Scudder
Micro Cap
Fund
Semiannual Report
February 28, 1999
No-Load Funds
A no-load (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
2/28/99: $93.4 million
- --------------------------------------------------------------------------------
o For its most recent semiannual period ended February 28, 1999, Scudder Micro
Cap Fund returned 6.51%. The Russell 2000 Index of small stocks returned 16.80%
over the same period.
o Since its inception on August 12, 1996, the Fund returned 28.21%, for an
average annual return of 10.27%. This compares favorably to the 8.79% average
annual return of the unmanaged Russell 2000 Index.
o While the top tier of the U.S. market by size has reached repeated new highs,
the broader market has languished. This divergence has resulted in far more
compelling values among small and micro-cap stocks in the current environment of
robust U.S. economic growth, low inflation, and low unemployment.
Table of Contents
3 Letter from the Fund's President 25 Financial Highlights
4 Performance Update 26 Notes to Financial Statements
5 Portfolio Summary 29 Shareholder Meeting Results
6 Portfolio Management Discussion 32 Officers and Trustees
9 Glossary of Investment Terms 33 Investment Products and Services
10 Investment Portfolio 34 Scudder Solutions
22 Financial Statements
2 - Scudder Micro Cap Fund
<PAGE>
Letter from the Fund's President
Dear Shareholders,
The recent spread in performance between large- and small-cap stocks is one
of the widest of the 20th Century, and large-cap stocks have outperformed
micro-cap stocks by an even wider margin. To illustrate, in 1998, the S&P 500
Index returned 28.58%, while micro cap stocks fell 7%. However, we believe that
long-term equity investors who seek the benefits of portfolio diversification
should stay the course, as micro-cap stocks currently represent impressive
values relative to large-cap stocks.
During its most recent semiannual period, Scudder Micro Cap Fund posted a
6.51% total return, compared with the 16.80% and 30.26% returns of the Russell
2000 Index and the S&P 500 Index over the same time period. As the Fund's
portfolio management team describes in the interview beginning on page 6, the
Fund, in keeping with its micro-cap discipline, has one of the lowest median
market caps of any U.S. diversified equity fund. It is therefore not surprising
that the Fund would underperform indices with measurably larger market caps in a
period where small stocks performed least well. Despite this very difficult
period for micro-cap stocks, the Fund's average annual return since its
inception through February 28, 1999 was 10.27%.
For those of you who are interested in new Scudder products, we are pleased
to introduce Scudder Select 500 Fund and Scudder Select 1000 Growth Fund. Both
funds are managed with the goal of providing long term growth compared to their
benchmark indices, the S&P 500 Index and the Russell 1000 Growth Index,
respectively. For more information on either Select fund, please call us at the
number below.
If you have any questions regarding Scudder Micro Cap Fund or any other
Scudder fund, please call Investor Relations at 1-800-225-2470.
Or visit Scudder's Web site at www.scudder.com.
Sincerely,
/S/Daniel Pierce
Daniel Pierce
President,
Scudder Micro Cap Fund
3 - Scudder Micro Cap Fund
<PAGE>
Performance Update as of February 28, 1999
Fund Index Comparison
================================================
Total Return
--------------------------------------------
Period Growth of Cumulative Average
Ended $10,000 Annual
2/28/99
--------------------------------------------
Scudder Micro Cap Fund
--------------------------------------------
1 Year $ 8,414 -15.86% -15.86%
Life of $ 12,821 28.21% 10.27%
Fund*
--------------------------------------------
Russell 2000 Index
--------------------------------------------
1 Year $ 8,585 -14.15% -14.15%
Life of $ 12,393 23.93% 8.79%
Fund*
--------------------------------------------
S&P 500 Index
--------------------------------------------
1 Year $ 11,974 19.74% 19.74%
Life of $ 19,534 95.34% 30.06%
Fund*
--------------------------------------------
* The Fund commenced operations on August 12, 1996.
Growth of a $10,000 Investment
================================================
THE PRINTED DOCUMENT CONTAINS A LINE CHART HERE
CHART DATA:
Scudder Micro Cap Fund Russell 2000 Index S&P 500 Index
- ---------------------- ------------------ ----------------
8/96* 10000 10000 10000
11/96 10475 10907 11289
2/97 11422 11135 11868
5/97 11830 11807 12824
8/97 13991 13151 13680
11/97 14776 13402 14620
2/98 15238 14393 16160
5/98 15850 14259 16880
8/98 12038 10647 14823
11/98 12800 12529 18172
2/99 12821 12393 19425
The Standard & Poor's 500 Index is a capitalization-weighted index of 500
stocks. The index is designed to measure performance of the broad domestic
economy through changes in the aggregate market value of 500 stocks representing
all major industries. 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
=========================================================
Yearly Periods Ended February 28
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
ILLUSTRATING THE FUND TOTAL RETURN (%) AND RUSSELL 2000
INDEX TOTAL RETURN (%)
CHART DATA:
1997* 1998 1999
- --------------------------------------------------------------------------
Net Asset Value $ 13.69 $ 18.19 $ 14.46
- --------------------------------------------------------------------------
Income Dividends $ .02 $ -- $ --
- --------------------------------------------------------------------------
Capital Gains Distributions $ -- $ .07 $ .83
- --------------------------------------------------------------------------
Fund Total Return (%) 14.22 33.41 -15.86
- --------------------------------------------------------------------------
Index Total Return (%) 11.05 29.96 -14.15
- --------------------------------------------------------------------------
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 February 28, 1999
Diversification
================================
A graph in the form of a pie chart appears here, illustrating the exact data
points in the table below.
Common Stocks 100%
------------------------------
100%
==============================
The Fund seeks to be fully invested in micro-cap stocks.
Sectors/Largest Holdings
================================
1. Financial (17%)
First Cash Inc.
Operator of pawn shops
2. Consumer Discretionary (16%)
Salton/Maxim Housewares, Inc.
Designer of small kitchen
appliances
3. Manufacturing (15%)
American Locker Group, Inc.
Manufacturer of coin, key
and electronically
controlled storage lockers
4. Technology (11%)
Programmer's Paradise, Inc.
