of the underlying company.

GROWTH STOCK Stock of a company that has displayed
above-average earnings growth and is expected to
continue to increase profits rapidly going forward.

LIQUIDITY A characteristic of an investment or an asset
referring to the ease of convertibility into cash
within a reasonably short period of time.

MARKET CAPITALIZATION The value of a company's outstanding shares of
common stock, determined by multiplying the
number of shares outstanding by the share price
(Shares x Price = Market Capitalization). The
universe of publicly-traded companies is frequently
divided into large-, mid-, and small-capitalizations.

OVER/UNDER WEIGHTING Refers to the allocation of assets -- usually by
sector, industry, or country -- within a
portfolio relative to a benchmark index, (e.g. the
Russell 2000) or an investment universe.

PRICE/EARNINGS RATIO A widely used gauge of a stock's valuation that
(P/E) (also "earnings indicates what investors are paying for a company's
multiple") earnings on a per share basis. A higher "earnings
multiple" indicates a higher expected growth rate and
the potential for greater price fluctuations.

STANDARD DEVIATION A statistical measure of the degree to which an
investment's return tends to vary from the
mean return. Frequently used in portfolio management
to measure the variability of past returns and to
gauge the likely range of possible future returns.

VALUE STOCK A company whose stock price does not fully reflect
its intrinsic value, as indicated by price-earnings
ratio, price-book value ratio, dividend yield, or
some other valuation measure, relative to its
industry or the market overall. Value stocks tend to
display less price volatility and may carry higher
dividend yields.

Source: Scudder Kemper Investments, Inc.; Barron's Dictionary of
Finance and Investment Terms

9 - Scudder Micro Cap Fund

<PAGE>

Investment Portfolio as of August 31, 1998

<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 0.6%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with State Street Bank and Trust Company dated 8/31/1998 at
5.75%, to be repurchased at $675,108 on 9/1/1998, collateralized by a $685,000 -----------
U.S. Treasury Note, 5.875%, 1/31/1999 (Cost $675,000) ................................. 675,000 675,000
-----------
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Convertible Preferred Stocks 0.3%
- ------------------------------------------------------------------------------------------------------------------------------
Technology
EDP Peripherals -----------
Wells-Gardner Electronics Corp.* (Cost $380,007) ........................................ 85,100 313,806
-----------
Preferred Stocks 0.1%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Staples
Food & Beverage -----------
Seneca Foods Corp.* (Cost $69,600) ...................................................... 5,800 69,600
-----------
Common Stocks 99.0%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 14.3%
Apparel & Shoes 1.6%
Cache, Inc.* ............................................................................ 122,700 640,341
Candie's Inc.* .......................................................................... 36,000 194,625
Deckers Outdoor Corp.* .................................................................. 71,600 362,475
G-III Apparel Group, Ltd.* .............................................................. 65,500 171,938
Pubco Corp.* ............................................................................ 28,100 273,975
-----------
1,643,354
-----------
Department & Chain Stores 1.5%
Drug Emporium, Inc.* .................................................................... 149,700 617,513
Duckwall-ALCO Stores, Inc.* ............................................................. 37,200 520,800
Rose's Holdings, Inc.* .................................................................. 190,200 386,344
-----------
1,524,657
-----------
Home Furnishings 0.9%
Baldwin Piano & Organ Co.* .............................................................. 36,700 467,925
Salton/Maxim Housewares, Inc.* .......................................................... 39,300 481,425
-----------
949,350
-----------
Hotels & Casinos 1.5%
Buckhead America Corp.* ................................................................. 52,100 325,625
International Thoroughbred Breeders, Inc.* (b) .......................................... 58,300 0
</TABLE>

The accompanying notes are an integral part of the financial statements.

10 - Scudder Micro Cap Fund
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Jackpot Enterprises, Inc.* .............................................................. 52,000 513,500
Sonesta International Hotels Corp. "A" .................................................. 24,500 318,500
Supertel Hospitality, Inc.* ............................................................. 37,900 407,425
-----------
1,565,050
-----------
Recreational Products 3.6%
Allen Organ Co. "B" ..................................................................... 14,200 511,200
Casino America Inc.* .................................................................... 70,100 164,297
Equity Marketing, Inc.* ................................................................. 13,200 202,950
Escalade, Inc.* ......................................................................... 30,800 616,000
Fountain Powerboat Industries, Inc. ..................................................... 13,050 74,222
Holiday RV Superstores, Inc.* ........................................................... 178,800 357,600
Polk Audio, Inc.* ....................................................................... 34,100 375,100
Rawlings Sporting Goods Co., Inc.* ...................................................... 41,700 375,300
Reading Entertainment, Inc.* ............................................................ 36,500 328,500
Rentrak Corp.* .......................................................................... 94,400 383,500
Riddel Sports, Inc.* .................................................................... 68,000 323,000
-----------
3,711,669
-----------
Restaurants 2.5%
Back Bay Restaurant Group, Inc.* ........................................................ 54,800 411,000
Benihana, Inc. "A"* ..................................................................... 33,800 270,400
DenAmerica Corp.* ....................................................................... 216,500 419,469
Garden Fresh Restaurant Corp.* .......................................................... 58,500 848,250
Max & Erma's Restaurants, Inc.* ......................................................... 80,800 525,200
Timber Lodge Steakhouse, Inc.* .......................................................... 33,100 134,469
-----------
2,608,788
-----------
Specialty Retail 2.7%
Amplicon, Inc. .......................................................................... 31,200 432,900
Brookstone, Inc.* ....................................................................... 33,900 364,425
D.I.Y. Home Warehouse, Inc.* ............................................................ 133,900 184,113
InterTAN, Inc.* ......................................................................... 91,100 364,400
Natural Wonders, Inc.* .................................................................. 33,200 70,550
Rag Shops, Inc.* ........................................................................ 80,300 205,769
Reeds Jewelers, Inc.* ................................................................... 20,200 71,963
S & K Famous Brands, Inc.* .............................................................. 28,400 383,400
Transnet Corp.* ......................................................................... 74,800 51,425
</TABLE>

The accompanying notes are an integral part of the financial statements.

