Scudder
Capital Growth
Fund
Annual Report
September 30, 1995
o A fund designed to maximize long-term capital growth through a diversified
portfolio of growth-oriented common stocks.
o A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
<PAGE>
SCUDDER CAPITAL GROWTH FUND
IN BRIEF
* Scudder Capital Growth Fund returned a strong 21.96% for the 12 months
ended September 30, 1995, based on a $3.38 per share increase in net asset
value and a $0.73 per share capital gain distribution.
* The Fund adjusted its approach to pursuing capital appreciation during the
year, focusing on those stocks believed to be undervalued on the basis of
such analytical measures as price-to-cash-flow and price-to-earnings.
* The Fund's high concentrations of the past few years in such sectors as
communications, media, and retail were reduced during the year due to
valuation concerns and the uncertain prospects for continued earnings
growth in the months ahead.
* Holdings were also reduced in areas where earnings currently are strong but
stock prices are particularly sensitive to earnings disappointments, as is
the case with many technology stocks.
CONTENTS
2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
16 Financial Statements
19 Financial Highlights
20 Notes to Financial Statements
26 Report of Independent Accountants
27 Tax Information
29 Officers and Trustees
30 Investment Products
and Services
31 How to Contact
Scudder
2
<PAGE>
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
Falling interest rates, strong earnings growth, and a weak dollar
combined to create a favorable environment for the U.S. stock market in recent
months. Stock prices rallied sharply, and Scudder Capital Growth Fund returned
24.36% in the first nine months of 1995 and 21.96% for its full fiscal year.
As you know, the Fund adjusted its investment approach during the year
to include a greater emphasis on undervalued companies that historically have
provided above-average returns. A value-oriented approach is an attractive
strategy in any environment. However, after such impressive gains in stock
prices this year, we would not be surprised to see some correction related to
the potential for an economic slowdown. We believe that the long-term outlook
for U.S. equities remains favorable, characterized by low inflation, low
interest rates, and strong though slowing profit growth.
I would like to take this opportunity to announce the addition of Lois
Friedman to the Scudder Capital Growth Fund portfolio management team. Lois is a
Vice President of Scudder, Stevens & Clark, Inc. and a member of Scudder's
Global Equity Group. She joined Scudder in 1994 as a healthcare analyst,
covering the industry on a global basis. Prior to joining Scudder, she worked at
Putnam Investments, following the healthcare, restaurant, and supermarket
industries.
If you have questions about the Fund or your investments, please call a
Scudder Investor Relations representative at 1-800-225-2470. Page 31 provides
more information on how to contact Scudder. Thank you for choosing Scudder
Capital Growth Fund to help meet your investment needs.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Capital Growth Fund
3
<PAGE>
Scudder Capital Growth Fund
Performance Update as of September 30, 1995
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
Scudder Capital Growth Fund
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
9/30/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,196 21.96% 21.96%
5 Year $23,060 130.60% 18.19%
10 Year $40,205 302.05% 14.93%
S&P 500 Index
- --------------------------------------
Total Return
Period Growth --------------
Ended of Average
9/30/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,975 29.75% 29.75%
5 Year $22,143 121.43% 17.22%
10 Year $44,259 342.59% 16.03%
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:
Yearly periods ended September 30
Scudder Capital Growth Fund
Year Amount
- ----------------------
85 $10,000
86 $12,846
87 $17,860
88 $16,858
89 $24,284
90 $17,435
91 $25,428
92 $26,856
93 $34,600
94 $32,967
95 $40,205
S&P 500 Index
Year Amount
- ----------------------
85 $10,000
86 $13,174
87 $18,894
88 $16,558
89 $22,023
90 $19,988
91 $26,217
92 $29,114
93 $32,900
94 $34,112
95 $44,259
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 Over-The-Counter
market. 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 September 30
- ---------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
--------------------------------------------------------------------------------
Net Asset Value... $17.17 $20.41 $16.10 $22.30 $14.77 $19.30 $19.12 $23.06 $19.54 $22.92
Income Dividends.. $ .23 $ .23 $ .20 $ .07 $ .16 $ .37 $ .22 $ .10 $ -- $ --
Capital Gains
Distributions..... $ 1.88 $ 2.46 $ 2.38 $ .55 $ 1.45 $ 1.35 $ .98 $ 1.25 $ 2.62 $ .73
Fund Total
Return (%)........ 28.46 39.03 -5.61 44.05 -28.20 45.85 5.61 28.83 -4.72 21.96
Index Total
Return (%)........ 31.74 43.42 -12.39 32.95 -9.24 31.09 11.04 12.97 3.68 29.75
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
4
<PAGE>
Portfolio Summary as of September 30, 1995
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------
Equity Securities 97% The Fund has remained near
Fixed Income Securities 1% fully invested, given the
Cash Equivalents 2% dramatic rise in the U.S.