Marketer of software for
microcomputers
5. Consumer Staples (8%)
Celestial Seasonings, Inc.
Manufacturer and marketer
of herbal teas
6. Service Industries (7%)
Automobile Protection Corp.
Provider of extended
vehicle service contracts
7. Utilities (5%)
Florida Public Utilities Co.
Distributor of gas and
electric utilities
8. Durables (5%)
Engineered Support Systems, Inc.
Manufacturer of nuclear,
biological and chemical
defense systems
9. Health (4%)
GP Strategies Corp.
Manufacturer of medical,
health care, and consumer
products
10.Construction (4%)
Continental Materials Corp.
Manufacturer of heating,
cooling and ventilation
equipment
Stock Characteristics
================================
Fund as Russell
Micro Cap % of 2000
Median Values Fund Universe Universe Index
- ----------------------------------------------------------------------------
Market Capitalization
($ millions) 42 51 82% 388
Price/Earnings 12.9 27.1 48% 19.6
Return On Equity (3 years) 11.1 6.8 164% 12.0
Sales Growth (5 year) 12.3 13.7 90% 19.5
In keeping with its micro-cap discipline, the Fund's median market
capitalization is one of the lowest among U.S. diversified equity funds.
For more complete details about the Fund's Investment Portfolio, see page 10. A
quarterly Fund Summary and Portfolio Holdings are available upon request.
5 - Scudder Micro Cap Fund
<PAGE>
Portfolio Management Discussion
In the following interview, portfolio managers James Eysenbach and Calvin Young
discuss the Fund's market environment and strategy for the six-month period
ended February 28, 1999.
Q: How did Scudder Micro Cap Fund perform over the past six months?
A: The Fund posted a 6.51% total return over its most recent semiannual period.
In broad terms, the larger a stock's capitalization, the better it performed
during the period, as the Russell 2000 Index (a standard benchmark for small-cap
stocks) returned 16.80% and the S&P 500 Index gained 30.26% over the six-month
time frame. At $42 million, the Fund's median market capitalization is
significantly lower than that of both these indices.
Q: What was the market environment like for micro-cap stocks over the six-month
period?
A: Following the peak for micro-cap stocks in April 1998, these stocks have
underperformed large-cap stocks in nine out of ten months through February 1999.
Two issues negatively affected micro-cap stocks in general and the Fund in
particular during this difficult period. First, with the downturn came a flight
to the perceived quality and liquidity of large-cap stocks. Investors paid a
high premium to trade micro-cap securities, with large bid/asked spreads and an
accompanying "liquidity crunch." This period presented a significant challenge
for the Fund: Scudder Micro Cap Fund has one of the lowest median market caps of
any U.S. diversified equity fund, clearly a disadvantage last year as micro-cap
stocks as a whole underperformed large caps by 36 percentage points.
The second critical factor was investors' shift to higher-priced growth stocks.
As the market crisis subsided in the fall of 1998 and the market started to
rebound, growth stocks realized the greatest recovery. The divergence in
performance between funds focused primarily on growth and those employing a
strict valuation discipline was further accentuated by a renewed focus on the
Internet sector. Those companies, most of which are reporting operating losses,
had extraordinary stock returns as investors ignored any sort of traditional
price-to-earnings valuations.
Q: In light of this unfavorable environment for micro-cap stocks, have you
changed your investment process?
A: No. We are strong believers in following a disciplined approach to
portfolio management. For Scudder Micro Cap Fund, these disciplines
include a focus on the smallest U.S. publicly traded companies (those
under $200 million in market capitalization) and valuing companies
based on fundamentals such as sales, earnings, and cash flow. We do not
"market time"; we don't adjust our approach based on the latest market
trends.
Research shows that, over the long term, it rarely pays to be a trend follower,
investing in last year's winners. The market has demonstrated a remarkable
proclivity to change course just when a trend seems most firmly established.
Instead of chasing the latest trend and running the risk of being "whipsawed,"
we remain committed to the Fund's long-term objective and strategy. While we
recognize that this philosophy can hurt relative returns in the short run, we
6 - Scudder Micro Cap Fund
<PAGE>
believe that investors will be better served by this unwavering approach over
the long run.
Q: What are the key elements of your strategy?
A: As a long-term investment, micro-cap stocks have historically provided
superior returns relative to the broad large-cap market. According to U.S.
market research from Ibbotson Associates (1926-1998), the smallest tier of the
U.S. stock market has produced an annual rate of return of 12.4% compared to
11.2% for large-cap stocks. Within this universe, we seek to add value through
systematic analysis of stock fundamentals, disciplined portfolio construction,
and efficient trading.
Our intent is to leverage the inherent advantages of this asset class through
intelligent risk/return tradeoffs, using a quantitative portfolio management
approach to efficiently analyze and manage a large number of stocks and vast
quantities of data. We believe this approach can lead to more informed decision
making: Before we buy or sell any stock we can assess its effect on the whole
portfolio in terms of risk and expected return. Furthermore, our strategy does
not focus on picking a few big winners or sectors, but on building a portfolio
with attractive overall characteristics.
Q: How has this strategy worked out for the Fund over the longer term?
A: From August 31,1996, through February 28, 1999 -- the 30 full months since
the Fund's inception -- the Fund is up 27.47%. This compares to 25.44% for the
median micro-cap fund, according to Lipper Analytical Services. Among the 28
micro-cap funds in existence over this horizon, Scudder Micro Cap had the fourth
lowest return volatility (a common measure of risk).
THE PRINTED DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART TITLE:
Risk Versus Return
For Scudder Micro Cap Fund and three comparative
indices, since the Fund's 8/12/96 inception through
2/28/99.
BAR CHART DATA:
- -----------------------------------------------------------
Annualized Total Risk**
Return
- -----------------------------------------------------------
Scudder Micro Cap Fund 10.27% 16.88%
- -----------------------------------------------------------
DFA U.S. 9-10 Fund 6.53 20.06
- -----------------------------------------------------------
Russell 2000 Index 8.79 20.23
- -----------------------------------------------------------
S&P 500 Index 30.06 17.16
- -----------------------------------------------------------
BAR CHART FOOTNOTE:
** Risk defined as the standard deviation of monthly return,
annualized.