11 - Scudder Micro Cap Fund
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ultimate Electronics, Inc.* ............................................................. 90,300 287,831
Wolohan Lumber Co. ...................................................................... 27,900 306,900
-----------
2,723,676
-----------
Consumer Staples 6.7%
Alcohol & Tobacco 0.4%
Genesee Corp. "B" ....................................................................... 8,700 252,300
Todhunter International, Inc.* .......................................................... 15,600 128,700
-----------
381,000
-----------
Consumer Electronic & Photographic Products 0.3%
Cobra Electronics Corp.* ................................................................ 85,800 321,750
-----------
Farming 0.4%
Sylvan, Inc.* ........................................................................... 27,800 396,150
-----------
Food & Beverage 3.7%
Celestial Seasonings, Inc.* ............................................................. 12,600 444,150
Chock Full O'Nuts Corp.* ................................................................ 129,200 621,775
Foodarama Supermarkets, Inc.* ........................................................... 14,100 475,875
J & J Snack Foods Corp.* ................................................................ 22,300 351,225
Schultz Sav-O Stores, Inc. .............................................................. 33,050 512,275
Seaway Food Town, Inc. .................................................................. 33,150 451,669
Seneca Foods Corp.* ..................................................................... 11,600 139,200
Smithfield Companies, Inc. .............................................................. 21,600 148,500
Suprema Specialties, Inc.* .............................................................. 98,500 286,266
Village Super Market, Inc. "A"* ......................................................... 28,100 428,525
-----------
3,859,460
-----------
Package Goods/Cosmetics 0.3%
Allou Health & Beauty, Inc. "A"* ........................................................ 67,200 323,400
-----------
Textiles 1.6%
Dyersburg Corp. ......................................................................... 49,100 211,744
Hampshire Group, Ltd.* .................................................................. 29,900 549,413
Premiumwear, Inc.* ...................................................................... 70,500 431,813
Worldtex, Inc.* ......................................................................... 74,000 420,875
-----------
1,613,845
-----------
Health 6.3%
Biotechnology 0.3%
Synbiotics Corp.* ....................................................................... 124,200 326,025
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

12 - Scudder Micro Cap Fund
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health Industry Services 1.2%
Air Methods Corp.* ...................................................................... 52,000 162,500
Cantel Industries Inc.* ................................................................. 22,400 173,600
Caretenders Healthcorp* ................................................................. 15,000 37,500
Cholestech Corp.* ....................................................................... 50,900 229,050
Diagnostic Health Services, Inc.* ....................................................... 20,000 80,000
Healthcare Services Group, Inc.* ........................................................ 52,050 520,500
-----------
1,203,150
-----------
Hospital Management 0.9%
Complete Management Inc.* ............................................................... 281,000 403,938
Core Inc.* .............................................................................. 30,000 170,625
National Home Health Care Corp. ......................................................... 90,690 382,598
-----------
957,161
-----------
Medical Supply & Specialty 3.9%
Akorn, Inc.* ............................................................................ 99,600 417,075
Biosource International, Inc.* .......................................................... 67,100 222,269
GP Strategies Corp.* .................................................................... 52,220 522,200
Gamma Biologicals, Inc. ................................................................. 97,100 382,331
Info-Tech, Inc.* ........................................................................ 37,300 158,525
Meridian Medical Technologies, Inc.* .................................................... 14,900 134,100
Moore Medical Corp.* .................................................................... 33,400 421,675
Osteotech, Inc.* ........................................................................ 14,800 338,550
Polymedica Industries, Inc.* ............................................................ 48,800 378,200
Response Oncology, Inc.* ................................................................ 50,300 182,338
Scherer Healthcare, Inc.* ............................................................... 31,600 106,650
Span-America Medical Systems, Inc. ...................................................... 58,400 335,800
Superior Uniform Group Co., Inc. ........................................................ 30,500 407,938
-----------
4,007,651
-----------
Communications 1.1%
Telephone/Communications 0.4%
Hector Communications Corp.* ............................................................ 42,900 356,606
-----------
Miscellaneous 0.7%
Datapoint Corp.* ........................................................................ 110,500 56,355
Datum, Inc.* ............................................................................ 106,400 691,600
-----------
747,955
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