---- stock prices this year.
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
Sectors (Excludes Cash Equivalents and Debt)
- --------------------------------------------------------------------------
Financial 17%
Manufacturing 11%
Health 11% With the increasing likelihood
Consumer Staples 11% of an economic slowdown in 1996,
Energy 8% we have focused on traditional
Consumer Discretionary 8% growth sectors at the expense
Communications 8% of economically sensitive stocks.
Durables 6%
Service Industries 5%
Other 15%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------
1. Columbia/HCA Healthcare Corp.
Leading hospital management company
2. American Telephone & Telegraph Co.
Telecommunication services and business systems
3. Philip Morris Companies Inc.
Tobacco, food products and brewing
4. Aetna Life & Casualty Co.
Multiline insurance company
5. Exxon Corp.
International energy company
6. Bankers Trust New York Corp.
Commercial banking
7. RJR Nabisco Holdings Corp.
Manufacturer of tobacco and food products
8. Boeing Co.
Manufacturer of jet airplanes
9. Dillard Department Stores, Inc.
Department stores in southwest U.S.
10. Lockheed Martin Corp.
Manufacturer of aircraft, missiles and space equipment
Many of the Fund's ten largest holdings are companies that have
restructured or whose stocks are currently out of favor.
For more complete details about the Fund's Investment Portfolio,
see page 9.
A monthly Investment Portfolio Summary and quarterly Portfolio Holdings
are available upon request.
5
<PAGE>
SCUDDER CAPITAL GROWTH FUND
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
We are pleased to report a healthy 21.96% total return for Scudder
Capital Growth Fund during the 12 months ended September 30, 1995. The Fund's
net asset value rose $3.38 per share during the year to $22.92 at the end of
September, reflecting the strong rise in U.S. equity securities in 1995. Also
included in the return was a $0.73 per share capital gain distribution. For the
same time period the unmanaged S&P 500 Index returned 29.75%. While strong, the
Fund's return for the 12-month period lagged that of the S&P 500 largely due to
weak performance among its communications, media, gaming, and retail holdings in
late 1994 and early 1995.
In recent months, the stock market environment in the United States has
been influenced primarily by two factors: interest rates and earnings growth.
The fear of inflation all but disappeared this year, enabling interest rates to
decline. The Federal Reserve furthered this trend by lowering the federal funds
rate by 0.25% in July after a series of rate hikes in 1994 and early '95. Lower
rates have allowed companies to reduce their borrowing costs and increase their
investment in plants and equipment. Stock prices have risen sharply. On the
other hand, moderating growth in some pockets of the economy, the recent rise in
the value of the dollar (which impacts the earnings of U.S. companies that sell
or operate overseas), and heightened earnings expectations have made many stock
prices vulnerable to earnings disappointments.
Valuation and Profits Outlook
Prompts Change in Sector Allocation
While earnings have yet to show real signs of weakness, we believe the
slowing economy will eventually take its toll, and that earnings will
increasingly be revised downward over the next 12 months. Adding to the pressure
on earnings are deflationary forces such as improved technologies and increased
global competition, which have made price increases difficult or impossible and
have squeezed profit margins for manufacturers and retailers. As a result, we
trimmed areas where current valuations and earnings prospects no longer
supported overweighting. With the proceeds from these sales, the Fund bought
attractively valued stocks that we believe are less likely to suffer when
earnings turn down, as well as those we think will continue to produce strong
earnings growth despite a slowdown in economic activity. Recent purchases
include stocks in the financial, tobacco, aerospace, consumer staples, and
healthcare sectors.