Source: Scudder Kemper Investments
Q: What is your outlook for micro-cap stocks and the Fund?
A: We've just come through a year where micro-cap stocks underperformed
large-caps by 36 percentage points -- one of the widest spreads during this
century. Yet the current environment of robust U.S. economic growth, low
inflation and low unemployment is a positive one for small U.S. businesses.
Consequently, we believe that valuations for small- and micro-cap stocks
relative to large-cap stocks are now very attractive. At some point, the
7 - Scudder Micro Cap Fund
<PAGE>
dominance of large-cap stocks will come to an end. After the last four years,
when large cap funds have had average annual returns of 26% versus 18% for small
cap, it's easy to forget that the previous four years (ending 1994) saw the
opposite hold true (12% for large cap versus 18% for small cap).*
As we've said in the past, we think micro-cap stocks can play an important role
in a long-term investor's portfolio. These stocks offer many benefits, including
the potential to improve an investor's portfolio diversification and increase
long-term returns. We believe the Fund will continue to provide an attractive
vehicle for long-term investors seeking exposure to a dynamic area of the stock
market.
* Source: Morningstar
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 February 28, 1999 (Unaudited)
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stocks 100.0%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 16.2%
Apparel & Shoes 1.7%
Cache, Inc.* ............................................................................ 122,700 858,900
Candie's Inc.* .......................................................................... 57,900 217,125
G-III Apparel Group, Ltd.* .............................................................. 65,500 155,563
Pubco Corp.* ............................................................................ 28,100 259,925
Steven Madden, Ltd.* .................................................................... 14,000 126,000
----------
1,617,513
----------
Department & Chain Stores 1.4%
Drug Emporium, Inc.* .................................................................... 149,700 954,338
Duckwall-ALCO Stores, Inc.* ............................................................. 37,200 395,250
----------
1,349,588
----------
Home Furnishings 1.6%
Baldwin Piano & Organ Co.* .............................................................. 36,700 311,950
Salton/Maxim Housewares, Inc.* .......................................................... 39,300 1,171,631
----------
1,483,581
----------
Hotels & Casinos 1.8%
Buckhead America Corp.* ................................................................. 52,100 273,525
International Thoroughbred Breeders, Inc. (b)* .......................................... 58,300 0
Isle of Capri Casinos, Inc.* ............................................................ 70,100 324,213
Jackpot Enterprises, Inc.* .............................................................. 52,000 448,500
Sonesta International Hotels Corp. "A" .................................................. 24,500 281,750
Supertel Hospitality, Inc.* ............................................................. 37,900 350,575
----------
1,678,563
----------
Recreational Products 3.4%
Allen Organ Co. "B" ..................................................................... 14,200 560,900
Cannondale Corp.* ....................................................................... 14,000 176,750
Equity Marketing, Inc.* ................................................................. 14,900 84,744
Escalade, Inc.* ......................................................................... 30,800 554,400
Fountain Powerboat Industries, Inc.* .................................................... 23,050 148,384
Holiday RV Superstores, Inc.* ........................................................... 178,800 402,300
Polk Audio, Inc.* ....................................................................... 34,100 358,050
Rawlings Sporting Goods Co., Inc.* ...................................................... 41,700 510,825
</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>
Riddel Sports, Inc.* .................................................................... 68,000 340,000
----------
3,136,353
----------
Restaurants 2.6%
Back Bay Restaurant Group, Inc.* ........................................................ 54,800 541,150
Benihana, Inc. "A"* ..................................................................... 33,800 392,925
Garden Fresh Restaurant Corp.* .......................................................... 58,500 895,781
Max & Erma's Restaurants, Inc.* ......................................................... 80,800 565,600
----------
2,395,456
----------
Specialty Retail 3.7%
Amplicon, Inc. .......................................................................... 31,200 390,000
Brauns Fashions Corp.* .................................................................. 15,000 133,125
Brookstone, Inc.* ....................................................................... 33,900 423,750
Hirsch International Corp.* ............................................................. 20,000 57,500
InterTAN, Inc.* ......................................................................... 91,100 888,225
Rag Shops, Inc.* ........................................................................ 80,300 180,675
Reeds Jewelers, Inc.* ................................................................... 20,200 65,650
S & K Famous Brands, Inc.* .............................................................. 28,400 236,075
Ultimate Electronics, Inc.* ............................................................. 79,500 695,625
Wolohan Lumber Co. ...................................................................... 27,900 348,750
----------
3,419,375
----------
Consumer Staples 7.5%
Alcohol & Tobacco 0.1%
Todhunter International, Inc.* .......................................................... 15,600 119,925
----------
Consumer Electronic & Photographic 0.4%
Cobra Electronics Corp.* ................................................................ 85,800 364,650
----------
Farming 0.3%
Sylvan, Inc.* ........................................................................... 27,800 305,800
----------
Food & Beverage 4.9%
Celestial Seasonings, Inc.* ............................................................. 25,200 727,650
Chock Full O'Nuts Corp.* ................................................................ 129,200 702,525
Foodarama Supermarkets, Inc.* ........................................................... 14,100 444,150
J & J Snack Foods Corp.* ................................................................ 22,300 471,088
Schultz Sav-O Stores, Inc. .............................................................. 33,050 574,244
Seaway Food Town, Inc. .................................................................. 33,150 497,250
Smithfield Companies, Inc.* ............................................................. 21,600 170,100
</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>
Suprema Specialties, Inc.* .............................................................. 98,500 535,594
Village Super Market, Inc. "A"* ......................................................... 28,100 393,400
----------
4,516,001
----------
Package Goods/Cosmetics 0.7%
Allou Health & Beauty, Inc. "A"* ........................................................ 67,200 604,800
----------
Textiles 1.1%
Dyersburg Corp. ......................................................................... 49,100 101,269
Hampshire Group, Ltd.* .................................................................. 29,900 325,163
Premiumwear, Inc.* ...................................................................... 70,500 431,813