13 - Scudder Micro Cap Fund
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financial 18.3%
Banks 13.1%
Alliance Bancorp of New England ......................................................... 37,749 401,083
Andover Bancorp, Inc. ................................................................... 17,000 476,000
Coastal Bancorp, Inc. ................................................................... 14,700 220,500
Columbia Banking System, Inc.* .......................................................... 17,640 266,805
Equitable Federal Savings Bank* ......................................................... 2,400 59,400
FNB Rochester Corp. ..................................................................... 23,000 401,063
First Citizens Corp. .................................................................... 12,750 280,500
First Essex Bancorp ..................................................................... 15,800 238,975
First Georgia Holding, Inc. ............................................................. 15,450 168,019
First Mutual Savings Bank ............................................................... 26,310 342,030
First Oak Brook Bancshares, Inc. "A" .................................................... 14,700 602,700
Foothill Independent Bancorp ............................................................ 31,636 395,450
Granite State Bankshares, Inc. .......................................................... 30,650 586,181
HMN Financial, Inc. ..................................................................... 23,100 317,625
Haven Bancorp, Inc. ..................................................................... 12,200 195,200
Hingham Institution for Savings ......................................................... 15,700 361,100
Kankakee Bancorp, Inc. .................................................................. 4,400 113,300
Lawrence Savings Bank* .................................................................. 45,600 501,600
Marion Capital Holdings, Inc. ........................................................... 7,500 172,500
Matewan Bancshares, Inc. ................................................................ 10,730 241,425
Medford Bancorp Inc. .................................................................... 11,800 426,275
Merchants Bancorp, Inc. ................................................................. 17,600 444,400
Mutual Savings Bank F.S.B.* ............................................................. 27,000 222,750
New Milford Bank & Trust Corp. .......................................................... 17,300 333,025
Northrim Bank ........................................................................... 40,724 493,779
Parkvale Financial Corp. ................................................................ 19,437 583,110
People's Bancshares, Inc. ............................................................... 17,600 264,000
Pinnacle Bancshares, Inc. ............................................................... 25,000 315,625
Premier National Bankcorp, Inc. ......................................................... 12,375 210,375
Progress Financial Corp. ................................................................ 17,309 240,162
SJNB Financial Corp. .................................................................... 13,300 438,900
Second Bancorp, Inc. .................................................................... 11,600 311,750
Skaneateles Bancorp, Inc. ............................................................... 25,950 392,494
Southwest Bancorp, Inc. ................................................................. 7,800 202,800
</TABLE>

The accompanying notes are an integral part of the financial statements.

14 - Scudder Micro Cap Fund
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
State Financial Services Corp. "A" ...................................................... 30,168 603,360
Sterling Bancorp ........................................................................ 22,700 434,138
Union Bankshares Ltd.* .................................................................. 26,000 286,000
Warren Bancorp, Inc. .................................................................... 42,200 411,450
Washington Savings Bank, F.S.B. ......................................................... 30,900 162,225
Winton Financial Corp. .................................................................. 35,000 420,000
-----------
13,538,074
-----------
Insurance 2.7%
ACCEL International Corp. ............................................................... 103,900 246,763
Atlantic American Corp.* ................................................................ 71,600 313,250
Cotton States Life Insurance ............................................................ 45,525 472,322
Investors Title Co. ..................................................................... 24,100 506,100
Penn-America Group, Inc. ................................................................ 21,050 228,919
Security National Financial Corp. "A" ................................................... 73,500 275,625
Siebels Bruce Group, Inc.* .............................................................. 46,100 218,975
Southern Security Life Insurance Co.* ................................................... 6,500 28,438
Standard Management Corp.* .............................................................. 66,100 458,569
-----------
2,748,961
-----------
Business Finance 1.0%
Advest Group, Inc. ...................................................................... 7,200 137,700
HPSC, Inc.* ............................................................................. 55,800 432,450
KBK Capital Corp.* ...................................................................... 50,200 495,725
-----------
1,065,875
-----------
Other Financial Companies 0.7%
First Cash, Inc.* ....................................................................... 65,900 691,950
-----------
Real Estate 0.8%
AMREP Corp.* ............................................................................ 65,600 373,100
New Mexico & Arizona Land Co.* .......................................................... 27,900 411,525
-----------
784,625
-----------
Media 1.1%
Broadcasting & Entertainment 0.6%
Todd-AO Corp. "A" ....................................................................... 35,800 190,188
Vaughn Communications, Inc.* ............................................................ 65,400 441,450
-----------
631,638
-----------
Print Media 0.5%
Advanced Marketing Services, Inc. ....................................................... 29,300 479,788
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

15 - Scudder Micro Cap Fund
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Service Industries 7.2%
Environmental Services 1.2%
GZA GeoEnvironmental Technologies, Inc.* ................................................ 83,800 408,525
Recycling Industries, Inc.* ............................................................. 17,100 37,941
Scope Industries, Inc. .................................................................. 8,400 571,200
Versar, Inc.* ........................................................................... 84,700 243,513
-----------
1,261,179
-----------
Investment 1.1%
H.D. Vest, Inc.* ........................................................................ 47,800 334,600
Kinnard Investment, Inc.* ............................................................... 68,200 358,050
Scott & Stringfellow Financial, Inc. .................................................... 15,750 417,375
-----------
1,110,025
-----------
Miscellaneous Commercial Services 3.5%
American Physicians Service Group, Inc.* ................................................ 68,600 343,000
Automobile Protection Corp.* ............................................................ 99,800 623,750
BI, Inc.* ............................................................................... 42,200 263,750
C.H. Heist Corp.* ....................................................................... 58,900 423,344
Exponent, Inc.* ......................................................................... 42,200 263,750
General Employment Enterprises, Inc. .................................................... 46,005 264,529
Halifax Corp. ........................................................................... 27,150 190,050
Joule, Inc.* ............................................................................ 52,700 197,625
LCS Industries, Inc. .................................................................... 25,800 328,950
RCM Technologies, Inc.* ................................................................. 32,800 377,200
Unapix Entertainment, Inc.* ............................................................. 129,600 307,800
-----------
3,583,748
-----------
Miscellaneous Consumer Services 0.8%
ACE Cash Express, Inc.* ................................................................. 33,025 437,581
Cons Delivery & Logistics* .............................................................. 26,500 96,063
ICT Group, Inc.* ........................................................................ 64,200 176,550
Warrantech Corp.* ....................................................................... 33,000 84,563
-----------
794,757
-----------
Printing/Publishing 0.4%
Tufco Technologies, Inc.* ............................................................... 64,400 434,700
-----------
Miscellaneous 0.2%
Beard Co.* .............................................................................. 42,300 237,938
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