6
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
So far the results of these changes have been positive. After lagging the S&P
500 in the first half of the fiscal year, the Fund has been an outperformer for
the six months ended September 30, 1995, with a 20.25% total return versus
18.25% for the unmanaged index.
The Fund's Sector Allocation Has Changed
Dramatically Over The Year
(Five Largest Sector Weightings Then and Now)
------------------------------------- ---------------------------------
9/30/94 9/30/95
------------------------------------- ---------------------------------
Consumer Discretionary 21% Financial 17%
------------------------------------- ---------------------------------
Media 20% Manufacturing 11%
------------------------------------- ---------------------------------
Communications 13% Health 11%
------------------------------------- ---------------------------------
Technology 9% Consumer Staples 11%
------------------------------------- ---------------------------------
Financial 8% Energy 8%
------------------------------------- ---------------------------------
Focusing on Undervalued Stocks
When selecting stocks for purchase, we have utilized traditional
valuation measures such as price-to-book, price-to-earnings, and
price-to-cash-flow, viewed against the industry in which a company operates and
against the stock's historic valuations. In addition, we look for companies
whose earnings are depressed, but whose prospects for future earnings growth are
good. Right now, these companies are hard to find. At this late stage in the
economic cycle, many companies are over-earning their historic averages and are
also overvalued -- but there are exceptions. Recent purchases include
BankAmerica Corp. and Liz Claiborne, which we think will excel despite a
less-than-rosy outlook for the retail sector as a whole; and Columbia
Healthcare, a stock that is reasonably valued and yet has the potential to
continue generating strong earnings gains through the acquisition of hospitals.
Additionally, we favored select insurance companies such as Aetna Life &
Casualty, due to the potential cost savings that could arise from restructuring
in that sector. Similarly, we purchased Lockheed Martin in the aerospace sector,
7
<PAGE>
PORTFOLIO MANAGEMENT DISCUSSION
because the company's recent merger with Martin Marietta has produced
substantial cost savings and freed cash for such things as stock buybacks.
When considering stocks for sale we have looked for extremes in
valuation, as in the case of Microsoft, which was trading at 40 times earnings
when we sold it. Overall, the Fund's technology weighting declined in recent
months from 9.0% of equity at the start of the period to 4.5% on September 30 --
despite a compelling case for the industry's long-term growth. After a very
strong run-up this year, we believe many technology stocks fully reflect their
near-term potential and are vulnerable to earnings disappointments. Of course,
there are exceptions here, too. Hewlett Packard, for example, has not enjoyed
the price gains of other stocks, yet the company displays the potential for
continued strong earnings growth.
Looking Ahead
Given the likelihood of an economic slowdown sometime in 1996, we
believe the Fund's defensive leaning, with its focus on companies that are
undervalued and thus less susceptible to earnings disappointments, is
appropriate. Moreover, our selection of traditionally less volatile growth
stocks (such as those in the consumer staples, healthcare, and financial service
sectors) should provide positive returns for the portfolio regardless of a
slowdown in economic activity. While the portfolio has been structured to
generate positive returns in a slowing economy, we have been careful to avoid
placing too large an emphasis on one sector over another. At this point, it is
still too early to tell which sectors will produce the best returns in the
months ahead.
Thank you for your continued interest in Scudder Capital Growth Fund.
Sincerely,
Your Portfolio Management Team
/s/Kathleen T. Millard /s/Lois R. Friedman
Kathleen T. Millard Lois R. Friedman
Scudder Capital Growth Fund:
A Team Approach to Investing
Scudder Capital Growth Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund's portfolio. They are supportd by Scudder's large staff
of economists, research analysts, traders, and other investment specialists
who work in Scudder's offices across the United States and abroad. We believe
our team approach benefits Fund investors by bringing together many disciplines
and leveraging Scudder's intensive resources.