Worldtex, Inc.* ......................................................................... 74,000 166,500
----------
1,024,745
----------
Health 4.4%
Biotechnology 0.4%
Synbiotics Corp.* ....................................................................... 124,200 395,888
----------
Health Industry Services 1.0%
Air Methods Corp.* ...................................................................... 101,600 196,850
Cantel Industries Inc.* ................................................................. 22,400 145,600
Diagnostic Health Services, Inc.* ....................................................... 67,000 123,531
Healthcare Services Group, Inc.* ........................................................ 52,050 474,956
----------
940,937
----------
Hospital Management 0.5%
National Home Health Care Corp.* ........................................................ 90,690 396,769
----------
Medical Supply & Specialty 2.5%
GP Strategies Corp.* .................................................................... 52,220 858,366
Infu-Tech, Inc.* ........................................................................ 37,300 83,925
Polymedica Industries, Inc.* ............................................................ 48,800 390,400
Response Oncology, Inc.* ................................................................ 61,300 183,900
Scherer Healthcare, Inc.* ............................................................... 31,600 128,375
Span-America Medical Systems, Inc. ...................................................... 58,400 292,000
Superior Uniform Group, Inc. ............................................................ 30,500 404,125
----------
2,341,091
----------
Communications 0.7%
Telephone/Communications 0.4%
Hector Communications Corp.* ............................................................ 42,900 386,100
----------
</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>
Miscellaneous 0.3%
Datum, Inc.* ............................................................................ 34,200 288,563
----------
Financial 16.5%
Banks 11.5%
Alliance Bancorp of New England, Inc. ................................................... 37,749 396,365
Andover Bancorp, Inc. ................................................................... 17,000 510,000
Coastal Bancorp, Inc. ................................................................... 14,700 235,200
Columbia Banking System, Inc.* .......................................................... 17,640 302,085
Equitable Federal Savings Bank* ......................................................... 2,400 45,900
FNB Rochester Corp. ..................................................................... 23,000 715,875
First Citizens Corp. .................................................................... 12,750 490,875
First Essex Bancorp ..................................................................... 15,800 258,725
First Mutual Savings Bank ............................................................... 19,810 260,006
First Oak Brook Bancshares, Inc. "A" .................................................... 29,400 529,200
Foothill Independent Bancorp* ........................................................... 31,636 490,358
Haven Bancorp, Inc. ..................................................................... 12,200 172,325
Hingham Institution for Savings ......................................................... 11,550 173,250
Kankakee Bancorp, Inc. .................................................................. 4,400 99,000
Lawrence Savings Bank* .................................................................. 45,600 441,750
Marion Capital Holdings, Inc. ........................................................... 7,500 151,875
Matewan Bancshares, Inc. ................................................................ 10,730 345,372
Medford Bancorp Inc. .................................................................... 23,600 424,800
Merchants Bancorp, Inc. ................................................................. 17,600 481,800
New Milford Bank & Trust Corp. .......................................................... 17,300 270,313
Northrim Bank ........................................................................... 42,760 534,500
Parkvale Financial Corp. ................................................................ 24,296 522,364
People's Bancshares, Inc. ............................................................... 17,600 354,200
Pinnacle Bancshares, Inc. ............................................................... 25,000 275,000
Progress Financial Corp. ................................................................ 17,309 253,144
SJNB Financial Corp. .................................................................... 13,300 365,750
Skaneateles Bancorp, Inc. ............................................................... 25,950 655,238
Southwest Bancorp, Inc. ................................................................. 7,800 190,125
Union Bankshares Ltd.* .................................................................. 26,000 273,000
Winton Financial Corp. .................................................................. 32,700 482,325
----------
10,700,720
----------
</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>
Insurance 2.6%
ACCEL International Corp.* .............................................................. 103,900 285,725
Atlantic American Corp.* ................................................................ 71,600 299,825
Cotton States Life Insurance ............................................................ 45,525 546,300
Investors Title Co. ..................................................................... 24,100 542,250
Security National Financial Corp. "A"* .................................................. 73,500 220,500
Siebels Bruce Group, Inc.* .............................................................. 39,300 127,725
Standard Management Corp.* .............................................................. 66,100 421,388
----------
2,443,713
----------
Business Finance 1.1%
Advest Group, Inc. ...................................................................... 7,200 143,100
HPSC, Inc.* ............................................................................. 55,800 462,094
KBK Capital Corp.* ...................................................................... 50,200 395,325
----------
1,000,519
----------
Other Financial Companies 0.8%
First Cash, Inc.* ....................................................................... 65,900 757,850
----------
Real Estate 0.5%
AMREP Corp.* ............................................................................ 65,600 459,200
----------
Media 1.7%
Broadcasting & Entertainment 1.0%
Todd-AO Corp. "A" ....................................................................... 35,800 304,300
Vaughn Communications, Inc.* ............................................................ 65,400 641,738
----------
946,038
----------
Print Media 0.7%
Advanced Marketing Services, Inc. ....................................................... 43,950 631,781
----------
Service Industries 7.3%
Environmental Services 1.1%
GZA GeoEnvironmental Technologies, Inc.* ................................................ 83,800 398,050
Scope Industries, Inc. .................................................................. 8,400 537,600
Versar, Inc.* ........................................................................... 39,900 93,516
----------
1,029,166
----------
Investment 1.3%
H.D. Vest, Inc.* ........................................................................ 47,800 334,600
Kinnard Investment, Inc.* ............................................................... 68,200 323,950
</TABLE>
The accompanying notes are an integral part of the financial statements.