16 - Scudder Micro Cap Fund
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Durables 4.1%
Aerospace 1.2%
Aeroflex, Inc.* ......................................................................... 44,200 295,588
Ducommun, Inc.* ......................................................................... 24,300 417,656
Engineered Support Systems, Inc. ........................................................ 35,400 522,150
-----------
1,235,394
-----------
Automobiles 0.8%
Collins Industries Inc. ................................................................. 31,900 143,550
Hilite Industries, Inc. ................................................................. 50,400 384,300
Motorcar Parts & Accessories, Inc.* ..................................................... 26,600 319,200
-----------
847,050
-----------
Leasing Companies 0.1%
Capital Associates Inc.* ................................................................ 36,500 139,156
-----------
Telecommunications Equipment 1.2%
Anaren Microwave Inc.* .................................................................. 10,700 111,013
Celeritek, Inc.* ........................................................................ 20,250 86,063
Cognitronics Corp.* ..................................................................... 29,100 291,000
Comdial Corp.* .......................................................................... 44,400 310,800
Microlog Corp.* ......................................................................... 121,500 144,281
Mosaix, Inc.* ........................................................................... 49,100 199,469
VARI-L Company, Inc.* ................................................................... 19,500 102,375
-----------
1,245,001
-----------
Miscellaneous 0.8%
Fansteel, Inc.* ......................................................................... 58,200 352,838
Featherlite Manufacturing, Inc.* ........................................................ 49,700 410,025
-----------
762,863
-----------
Manufacturing 15.2%
Chemicals 0.8%
AG Services of America, Inc.* ........................................................... 18,700 219,697
Aceto Corp. ............................................................................. 44,400 604,950
-----------
824,647
-----------
Containers & Paper 0.7%
Applied Extrusion Technologies, Inc.* ................................................... 67,500 472,500
UFP Technologies, Inc.* ................................................................. 86,500 259,500
-----------
732,000
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

17 - Scudder Micro Cap Fund
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Diversified Manufacturing 0.4%
JMAR Technologies, Inc. ................................................................. 68,800 137,600
McRae Industries, Inc. "A" .............................................................. 42,300 282,881
-----------
420,481
-----------
Electrical Products 2.5%
ACME Electric Corp.* .................................................................... 57,600 262,800
Axsys Technologies, Inc.* ............................................................... 34,600 458,450
Bel Fuse Inc. Class "A"* ................................................................ 13,750 220,000
Bel Fuse Inc. Class "B"* ................................................................ 13,750 190,781
LaBarge, Inc.* .......................................................................... 98,800 333,450
Reliability Inc.* ....................................................................... 15,300 77,456
SL Industries, Inc. ..................................................................... 51,400 594,313
Valley Forge Corp. ...................................................................... 35,600 409,400
-----------
2,546,650
-----------
Industrial Specialty 6.4%
American Locker Group, Inc.* ............................................................ 51,600 709,500
Ault, Inc.* ............................................................................. 98,300 356,338
Badger Meter, Inc. ...................................................................... 18,000 518,625
Ceradyne, Inc.* ......................................................................... 96,100 360,375
Cold Metal Products Inc.* ............................................................... 25,000 96,094
Dynamic Materials Corp.* ................................................................ 71,200 427,200
Foster (LB) Co. "A"* .................................................................... 105,500 461,563
Graham Corp.* ........................................................................... 32,400 409,050
Insteel Industries, Inc. ................................................................ 76,300 371,963
Interlake, Corp.* ....................................................................... 78,300 239,794
Kinark Corp.* ........................................................................... 135,800 373,450
Lamson & Sessions Co.* .................................................................. 67,700 304,650
MFRI, Inc.* ............................................................................. 70,200 438,750
Met-Pro Corp. ........................................................................... 27,400 306,538
Optical Coating Laboratory, Inc. ........................................................ 12,200 192,150
Sifco Industries, Inc. .................................................................. 26,600 382,375
Tokheim Corp.* .......................................................................... 29,600 207,200
Trion, Inc. ............................................................................. 88,500 492,281
-----------
6,647,896
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

18 - Scudder Micro Cap Fund
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Machinery/Components/Controls 2.8%
Bridgeport Machines, Inc.* .............................................................. 46,200 508,200
Chicago Rivet & Machine Co. ............................................................. 18,300 478,088
Devlieg-Bullard, Inc.* .................................................................. 128,600 176,825
Farrel Corp. ............................................................................ 102,300 319,688
IMPCO Technologies, Inc.* ............................................................... 36,300 535,425
Oilgear Co. ............................................................................. 27,000 283,500
Summa Industries, Inc.* ................................................................. 42,600 324,825
Trans-Industries, Inc. .................................................................. 35,500 306,188
-----------
2,932,739
-----------
Office Equipment/Supplies 1.0%
Dixon Ticonderoga Co.* .................................................................. 30,100 331,100
Gradco Systems, Inc.* ................................................................... 70,000 157,500
TAB Products Co. ........................................................................ 51,900 551,438
-----------
1,040,038
-----------
Specialty Chemicals 0.6%
Balchem Corp. "B"* ...................................................................... 38,700 343,463
Detrex Corp.* ........................................................................... 34,200 230,850
-----------
574,313
-----------
Technology 10.1%
Computer Software 1.7%
Ciprico Inc.* ........................................................................... 26,000 169,000
Elcom International, Inc.* .............................................................. 191,100 298,594
FDP Corp. ............................................................................... 32,300 310,888
Interleaf Inc.* ......................................................................... 56,600 56,600
Scan Optics, Inc.* ...................................................................... 90,100 405,450
Sulcus Hospitality Technologies Corp.* .................................................. 79,200 99,000
Symix Systems, Inc.* .................................................................... 20,000 397,500
-----------
1,737,032
-----------
Diverse Electronic Products 0.2%
SBS Technologies, Inc.* ................................................................. 10,200 223,125
-----------
EDP Peripherals 1.4%
Bull Run Corp.* ......................................................................... 164,100 656,400
Equitrac Corp.* ......................................................................... 26,300 470,113

</TABLE>

The accompanying notes are an integral part of the financial statements.