Lead Portfolio Manager Kathleen T. Millard assumed responsibility for the
Fund's day-to-day management in 1995. Ms. Millard, who joined Scudder in 1991,
has been involved in the investment industry since 1983 and has worked as a
portfolio manager since 1986. Lois R. Friedman, Portfolio Manager, joined the
Fund in 1995 and Scudder in 1994 and has eight years of experience as an equity
analyst.
8
<PAGE>
INVESTMENT PORTFOLIO as of September 30, 1995
<TABLE>
<CAPTION>
% OF PRINCIPAL MARKET
PORTFOLIO AMOUNT ($) VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1.0% REPURCHASE AGREEMENT
14,335,000 Repurchase Agreement with UBS Securities
Inc. dated 9/29/95 at 6.05% to be
repurchased at $14,342,227 on 10/2/95,
collateralized by a $9,685,000
U.S. Treasury Note, 11.25%, 2/15/15
(Cost $14,335,000) . . . . . . . . . . . . . . . . 14,335,000
-----------
1.0% COMMERCIAL PAPER
FINANCIAL
OTHER FINANCIAL COMPANIES 15,000,000 Deutsche Bank Financial Inc., 5.75%, 10/10/95
(Cost $14,978,437) . . . . . . . . . . . . . . . . 14,978,437
-----------
1.0% FOREIGN BONDS - U.S. $ Denominated
2,500,000 Argentine Republic Step-Up Series L,
5%, 3/31/23 . . . . . . . . . . . . . . . . . . . 1,212,500
3,750,000 Argentine Republic Floating Rate Note,
6.81%, 3/31/05 . . . . . . . . . . . . . . . . . . 2,325,000
750,000 Federative Republic of Brazil Variable Rate
Par Bond, 4.25%, 4/15/24 . . . . . . . . . . . . . 363,750
593,750 Federative Republic of Brazil IDU,
Floating Rate Bond, 6.69%, 1/1/01. . . . . . . . . 503,203
2,125,000 Federative Republic of Brazil Floating Rate
Note, 7.25%, 4/15/06 . . . . . . . . . . . . . . . 1,413,125
2,000,000 Federative Republic of Brazil Floating Rate
Conversion Bond, 7.31%, 4/15/12. . . . . . . . . . 1,153,740
1,560,600 Federative Republic of Brazil Variable Rate
Conversion Bond "C", 6%, 4/15/14. . . . . . . . . . 829,069
250,000 Republic of Bulgaria Interest Arrears Floating
Rate Bond, 6.75%, 7/28/11 . . . . . . . . . . . . . 112,812
500,000 Republic of Bulgaria Floating Rate Note,
Tranche A, 6.75%, 7/28/24 . . . . . . . . . . . . . 253,750
2,042,972 Republic of Ecuador Global Floating Rate Bond,
4.28%, 2/27/15. . . . . . . . . . . . . . . . . . . 658,859
975,000 Republic of Ecuador Global Floating Rate Bond,
6.81%, 2/28/25. . . . . . . . . . . . . . . . . . . 477,750
1,500,000 Republic of Panama Floating Rate Note,
7.25%, 5/10/02. . . . . . . . . . . . . . . . . . . 1,211,250
2,625,000 Republic of Poland Floating Rate Step-Up Note,
3.25%, 10/27/14 . . . . . . . . . . . . . . . . . . 1,660,312
1,250,000 Republic of Poland Global Discount Floating
Rate Note, 7.13%, 10/27/24 . . . . . . . . . . . . 967,187
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
9
<PAGE>
SCUDDER CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
% OF PRINCIPAL MARKET
PORTFOLIO AMOUNT ($) VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1,500,000 Republic of Venezuela Collateralized Fixed
Rate Par Bond (Detachable Oil Price
Indexed Value Recovery Warrants),
Series A, 6.75%, 3/31/20 . . . . . . . . . . . . . 766,874
750,000 Republic of Venezuela Floating Rate Debt
Conversion Bond Series DL, 6.81%, 12/18/07 . . . . 377,813
1,000,000 United Mexican States Collateralized Fixed
Rate Par Bond (Detachable Oil Price
Indexed Value Recovery Rights),
Series A, 6.25%, 12/31/19 . . . . . . . . . . . . 608,750
1,500,000 United Mexican States Collateralized Fixed
Rate Par Bond (Detachable Oil Price
Indexed Value Recovery Rights),
Series B, 6.25%, 12/31/19 . . . . . . . . . . . . 913,125
-----------
Total Foreign Bonds - U.S.$ Denominated
(Cost $15,305,970) . . . . . . . . . . . . . . . . 15,808,869
-----------
0.0% FOREIGN BONDS - Non-U.S. $ Denominated
MXP 1,380,000 United Mexican States Treasury Bill, 12/28/95
(Cost $198,212) . . . . . . . . . . . . . . . . 198,897
-----------
1.4% CONVERTIBLE BOND
CONSUMER DISCRETIONARY 0.3%
DEPARTMENT & CHAIN STORES 4,000,000 Federated Department Stores, Inc.