14 - Scudder Micro Cap Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Scott & Stringfellow Financial, Inc. .................................................... 15,750 586,688
----------
1,245,238
----------
Miscellaneous Commercial Services 3.6%
American Physicians Service Group, Inc.* ................................................ 68,600 291,550
Automobile Protection Corp.* ............................................................ 99,800 1,072,832
BI, Inc.* ............................................................................... 42,200 403,538
C.H. Heist Corp.* ....................................................................... 58,900 397,575
Exponent, Inc.* ......................................................................... 42,200 242,650
Halifax Corp. ........................................................................... 27,150 213,806
Joule, Inc.* ............................................................................ 52,700 217,388
RCM Technologies, Inc.* ................................................................. 12,800 236,800
Unapix Entertainment, Inc.* ............................................................. 129,600 251,100
----------
3,327,239
----------
Miscellaneous Consumer Services 0.9%
ACE Cash Express, Inc.* ................................................................. 33,025 427,261
Cons Delivery & Logistics* .............................................................. 32,600 130,400
ICT Group, Inc.* ........................................................................ 64,200 228,713
----------
786,374
----------
Printing/Publishing 0.4%
Tufco Technologies, Inc.* ............................................................... 58,800 352,800
----------
Durables 4.7%
Aerospace 1.0%
Ducommun, Inc.* ......................................................................... 24,300 303,750
Engineered Support Systems, Inc. ........................................................ 35,400 592,950
----------
896,700
----------
Automobiles 1.1%
Collins Industries Inc. ................................................................. 39,100 193,056
Hilite Industries, Inc. ................................................................. 50,400 497,700
Motorcar Parts & Accessories, Inc.* ..................................................... 26,600 332,500
----------
1,023,256
----------
Leasing Companies 0.2%
Capital Associates Inc.* ................................................................ 36,500 136,875
----------
Telecommunications Equipment 2.1%
Anaren Microwave Inc.* .................................................................. 20,500 493,281
Applied Cellular Technology, Inc.* ...................................................... 55,000 151,250
</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>
Celeritek, Inc.* ........................................................................ 32,050 148,231
Cognitronics Corp.* ..................................................................... 29,100 220,069
Comdial Corp.* .......................................................................... 44,400 305,250
Microlog Corp.* ......................................................................... 121,500 148,078
Mosaix, Inc.* ........................................................................... 49,100 374,388
VARI-L Company, Inc.* ................................................................... 21,800 141,700
----------
1,982,247
----------
Miscellaneous 0.3%
Featherlite Manufacturing, Inc.* ........................................................ 49,700 285,775
----------
Manufacturing 15.0%
Chemicals 0.9%
AG Services of America, Inc.* ........................................................... 18,700 268,813
Aceto Corp. ............................................................................. 44,400 560,550
----------
829,363
----------
Containers & Paper 0.4%
UFP Technologies, Inc.* ................................................................. 86,500 356,813
----------
Diversified Manufacturing 0.5%
JMAR Technologies, Inc.* ................................................................ 98,600 197,200
McRae Industries, Inc. "A" .............................................................. 42,300 253,800
----------
451,000
----------
Electrical Products 3.6%
ACME Electric Corp.* .................................................................... 57,600 266,400
Axsys Technologies, Inc.* ............................................................... 34,600 627,125
Bel Fuse Inc. Class "A"* ................................................................ 13,750 632,500
Bel Fuse Inc. Class "B"* ................................................................ 13,750 527,656
LaBarge, Inc.* .......................................................................... 98,800 290,225
Reliability Inc.* ....................................................................... 72,200 329,413
SL Industries, Inc. ..................................................................... 51,400 648,925
----------
3,322,244
----------
Industrial Specialty 5.9%
American Locker Group, Inc.* ............................................................ 51,600 774,000
Ault, Inc.* ............................................................................. 98,300 675,813
Badger Meter, Inc. ...................................................................... 18,000 576,000
Ceradyne, Inc.* ......................................................................... 96,100 312,325
Dynamic Materials Corp.* ................................................................ 71,200 284,800
</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>
Foster (LB) Co. "A"* .................................................................... 105,500 540,688
Graham Corp.* ........................................................................... 32,400 291,600
Insteel Industries, Inc. ................................................................ 76,300 467,338
Kinark Corp.* ........................................................................... 135,800 356,475
Lamson & Sessions Co.* .................................................................. 67,700 330,038
MFRI, Inc.* ............................................................................. 70,200 318,094
Met-Pro Corp. ........................................................................... 13,800 158,700
Sifco Industries, Inc. .................................................................. 26,600 279,300
Tokheim Corp.* .......................................................................... 14,800 107,300
----------
5,472,471
----------
Machinery/Components/Controls 2.6%
Bridgeport Machines, Inc.* .............................................................. 46,200 254,100
Chicago Rivet & Machine Co. ............................................................. 18,300 478,088
Farrel Corp. ............................................................................ 102,300 230,175
IMPCO Technologies, Inc.* ............................................................... 36,300 453,750
Newcor, Inc. ............................................................................ 20,000 85,000
Oilgear Co. ............................................................................. 27,000 259,875
Summa Industries, Inc.* ................................................................. 42,600 378,075
Trans-Industries, Inc. .................................................................. 35,500 264,031
----------
2,403,094
----------
Office Equipment/Supplies 0.9%
Dixon Ticonderoga Co.* .................................................................. 30,100 316,050
Gradco Systems, Inc.* ................................................................... 124,000 279,000
TAB Products Co. ........................................................................ 51,900 265,988
----------
861,038
----------
Specialty Chemicals 0.2%
Detrex Corp.* ........................................................................... 34,200 218,025
----------
Technology 10.9%
Computer Software 2.6%
Elcom International, Inc.* .............................................................. 273,300 1,024,875
FDP Corp. ............................................................................... 32,300 522,856
Scan Optics, Inc.* ...................................................................... 90,100 377,294
Sulcus Hospitality Technologies Corp.* .................................................. 79,200 178,200
Symix Systems, Inc.* .................................................................... 15,000 309,375
----------
2,412,600
----------
</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>
Diverse Electronic Products 0.5%
Micro Linear Corp.* ..................................................................... 52,000 260,000
SBS Technologies, Inc.* ................................................................. 10,200 193,800
----------
453,800
----------