19 - Scudder Micro Cap Fund
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Printronix, Inc.* ....................................................................... 19,900 283,575
-----------
1,410,088
-----------
Electronic Components/Distributors 4.1%
Alpha Technologies Group, Inc.* ......................................................... 45,300 70,781
American Technical Ceramics Corp.* ...................................................... 55,300 400,925
Anderson Group, Inc.* ................................................................... 36,600 169,275
C.P. Clare Corp.* ....................................................................... 66,600 445,388
IEC Electronics Corp. (New)* ............................................................ 95,800 407,150
Jaco Electronics, Inc.* ................................................................. 58,700 165,094
MATEC Corp. ............................................................................. 31,300 123,244
Napco Security Systems, Inc.* ........................................................... 48,000 234,000
Nu Horizons Electronics, Inc.* .......................................................... 55,300 224,656
Programmer's Paradise, Inc.* ............................................................ 82,300 390,925
Richey Electronics, Inc.* ............................................................... 56,600 339,600
Savior Technology Group, Inc.* .......................................................... 55,600 403,100
Sigmatron International, Inc.* .......................................................... 55,400 283,925
Trans-Lux Corp. ......................................................................... 32,300 290,700
Video Display Corp.* .................................................................... 34,500 250,125
-----------
4,198,888
-----------
Military Electronics 0.6%
EDO Corp. ............................................................................... 78,400 524,300
Titan Corp. ............................................................................. 31,843 145,284
-----------
669,584
-----------
Precision Instruments 1.3%
Barringer Technologies Inc.* ............................................................ 14,500 92,438
DSP Technology, Inc.* ................................................................... 57,100 392,563
Instron Corp. ........................................................................... 30,800 415,800
O.I. Corp.* ............................................................................. 96,600 434,700
-----------
1,335,501
-----------
Semiconductors 0.3%
SEEQ Technologies Inc.* ................................................................. 65,500 57,313
Zing Technologies, Inc.* ................................................................ 32,300 266,475
-----------
323,788
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

20 - Scudder Micro Cap Fund
<PAGE>

The accompanying notes are an integral part of the financial statements.

21 - Scudder Micro Cap Fund
<PAGE>

The accompanying notes are an integral part of the financial statements.

22 - Scudder Micro Cap Fund
<PAGE>

* Non-income producing security.

(a) The cost for federal income tax purposes was $107,761,887. At August 31,
1998, net unrealized depreciation for all securities based on tax cost was
$4,655,032. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $13,235,965 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$17,890,997.

(b) Securities valued in good faith by the Valuation Committee of the Board of
Trustees at fair value amounted to $0 (0% of net assets). Their values
have been estimated by the Board of Trustees in the absence of readily
ascertainable market values. However, because of the inherent uncertainty
of valuation, those estimated values may differ significantly from the
values that would have been used had a ready market for the securities
existed, and the difference could be material. The cost of these
securities at August 31, 1998 aggregated $229,008. These securities may
also have certain restrictions as to resale.

The accompanying notes are an integral part of the financial statements.

23 - Scudder Micro Cap Fund
<PAGE>

Financial Statements

Statement of Assets and Liabilities

as of August 31, 1998

<TABLE>
<S> <C> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $107,761,887) .............. $ 103,106,855
Cash ............................................................... 200,587
Receivable for Fund shares sold .................................... 101,790
Dividends and interest receivable .................................. 42,021
Receivable for investments sold .................................... 80,863
Deferred organization expenses ..................................... 8,235
Other assets ....................................................... 775
----------------
Total assets ....................................................... 103,541,126

Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased .................................. 200,032
Payable for Fund shares redeemed ................................... 610,624
Accrued management fee ............................................. 75,593
Other payables and accrued expenses ................................ 151,562
----------------
Total liabilities .................................................. 1,037,811
-------------------------------------------------------------------------------------------
Net assets, at market value $ 102,503,315
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Net unrealized appreciation (depreciation) on investments .......... (4,655,032)
Accumulated net realized gain (loss) ............................... 5,436,109
Paid-in capital .................................................... 101,722,238
-------------------------------------------------------------------------------------------
Net assets, at market value $ 102,503,315
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price (Note A) per
share ($102,503,315 / 7,131,931 outstanding shares of
beneficial interest, $.01 par value, unlimited number of ----------------
shares authorized) ............................................... $14.37
----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

24 - Scudder Micro Cap Fund
<PAGE>

Statement of Operations

year ended August 31, 1998

<TABLE>
<S> <C> <C>
Investment Income (Loss)
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $272) .................. $ 988,276
Interest ........................................................... 304,625
----------------
1,292,901
Expenses:
Management fee ..................................................... 1,021,784
Services to shareholders ........................................... 526,325
Custodian and accounting fees ...................................... 138,337
Trustees' fees and expenses ........................................ 60,950
Auditing ........................................................... 35,255
Registration fees .................................................. 28,358
Reports to shareholders ............................................ 57,007
Legal .............................................................. 18,917
Amortization of organization expense ............................... 2,792
Other .............................................................. 7,474
----------------
1,897,199
-------------------------------------------------------------------------------------------
Net investment income (loss) (604,298)
-------------------------------------------------------------------------------------------

Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments ........................................................ 5,710,208
Futures ............................................................ (190,868)
----------------
5,519,340
Net unrealized appreciation (depreciation) during the period on ----------------
investments ...................................................... (23,347,176)
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions (17,827,836)
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ (18,432,134)
-------------------------------------------------------------------------------------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

25 - Scudder Micro Cap Fund
<PAGE>

Statements of Changes in Net Assets

<TABLE>
<CAPTION>
Years Ended August 31,
Increase (Decrease) in Net Assets 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) .................................... $ (604,298) $ (99,149)
Net realized gain (loss) from investment transactions ........... 5,519,340 562,960
Net unrealized appreciation (depreciation) on
investment transactions during the period ..................... (23,347,176) 18,667,904
Net increase (decrease) in net assets resulting from ---------------- ----------------
operations .................................................... (18,432,134) 19,131,715
Distributions to shareholders from: ---------------- ----------------
Net investment income ........................................... -- (39,615)
---------------- ----------------
Net realized gains on investment transactions ................... (535,902) --
Fund share transactions: ---------------- ----------------
Proceeds from shares sold ....................................... 72,871,032 70,826,488
Reinvestment of distributions ................................... 518,950 37,143
Cost of shares redeemed ......................................... (43,749,787) (6,227,396)
Redemption fees ................................................. 203,752 33,668
Net increase (decrease) in net assets from Fund share ---------------- ----------------
transactions .................................................. 29,843,947 64,669,903
---------------- ----------------
Increase (decrease) in net assets ............................... 10,875,911 83,762,003
Net assets at beginning of period ............................... 91,627,404 7,865,401
---------------- ----------------
Net assets at end of period ..................................... $102,503,315 $ 91,627,404
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ....................... 5,463,768 651,850
---------------- ----------------
Shares sold ..................................................... 4,090,660 5,254,231
Shares issued to shareholders in reinvestment of
distributions ................................................. 30,277 2,884
Shares redeemed ................................................. (2,452,774) (445,197)
---------------- ----------------
Net increase (decrease) in Fund shares .......................... 1,668,163 4,811,918
---------------- ----------------
Shares outstanding at end of period ............................. 7,131,931 5,463,768
---------------- ----------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

26 - Scudder Micro Cap Fund
<PAGE>

Financial Highlights

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

<TABLE>
<CAPTION>
For the Period
August 12,
1996
Years Ended (commencement
August 31, of operations) to
August 31,
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------
Net asset value, beginning of period ....................................... $ 16.77 $ 12.07 $ 12.00
-----------------------------------------
Income from investment operations:
Net investment income (loss) ............................................... (.08) (.03) .01
Net realized and unrealized gain on investments ............................ (2.28) 4.74 .06
-----------------------------------------
Total from investment operations ........................................... (2.36) 4.71 .07
-----------------------------------------
Less distributions from:
Net investment income ...................................................... -- (.02) --
Net realized gains from investment transactions ............................ (.07) -- --
-----------------------------------------
Total distributions ........................................................ (.07) (.02) --
-----------------------------------------
Redemption fees ............................................................ .03 .01 --
-----------------------------------------
Net asset value, end of period ............................................. $ 14.37 $ 16.77 $ 12.07
-----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) ........................................................... (13.96) 39.10(b) .58(b)(c)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..................................... 103 92 8
Ratio of operating expenses, net to average daily net assets (%) ........... 1.39 1.75 1.75*
Ratio of operating expenses before expense reductions, to
average daily net assets (%) ............................................. 1.39 2.19 22.06*
Ratio of net investment income (loss) to average daily net assets (%) ...... (.44) (.21) 2.58*
Portfolio turnover rate (%) ................................................ 33.5 17.1 --
</TABLE>

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

27 - Scudder Micro Cap Fund

<PAGE>

Notes to Financial Statements

A. Significant Accounting Policies

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

Effective September 22, 1997, the Fund suspended the sale of its shares to new
investors. Current individual shareholders of the Fund are able to continue to
invest in the Fund. The Fund remains open to investment through qualified
retirement plans. The Trustees may reopen the Fund at some point based on market
conditions and other factors.

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

Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the Nasdaq Stock Market, Inc.
("Nasdaq"), for which there have been sales, are valued at the most recent sale
price reported on Nasdaq. If there are no such sales, the value is the most
recent bid quotation. Securities which are not quoted on Nasdaq 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. Money market
instruments purchased with an original maturity of sixty days or less are valued
at amortized cost.

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

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

Futures Contracts. A futures contract is an agreement between a buyer or seller
and an established futures exchange or its clearinghouse in which the buyer or
seller agrees to take or make a delivery of a specific amount of an item at a
specified price on a specific date (settlement date). During the period, the
Fund purchased index futures as a temporary substitute for purchasing selected
investments.

Upon entering into a futures contract, the Fund is required to deposit with a
financial intermediary an amount ("initial margin") equal to a certain
percentage of the face value indicated in the futures contract. Subsequent
payments ("variation margin") are made or received by the Fund each day,
dependent on the daily fluctuations in the value of the underlying security, and
are recorded for financial reporting purposes as unrealized gains or losses by
the Fund. When entering into a closing transaction, the Fund will realize a gain
or loss equal to the difference between the value of the futures contract to
sell and the futures contract to buy. Futures contracts are valued at the most
recent settlement price.

Certain risks may arise upon entering into futures contracts including the risk
that an illiquid secondary market will limit the Fund's ability to close out a
futures contract prior to the settlement date and that a change in the value of
a futures contract may not correlate exactly with changes in the value of the
securities or currencies hedged. When utilizing futures contracts to

28 - Scudder Micro Cap Fund

<PAGE>

hedge, the Fund gives up the opportunity to profit from favorable price
movements in the hedged positions during the term of the contract.