debenture, 5%, 10/1/03 . . . . . . . . . . . . . . 4,080,000
-----------
SERVICE INDUSTRIES 1.1%
MISCELLANEOUS COMMERCIAL
SERVICES 37,000,000 ADT Operations Inc. LYON, 7/6/10 . . . . . . . . . . 16,187,500
-----------
Total Convertible Bonds (Cost $18,937,425) . . . . . 20,267,500
-----------
0.3% PREFERRED STOCKS
<CAPTION>
SHARES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL
BANKS 40,000 First Nationwide Bank, non-cum. 11.5%
(Cost $4,040,000) . . . . . . . . . . . . . . . . 4,440,000
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
10
<PAGE>
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
% OF MARKET
PORTFOLIO SHARES VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
95.3% COMMON STOCKS
CONSUMER DISCRETIONARY 7.6%
APPAREL & SHOES 1.4% 799,700 Liz Claiborne Inc. . . . . . . . . . . . . . . . . . 20,192,425
-----------
DEPARTMENT & CHAIN STORES 4.8% 134,200 Dayton Hudson Corp. . . . . . . . . . . . . . . . . 10,182,425
688,400 Dillard Department Stores, Inc. "A" . . . . . . . . 21,942,750
186,000 Federated Department Stores, Inc.* . . . . . . . . 5,277,750
315,600 J.C. Penney Co., Inc. . . . . . . . . . . . . . . . 15,661,650
266,700 May Department Stores . . . . . . . . . . . . . . . 11,668,125
280,000 Wal-Mart Stores Inc. . . . . . . . . . . . . . . . . 6,965,000
-----------
71,697,700
-----------
HOTELS & CASINOS 1.0% 618,500 Carnival Corp., Class A . . . . . . . . . . . . . . 14,844,000
-----------
RECREATIONAL PRODUCTS 0.4% 257,500 Acclaim Entertainment Inc.* . . . . . . . . . . . . 6,630,625
-----------
CONSUMER STAPLES 10.3%
ALCOHOL & TOBACCO 5.0% 293,600 Anheuser Busch Companies, Inc. . . . . . . . . . . . 18,313,300
394,600 Philip Morris Companies Inc. . . . . . . . . . . . . 32,949,100
710,100 RJR Nabisco Holdings Corp. . . . . . . . . . . . . . 22,989,488
-----------
74,251,888
-----------
FOOD & BEVERAGE 4.5% 245,600 Albertson's Inc. . . . . . . . . . . . . . . . . . . 8,381,100
341,600 American Stores Co. . . . . . . . . . . . . . . . . 9,692,900
377,000 ConAgra Inc. . . . . . . . . . . . . . . . . . . . . 14,938,625
250,500 General Mills, Inc. . . . . . . . . . . . . . . . . . 13,965,375
81,200 Hershey Foods Corp. . . . . . . . . . . . . . . . . . 5,227,250
300,900 PepsiCo Inc. . . . . . . . . . . . . . . . . . . . . . 15,345,900
-----------
67,551,150
-----------
PACKAGE GOODS/COSMETICS 0.8% 164,600 Clorox Co. . . . . . . . . . . . . . . . . . . . . . . 11,748,325
-----------
HEALTH 10.7%
BIOTECHNOLOGY 0.8% 200,000 Biogen Inc.* . . . . . . . . . . . . . . . . . . . . . 12,000,000
-----------
HOSPITAL MANAGEMENT 2.4% 735,500 Columbia/HCA Healthcare Corp. . . . . . . . . . . . . 35,763,687
-----------
MEDICAL SUPPLY & SPECIALTY 1.2% 235,700 Becton, Dickinson & Co. . . . . . . . . . . . . . . 14,819,637
121,400 Bergen Brunswig Corp. "A". . . . . . . . . . . . . . . 2,594,925
-----------
17,414,562
-----------