EDP Peripherals 1.2%
Equitrac Corp.* ......................................................................... 26,300 618,050
Printronix, Inc.* ....................................................................... 19,900 261,188
Wells-Gardner Electronics Corp.* ........................................................ 85,100 234,025
----------
1,113,263
----------
Electronic Components/Distributors 3.5%
American Technical Ceramics Corp.* ...................................................... 55,300 373,275
Anderson Group, Inc.* ................................................................... 35,600 142,400
MATEC Corp. ............................................................................. 31,300 119,331
Napco Security Systems, Inc.* ........................................................... 48,000 132,000
Nu Horizons Electronics, Inc.* .......................................................... 55,300 241,938
Programmer's Paradise, Inc.* ............................................................ 82,300 1,039,038
Savior Technology Group, Inc.* .......................................................... 55,600 556,000
Sigmatron International, Inc.* .......................................................... 52,900 158,700
Trans-Lux Corp. ......................................................................... 32,300 308,869
Video Display Corp.* .................................................................... 34,500 189,750
----------
3,261,301
----------
Electronic Data Processing 0.1%
On-Point Technology Systems, Inc.* ...................................................... 45,000 101,250
----------
Military Electronics 0.8%
EDO Corp.* .............................................................................. 78,400 548,800
Titan Corp. ............................................................................. 31,843 179,117
----------
727,917
----------
Precision Instruments 1.7%
Barringer Technologies Inc.* ............................................................ 25,500 191,250
DSP Technology, Inc.* ................................................................... 57,100 327,433
Instron Corp. ........................................................................... 30,800 527,450
O.I. Corp.* ............................................................................. 96,600 555,450
----------
1,601,583
----------
Semiconductors 0.3%
Zing Technologies, Inc.* ................................................................ 32,300 254,363
----------
</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>
Miscellaneous 0.2%
SpecTran Corp.* ......................................................................... 42,200 218,913
----------
Energy 0.9%
Oil & Gas Production 0.7%
Hallwood Energy Partners, L.P. .......................................................... 42,700 154,788
Petroleum Development Corp.* ............................................................ 77,600 227,950
TMBR/Sharp Drilling, Inc.* .............................................................. 42,200 141,106
Unit Corp.* ............................................................................. 25,000 103,125
----------
626,969
----------
Oil Companies 0.1%
Arabian Shield Development* ............................................................. 46,700 58,375
----------
Oilfield Services/Equipment 0.1%
ICO Inc. ................................................................................ 116,100 134,241
----------
Metals & Minerals 1.5%
Steel & Metals 1.2%
Bayou Steel Corp.* ...................................................................... 110,900 388,150
Driver Harris Co.* ...................................................................... 36,700 128,450
Friedman Industries, Inc. ............................................................... 57,146 260,729
Webco Industries, Inc.* ................................................................. 61,500 342,094
----------
1,119,423
----------
Miscellaneous 0.3%
United States Lime & Minerals, Inc. ..................................................... 37,300 296,069
----------
Construction 4.3%
Building Materials 0.1%
Williams Industries, Inc.* .............................................................. 15,000 75,000
----------
Building Products 1.6%
Baltek Corp.* ........................................................................... 46,100 371,681
Continental Materials Corp.* ............................................................ 17,700 597,375
Noland Co. .............................................................................. 23,700 539,175
----------
1,508,231
----------
Homebuilding 1.0%
American Residential Services, Inc.* .................................................... 20,000 72,500
Engle Homes, Inc. ....................................................................... 33,200 390,100
Fortress Group, Inc. .................................................................... 60,000 120,000
Liberty Homes, Inc. "A" ................................................................. 19,500 177,938
</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>
Washington Homes, Inc.* ................................................................. 33,000 198,000
----------
958,538
----------
Miscellaneous 1.6%
ACMAT Corp. "A"* ........................................................................ 29,500 449,875
Abrams Industries, Inc. ................................................................. 18,780 107,985
MYR Group, Inc.* ........................................................................ 39,166 411,243
Turner Corp.* ........................................................................... 29,550 507,891
----------
1,476,994
----------
Transportation 3.6%
Miscellaneous Consumer Services 0.3%
PLM International Inc.* ................................................................. 54,300 305,438
----------
Airlines 1.0%
Hawaiian Airlines, Inc.* ................................................................ 80,000 200,000
Mercury Air Group, Inc.* ................................................................ 86,600 746,925
----------
946,925
----------
Marine Transportation 0.7%
International Shipholding Corp. ......................................................... 42,200 664,650
----------
Railroads 0.3%
Providence & Worcester Railroad Co. ..................................................... 25,000 265,625
----------
Trucking 0.9%
Boyd Brothers Transportation, Inc.* ..................................................... 51,000 363,375
Kenan Transport Co. ..................................................................... 8,500 280,500
Simon Transportation Services, Inc.* .................................................... 30,000 142,500
----------
786,375
----------
Miscellaneous 0.4%
Travel Ports of America, Inc.* .......................................................... 120,508 338,929
----------
Utilities 4.8%
Electric Utilities 0.6%
Unitil Corp. ............................................................................ 25,900 589,225
----------
Natural Gas Distribution 1.8%
Chesapeake Utilities Corp. .............................................................. 20,200 356,025
Energy West, Inc. ....................................................................... 25,700 224,875
Providence Energy Corp. ................................................................. 23,700 488,813
Roanoke Gas Co. ......................................................................... 29,200 620,500
----------
1,690,213
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20 - Scudder Micro Cap Fund
<PAGE>
<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Water Supply 1.6%
Connecticut Water Services .............................................................. 20,250 510,047
Dominguez Services Corp. ................................................................ 13,550 359,075
Southwest Water Co. ..................................................................... 43,023 645,345
----------
1,514,467
----------
Miscellaneous 0.8%
Florida Public Utilities Co. ............................................................ 46,400 684,400
- ------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (Cost $87,354,572) 92,870,314
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100% (Cost $87,354,572) (a) 92,870,314
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
(a) The cost for federal income tax purposes was $87,354,572. At February 28,
1999, net unrealized appreciation for all securities based on tax cost was
$5,515,742. This consisted of aggregate gross unrealized appreciation for
all securities in which there was an excess of market value over tax cost
of $18,927,209 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$13,411,467.
(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 February 28, 1999 aggregated $229,008. These securities may
also have certain restrictions as to resale.
The accompanying notes are an integral part of the financial statements.