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

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

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

The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.

The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.

Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a straight-line basis
over a five-year period.

Other. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on the accrual basis.

B. Purchases and Sales of Securities

During the year ended August 31, 1998, purchases and sales of investment
securities (excluding short-term investments) aggregated $78,167,481 and
$42,944,293, respectively.

The aggregate face value of futures contracts opened and closed during the year
ended August 31, 1998 was $16,303,240.

C. Related Parties

Effective December 31, 1997, Scudder, Stevens & Clark, Inc. ("Scudder") and The
Zurich Insurance Company ("Zurich"), an international insurance and financial
services organization, formed a new global investment organization by combining
Scudder's business with that of Zurich's subsidiary, Zurich Kemper Investments,
Inc. As a result of the transaction, Scudder changed its name to Scudder Kemper
Investments, Inc. ("Scudder Kemper" or the "Adviser"). The transaction between
Scudder and Zurich resulted in the termination of the Fund's Investment
Management Agreement with Scudder. However, a new Investment Management
Agreement (the "Management Agreement") between the Fund and Scudder Kemper was
approved by

29 - Scudder Micro Cap Fund

<PAGE>

the Trust's Board of Trustees and by the Fund's Shareholders. The Management
Agreement, which was effective December 31, 1997, is the same in all material
respects as the corresponding previous Investment Management Agreement, except
that Scudder Kemper is the new investment adviser to the Fund.

Under the Management Agreement with Scudder Kemper, the Fund pays the Adviser a
fee equal to an annual rate of 0.75% of the Fund's average daily net assets,
computed and accrued daily and payable monthly. As manager of the assets of the
Fund, the Adviser directs the investments of the Fund in accordance with its
investment objective, policies, and restrictions. The Adviser determines the
securities, instruments and other contracts relating to investments to be
purchased, sold or entered into by the Fund. In addition to portfolio management
services, the Adviser provides certain administrative services in accordance
with the Management Agreement. In addition, the Adviser had agreed not to impose
all or a portion of its management fee until December 31, 1997 in order to
maintain the annualized expenses of the Fund at not more than 1.75% of average
daily net assets. For the year ended August 31, 1998, the fee imposed amounted
to $1,021,784, of which $75,593 was unpaid.

On September 7, 1998, Zurich Insurance Company ("Zurich"), majority owner of the
adviser, entered into an agreement with B.A.T Industries PLC ("B.A.T") pursuant
to which the financial services businesses of B.A.T were combined with Zurich's
businesses to form a new global insurance and financial services company known
as Zurich Financial Services. Upon consummation of the transaction, the Fund's
investment management agreement with Scudder Kemper was deemed to have been
assigned and, therefore, terminated. The Board of Directors of the Fund has
approved a new investment management agreement with Scudder Kemper, which is
substantially identical to the former investment management agreement, except
for the dates of execution and termination. The Board of Directors of the Fund
will seek shareholder approval of the new investment management agreement
through a proxy solicitation that is currently scheduled to conclude in
mid-December.

Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended August 31, 1998, the amount charged to the Fund by SSC aggregated
$342,162, of which $25,821 is unpaid at August 31, 1998.

The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. At August 31, 1998, the
Special Servicing Agreement expense charged to the Fund amounted to $65,418.

Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended August 31, 1998,
the amount charged to the Fund by STC aggregated $32,442, of which $7,299 is
unpaid at August 31, 1998.

Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
August 31, 1998, the amount charged to the Fund by SFAC aggregated $89,375, of
which $6,397 is unpaid at August 31, 1998.

The Trust pays each of its Trustees not affiliated with the Adviser an annual
retainer plus specified amounts for attended board and committee meetings. For
the year ended August 31, 1998 the Trustee fees and expenses aggregated $60,950.

30 - Scudder Micro Cap Fund

<PAGE>

Report of Independent Accountants

To the Board of Trustees of Scudder Securities Trust and the Shareholders of
Scudder Micro Cap Fund:

In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Scudder Micro Cap Fund (the "Fund")
at August 31, 1998, the results of its operations for the period then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods then ended, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at August 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.

Boston, Massachusetts PricewaterhouseCoopers LLP
October 2, 1998

31 - Scudder Micro Cap Fund

<PAGE>

Tax Information

Pursuant to Section 852 of the Internal Revenue Code, the Fund designates
$5,600,000 as capital gain dividends for its year ended August 31, 1998, of
which 94% represents 20% rate gains.

Please consult a tax adviser if you have questions about federal or state income
tax laws, or on how to prepare your tax returns. If you have specific questions
about your Scudder Fund account, please call a Scudder Investor Relations
Representative at 1-800-225-5163.

Officers and Trustees

Daniel Pierce*
President and Trustee

Paul Bancroft III
Trustee; Venture Capitalist and
Consultant

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

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

Thomas J. Devine
Trustee; Consultant

Keith R. Fox
Trustee; Private Equity Investor

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

Wilson Nolen
Trustee; Consultant

Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary

Robert G. Stone, Jr.
Honorary Trustee; Chairman
Emeritus and Director, Kirby
Corporation

Edmund R. Swanberg*
Honorary Trustee

Peter Chin*
Vice President

J. Brooks Dougherty*
Vice President

James M. Eysenbach*
Vice President

James E. Fenger*
Vice President

Philip S. Fortuna*
Vice President

Jerard K. Hartman*
Vice President

Thomas W. Joseph*
Vice President

Roy C. McKay*
Vice President

Thaddeus Paluszek*
Vice President

Kimberly A. Purvis*
Vice President

Peter Taylor*
Vice President

Thomas F. McDonough*
Vice President, Secretary and
Treasurer

Richard W. Desmond*
Assistant Secretary

John R. Hebble*
Assistant Treasurer

Caroline Pearson*
Assistant Secretary

*Scudder Kemper Investments, Inc.