PHARMACEUTICALS 6.3% 184,100 American Home Products Corp. . . . . . . . . . . . . . 15,625,487
413,100 BioChem Pharma, Inc.*. . . . . . . . . . . . . . . . . 13,167,562
281,500 Carter-Wallace Inc. . . . . . . . . . . . . . . . . . 3,518,750
159,900 Eli Lilly Co. . . . . . . . . . . . . . . . . . . . . 14,371,013
280,000 Merck & Co. Inc. . . . . . . . . . . . . . . . . . . . 15,680,000
309,900 Schering-Plough Corp. . . . . . . . . . . . . . . . . 15,959,850
315,400 SmithKline Beecham PLC (ADR) . . . . . . . . . . . . . 15,967,125
-----------
94,289,787
-----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
<PAGE>
SCUDDER CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
% OF MARKET
PORTFOLIO SHARES VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMUNICATIONS 7.4%
CELLULAR TELEPHONE 0.6% 240,755 Associated Group, Inc. "A"* . . . . . . . . . . . . 4,995,666
178,455 Associated Group, Inc. "B"* . . . . . . . . . . . . 3,702,941
-----------
8,698,607
-----------
TELEPHONE/COMMUNICATIONS 6.8% 540,500 American Telephone & Telegraph Co. . . . . . . . . . 35,537,875
146,900 Bell Atlantic Corp. . . . . . . . . . . . . . . . . 9,015,987
302,200 Century Telephone Enterprises . . . . . . . . . . . 9,179,325
356,500 GTE Corp. . . . . . . . . . . . . . . . . . . . . . 13,992,625
553,000 MCI Communications Corp. . . . . . . . . . . . . . . 14,412,563
282,500 Sprint Corp. . . . . . . . . . . . . . . . . . . . . 9,887,500
383,000 Tele Danmark A/S (ADR) . . . . . . . . . . . . . . . 9,910,125
-----------
101,936,000
-----------
FINANCIAL 16.3%
BANKS 4.8% 123,600 BankAmerica Corp. . . . . . . . . . . . . . . . . . 7,400,550
363,900 Bankers Trust New York Corp. . . . . . . . . . . . . 25,563,975
236,000 Citicorp . . . . . . . . . . . . . . . . . . . . . . 16,697,000
238,600 Golden West Financial Corp. . . . . . . . . . . . . 12,049,300
342,100 PNC Bank Corp. . . . . . . . . . . . . . . . . . . . 9,536,038
-----------
71,246,863
-----------
INSURANCE 8.2% 404,500 Aetna Life & Casualty Co. . . . . . . . . . . . . . 29,680,187
382,100 Allstate Corp. . . . . . . . . . . . . . . . . . . . 13,516,787
222,900 American International Group, Inc. . . . . . . . . . 18,946,500
262,500 EXEL, Ltd. . . . . . . . . . . . . . . . . . . . . . 15,257,813
99,000 General Re Corp. . . . . . . . . . . . . . . . . . . 14,949,000
114,500 Liberty Corp. . . . . . . . . . . . . . . . . . . . 3,721,250
179,600 MBIA Inc. . . . . . . . . . . . . . . . . . . . . . 12,661,800
194,800 PMI Group, Inc. . . . . . . . . . . . . . . . . . . 9,228,650
85,700 UNUM Corp. . . . . . . . . . . . . . . . . . . . . . 4,520,675
-----------
122,482,662
-----------
OTHER FINANCIAL COMPANIES 3.3% 205,200 Federal National Mortgage Association . . . . . . . 21,238,200
173,700 Salomon Inc. . . . . . . . . . . . . . . . . . . . . 6,644,025
401,800 Student Loan Marketing Association . . . . . . . . . 21,697,200
-----------
49,579,425
-----------
MEDIA 3.0%