21 - Scudder Micro Cap Fund
<PAGE>
Financial Statements
Statement of Assets and Liabilities
as of February 28, 1999 (Unaudited)
<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $87,354,572) ................. $ 92,870,314
Receivable for Fund shares sold ...................................... 10,485
Dividends and interest receivable .................................... 34,603
Receivable for investments sold ...................................... 1,046,519
Deferred organization expenses ....................................... 6,850
Other assets ......................................................... 1,531
----------------
Total assets ......................................................... 93,970,302
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Due to custodian bank ................................................ 17,584
Notes payable ........................................................ 350,000
Payable for Fund shares redeemed ..................................... 66,565
Accrued management fee ............................................... 57,512
Other payables and accrued expenses .................................. 105,534
----------------
Total liabilities .................................................... 597,195
-------------------------------------------------------------------------------------------
Net assets, at market value $ 93,373,107
-------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Accumulated net investment gain (loss) ............................... (266,915)
Net unrealized appreciation (depreciation) on investments ............ 5,515,742
Accumulated net realized gain (loss) ................................. (3,693,646)
Paid-in capital ...................................................... 91,817,926
-------------------------------------------------------------------------------------------
Net assets, at market value $ 93,373,107
-------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price (Note A) per
share ($93,373,107 / 6,457,692 outstanding shares of
beneficial interest, $.01 par value, unlimited number of ----------------
shares authorized) ................................................. $14.46
----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
22 - Scudder Micro Cap Fund
<PAGE>
Statement of Operations
six months ended February 28, 1999 (Unaudited)
<TABLE>
<S> <C>
Investment Income (Loss)
- ----------------------------------------------------------------------------------------------------------------------------
Income:
Dividends ............................................................. $ 452,093
Interest .............................................................. 36,896
----------------
488,989
Expenses:
Management fee ........................................................ 369,518
Services to shareholders .............................................. 279,514
Custodian and accounting fees ......................................... 42,566
Trustees' fees and expenses ........................................... 20,332
Auditing .............................................................. 11,714
Registration fees ..................................................... 8,834
Reports to shareholders ............................................... 16,401
Legal ................................................................. 3,532
Amortization of organization expense .................................. 1,385
Other ................................................................. 2,108
----------------
755,904
-------------------------------------------------------------------------------------------
Net investment income (loss) (266,915)
-------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ----------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from investments ............................. (3,651,115)
Net unrealized appreciation (depreciation) during the period on
investments ......................................................... 10,170,774
-------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 6,519,659
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 6,252,744
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
23 - Scudder Micro Cap Fund
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
February 28, Year Ended
1999 August 31,
Increase (Decrease) in Net Assets (Unaudited) 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) ............................... $ (266,915) $ (604,298)
Net realized gain (loss) from investment transactions ...... (3,651,115) 5,519,340
Net unrealized appreciation (depreciation) on
investment transactions during the period ................ 10,170,774 (23,347,176)
---------------- ----------------
Net increase (decrease) in net assets resulting from
operations ............................................... 6,252,744 (18,432,134)
Distributions to shareholders from net realized gains
on investment transactions ............................... (5,478,640) (535,902)
---------------- ----------------
Fund share transactions:
Proceeds from shares sold .................................. 10,520,510 72,871,032
Reinvestment of distributions .............................. 5,236,925 518,950
Cost of shares redeemed .................................... (25,677,660) (43,749,787)
Redemption fees ............................................ 15,913 203,752
---------------- ----------------
Net increase (decrease) in net assets from Fund share
transactions ............................................. (9,904,312) 29,843,947
---------------- ----------------
Increase (decrease) in net assets .......................... (9,130,208) 10,875,911
Net assets at beginning of period .......................... 102,503,315 91,627,404
Net assets at end of period (including accumulated ---------------- ----------------
net investment loss of $266,915 at February 28, 1999) .... $ 93,373,107 $ 102,503,315
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................. 7,131,931 5,463,768
---------------- ----------------
Shares sold ................................................ 718,498 4,090,660
Shares issued to shareholders in reinvestment of
distributions ............................................ 370,887 30,277
Shares redeemed ............................................ (1,763,624) (2,452,774)
---------------- ----------------
Net increase (decrease) in Fund shares ..................... (674,239) 1,668,163
---------------- ----------------
Shares outstanding at end of period ........................ 6,457,692 7,131,931
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
24 - Scudder Micro Cap Fund
<PAGE>
Financial Highlights
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
<TABLE>
<CAPTION>
For the Period
August 12,
Six Months 1996
Ended Years Ended (commencement
February 28, August 31, of operations) to
1999 August 31,
(Unaudited) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-------------------------------------------------------
Net asset value, beginning of period ................................. $ 14.37 $ 16.77 $ 12.07 $ 12.00
-------------------------------------------------------
Income from investment operations:
Net investment income (loss) ......................................... (.04) (.08) (.03) .01
Net realized and unrealized gain (loss) on investments ............... .96 (2.28) 4.74 .06
-------------------------------------------------------
Total from investment operations ..................................... .92 (2.36) 4.71 .07
-------------------------------------------------------
Less distributions from:
Net investment income ................................................ -- -- (.02) --
Net realized gains from investment transactions ...................... (.83) (.07) -- --
-------------------------------------------------------
Total distributions .................................................. (.83) (.07) (.02) --
-------------------------------------------------------
Redemption fees ...................................................... --*** .03 .01 --***
-------------------------------------------------------
Net asset value, end of period ....................................... $ 14.46 $ 14.37 $ 16.77 $ 12.07
-------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (c) ................................................. 6.51** (13.96) 39.10(b) .58(b)**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ............................... 93 103 92 8
Ratio of operating expenses, net to average daily net assets (%) ..... 1.53* 1.39 1.75 1.75*
Ratio of operating expenses before expense reductions, to
average daily net assets (%) ....................................... 1.53* 1.39 2.19 22.06*
Ratio of net investment income (loss) to average daily net
assets (%) ......................................................... (.54)* (.44) (.21) 2.58*
Portfolio turnover rate (%) .......................................... 7.0* 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
*** Amount is less than half of $.01.
25 - Scudder Micro Cap Fund
<PAGE>
Notes to Financial Statements (Unaudited)
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 were able to continue to
invest in the Fund and the Fund remained open to investment through qualified
retirement plans. The Trustees reopened the Fund to new investors effective
October 23, 1998. The Trustees may determine to close the Fund again at some
point in the future 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 is equal to at least the repurchase price.