32 - Scudder Micro Cap Fund

<PAGE>
Investment Products and Services

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

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

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

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

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

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

U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund

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

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

Global Equity
- -------------
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund++
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund

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

Industry Sector Funds
- ---------------------
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund

Preferred Series
- ----------------
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small
Company Fund

Retirement Programs and Education Accounts
- --------------------------------------------------------------------------------

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

Education Accounts
- ------------------
Education IRA
UGMA/UTMA

Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.

For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +++Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds may not be available for
purchase or exchange. +A portion of the income from the tax-free funds may be
subject to federal, state, and local taxes. *A class of shares of the Fund.
**Not available in all states. ***Only the Scudder Shares of the Fund are part
of the Scudder Family of Funds. ++Only the International Shares of the Fund are
part of the Scudder Family of Funds. +++ +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered
by Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder Kemper Investments, Inc., are traded on the New York Stock Exchange and,
in some cases, on various other stock exchanges.

33 - Scudder Micro Cap Fund

<PAGE>

Scudder Solutions
<TABLE>
<CAPTION>

Convenient ways to invest, quickly and reliably:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Automatic Investment Plan QuickBuy

A convenient investment program in which money is Lets you purchase Scudder fund shares
electronically debited from your bank account monthly to electronically, avoiding potential mailing delays;
regularly purchase fund shares and "dollar cost average" money for each of your transactions is
-- buy more shares when the fund's price is lower and electronically debited from a previously designated bank
fewer when it's higher, which can reduce your average account.
purchase price over time.*

Automatic Dividend Transfer Payroll Deduction and Direct Deposit

The most timely, reliable, and convenient way to Have all or part of your paycheck -- even government
purchase shares -- use distributions from one Scudder checks -- invested in up to four Scudder funds at
fund to purchase shares in another, automatically one time.
(accounts with identical registrations or the same
social security or tax identification number).

* Dollar cost averaging involves continuous investment in securities regardless of price
fluctuations and does not assure a profit or protect against loss in declining markets.
Investors should consider their ability to continue such a plan through periods of low price
levels.

Around-the-clock electronic account service and information, including some transactions:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Automated Information Line: SAIL(TM) -- Scudder's Web Site -- http://funds.scudder.com
1-800-343-2890
Scudder Electronic Account Services: Offering
Personalized account information, the ability to account information and transactions, interactive
exchange or redeem shares, and information on other worksheets, prospectuses and applications for all
Scudder funds and services via touchtone telephone. Scudder funds, plus your current asset allocation,
whenever you need them. Scudder's Site also
provides news about Scudder funds, retirement
planning information, and more.

Retirees and those who depend on investment proceeds for living expenses can enjoy these convenient,
timely, and reliable automated withdrawal programs:
- ------------------------------------------------------------------------------------------------------------------------------
Automatic Withdrawal Plan QuickSell

You designate the bank account, determine the schedule Provides speedy access to your money by
(as frequently as once a month) and amount of the electronically crediting your redemption proceeds
redemptions, and Scudder does the rest. to the bank account you previously designated.

Distributions Direct

Automatically deposits your fund distributions into the
bank account you designate within three business days
after each distribution is paid.

34 - Scudder Micro Cap Fund
<PAGE>

Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder

Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 8,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.

Fund Folio funds held less than six months will be charged a fee for redemptions. You can buy
shares directly from the fund itself or its principal underwriter or distributor without
paying this fee. Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA 02061.
Member SIPC.

Personal Counsel From Scudder(SM) and Personal Counsel(SM) are service marks of and represent a
program offered by Scudder Investor Services, Inc., Adviser.

For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
Additional Information on How to Contact Scudder:
- ------------------------------------------------------------------------------------------------------------------------------
For existing account services and transactions Please address all written correspondence to
Scudder Investor Relations -- 1-800-225-5163 The Scudder Funds
P.O. Box 2291
For establishing 401(k) and 403(b) plans Boston, Massachusetts
Scudder Defined Contribution Services -- 02107-2291
1-800-323-6105
Or Stop by a Scudder Investor Center

For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:
Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York

</TABLE>

35 - Scudder Micro Cap Fund
<PAGE>
About the Fund's Adviser

Scudder Kemper Investments, Inc., is one of the largest and most experienced
investment management oganizations worldwide, managing more than $230 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts. It is one of the ten largest mutual fund companies in the
United States.

Scudder Kemper Investments has a rich heritage of innovation, integrity, and
client-focused service. In 1997, Scudder, Stevens & Clark, Inc., founded 79
years ago as one of the nation's first investment counsel organizations, joined
the Zurich Group. As a result, Zurich's subsidiary, Zurich Kemper Investments,
Inc., with 50 years of mutual fund and investment management experience, was
combined with Scudder. Headquartered in New York, Scudder Kemper Investments
offers a full range of investment counsel and asset management capabilities,
based on a combination of proprietary research and disciplined, long-term
investment strategies. With its global investment resources and perspective,
the firm seeks opportunities in markets throughout the world to meet the needs
of investors.

Scudder Kemper Investments, Inc., the global asset management firm, is a member
of the Zurich Group. The Zurich Group is an internationally recognized leader in
financial services, including property/casualty and life insurance, reinsurance,
and asset management.

This information must be preceded or accompanied by a current prospectus.

Portfolio changes should not be considered recommendations for action by
individual investors.

SCUDDER

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