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.
26 - Scudder Micro Cap Fund
<PAGE>
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. As a result, net
investment income (loss) and net realized gain (loss) on investment transactions
for a reporting period may differ significantly from distributions during such
period. Accordingly, the Fund may periodically make reclassifications among
certain of its capital accounts without impacting the net asset value of the
Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
Organization Costs. Costs incurred by the Fund in connection with its
organization have been deferred and are being amortized on a
straight-line basis over a five-year period.
Other. Investment security transactions are accounted for on a
trade-date basis. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest income is recorded on the
accrual basis.
B. Purchases and Sales of Securities
During the six months ended February 28, 1999, purchases and sales of investment
securities (excluding short-term investments) aggregated $3,427,162 and
$19,508,362, respectively.
C. Related Parties
Under the Investment Management Agreement (the "Management Agreement") with
Scudder Kemper Investments, Inc. ("Scudder Kemper" or the "Adviser"), the Fund
pays the Adviser a fee equal to an annual rate of 0.75% of the Fund's average
daily net assets, computed and accrued daily and payable monthly. As manager of
the assets of the Fund, the Adviser directs the investments of the Fund in
accordance with its investment objective, policies, and restrictions. The
Adviser determines the securities, instruments and other contracts relating to
investments to be purchased, sold or entered into by the Fund. In addition to
portfolio management services, the Adviser provides certain administrative
services in accordance with the Management Agreement. For the six months ended
February 28, 1999, the fee imposed amounted to $369,518, of which $57,512 is
unpaid at February 28, 1999.
Effective 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 Management Agreement with Scudder Kemper was deemed to
have been assigned and, therefore, terminated. In December 1998, the Board of
Trustees and the shareholders of the Fund approved a new investment management
agreement with Scudder Kemper, which is substantially identical to the former
Management Agreement, except for the dates of execution and termination.
Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
six months ended February 28, 1999, the amount charged to the Fund by SSC
aggregated $155,048, of which $22,639 is unpaid at February 28, 1999.
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 six months ended February
28, 1999, the amount charged to the Fund by STC aggregated $28,946, of which
$4,680 is unpaid at February 28, 1999.
27 - Scudder Micro Cap Fund
<PAGE>
Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the six months
ended February 28, 1999, the amount charged to the Fund by SFAC aggregated
$29,842, of which $4,372 is unpaid at February 28, 1999.
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
the potential to be invested in the Underlying Funds. At February 28, 1999, the
Special Servicing Agreement expense charged to the Fund amounted to $53,966.
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 six months ended February 28, 1999 the Trustees' fees and expenses
aggregated $20,332.
D. Line of Credit
The Fund and several Scudder Funds (the "Participants") share in a $850 million
revolving credit facility for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. The Participants are charged an annual commitment fee
which is allocated, pro rata based on net assets, among each of the
Participants. Interest is calculated based on the market rates at the time of
the borrowing. The Fund may borrow up to a maximum of 33 percent of its net
assets under the agreement.
The weighted average outstanding daily balance of all loans (based on the number
of days the loans were outstanding) was approximately $598,000 with a weighted
average interest rate of 5.59%. Interest for the period ended February 28, 1999
was $2,324 (less than $.01 per share). The maximum borrowings outstanding at any
time during the period were $1,232,000.
28 - Scudder Micro Cap Fund
<PAGE>
Shareholder Meeting Results
A Special Meeting of Shareholders (the "Meeting") of Scudder Micro Cap Fund (the
"Fund") was held on December 15, 1998, at the office of Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110. At the
Meeting the following matters were voted upon by the shareholders (the resulting
votes for each matter are presented below).
1. To approve a new Investment Management Agreement for the Fund with Scudder
Kemper Investments, Inc.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
3,932,570 139,789 109,062 0
2. To approve the revision of the Fund's fundamental lending policy.
Number of Votes:
----------------
For Against Abstain Broker Non-Votes*
--- ------- ------- -----------------
3,745,457 195,353 161,490 79,121
- --------------------------------------------------------------------------------
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary power
to vote on a particular matter.
29 - Scudder Micro Cap Fund
<PAGE>
This Page
intentionally
left blank.
30 - Scudder Micro Cap Fund
<PAGE>
This Page
intentionally
left blank.
31 - Scudder Micro Cap Fund
<PAGE>
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
Keith R. Fox
Trustee; Private Equity Investor
William H. Luers
Trustee; Chairman and
President, U.N. Association of
the U.S.A.
Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary
Joan Spero
Trustee; President, Doris Duke
Charitable Foundation
Thomas J. Devine
Honorary Trustee; Consultant
Wilson Nolen
Honorary Trustee; Consultant
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
Thomas W. Joseph*
Vice President
Ann M. McCreary*
Vice President
Thaddeus Paluszek*
Vice President
Kurt R. Stalzer*
Vice President
Peter Taylor*
Vice President
Thomas F. McDonough*
Vice President and Secretary
Richard W. Desmond*
Assistant Secretary
John R. Hebble*
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 --
Prime Reserve Shares*
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 Corporate Bond 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
Variable Annuities
Scudder Horizon Plan**+++ +++
Scudder Horizon Advantage**+++ +++ +++
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.
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. +++ +++ +++A no-load variable
annuity contract issued by Glenbrook Life and Annuity Company and underwritten
by Allstate Financial Services, Inc., sold 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 -- www.scudder.com
1-800-343-2890
Personal Investment Organizer: 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.
For more information about these services, call a Scudder representative at 1-800-225-5163
- ------------------------------------------------------------------------------------------------------------------------------
34 - Scudder Micro Cap Fund
<PAGE>
Mutual Funds and More -- Brokerage and Guidance Services:
- ------------------------------------------------------------------------------------------------------------------------------
Scudder Brokerage Services Scudder Portfolio Builder
Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 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
800 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 $280 billion in
assets globally for mutual fund investors, retirement and pension plans,
institutional and corporate clients, insurance companies, and private family and
individual accounts.
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
[LOGO]