BROADCASTING &
ENTERTAINMENT 1.8% 321,500 Time Warner Inc. . . . . . . . . . . . . . . . . . . 12,779,625
288,174 Viacom Inc. "B"* . . . . . . . . . . . . . . . . . . 14,336,657
-----------
27,116,282
-----------
CABLE TELEVISION 0.8% 575,950 Comcast Corp. "A" . . . . . . . . . . . . . . . . . 11,519,000
-----------
PRINT MEDIA 0.4% 218,100 Times Mirror Co. "A" . . . . . . . . . . . . . . . . 6,270,375
-----------
SERVICE INDUSTRIES 3.3%
EDP SERVICES 1.1% 190,500 Automatic Data Processing, Inc. . . . . . . . . . . 12,977,812
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
12
<PAGE>
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
% OF MARKET
PORTFOLIO SHARES VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
83,700 General Motors Corp. "E" . . . . . . . . . . . . . . 3,808,350
-----------
16,786,162
-----------
INVESTMENT 0.7% 184,700 Franklin Resources Inc. . . . . . . . . . . . . . . 10,643,337
-----------
MISCELLANEOUS CONSUMER
SERVICES 1.0% 395,300 H & R Block Inc. . . . . . . . . . . . . . . . . . 15,021,400
-----------
PRINTING/PUBLISHING 0.5% 144,700 Reuters Holdings PLC "B" (ADR) . . . . . . . . . . . 7,651,013
-----------
DURABLES 5.8%
AEROSPACE 5.0% 220,000 Aviall, Inc. . . . . . . . . . . . . . . . . . . . 1,897,500
336,000 Boeing Co. . . . . . . . . . . . . . . . . . . . . 22,932,000
326,700 Lockheed Martin Corp. . . . . . . . . . . . . . . . 21,929,738
792,000 Rohr Industries Inc.* . . . . . . . . . . . . . . . 12,870,000
172,600 United Technologies Corp. . . . . . . . . . . . . . 15,253,525
-----------
74,882,763
-----------
AUTOMOBILES 0.8% 256,300 General Motors Corp. . . . . . . . . . . . . . . . 12,014,062
-----------
MANUFACTURING 11.0%
CHEMICALS 3.2% 191,700 B.F. Goodrich Co., Inc. . . . . . . . . . . . . . . 12,628,238
183,300 Dow Chemical Co. . . . . . . . . . . . . . . . . . 13,655,850
108,800 E.I. du Pont de Nemours & Co. . . . . . . . . . . . 7,480,000
535,600 Praxair Inc. . . . . . . . . . . . . . . . . . . . 14,327,300
-----------
48,091,388
-----------
CONTAINERS & PAPER 2.9% 232,600 International Paper Co. . . . . . . . . . . . . . . 9,769,200
468,800 James River Corp. of Virginia . . . . . . . . . . . 15,001,600
278,600 Kimberly-Clark Corp. . . . . . . . . . . . . . . . 18,701,025
-----------
43,471,825
-----------
DIVERSIFIED MANUFACTURING 3.2% 396,700 Canadian Pacific Ltd. . . . . . . . . . . . . . . . 6,347,200
289,300 General Electric Co. . . . . . . . . . . . . . . . . 18,442,875
83,500 Honeywell, Inc. . . . . . . . . . . . . . . . . . . 3,580,063
59,700 Olin Corp. . . . . . . . . . . . . . . . . . . . . . 4,104,375
142,000 Textron, Inc. . . . . . . . . . . . . . . . . . . . 9,691,500
104,550 Thermo Electron Corp.* . . . . . . . . . . . . . . 4,848,506
-----------
47,014,519
-----------
ELECTRICAL PRODUCTS 0.9% 263,700 Philips NV (New York shares) . . . . . . . . . . . . 12,855,375
-----------
SPECIALTY CHEMICALS 0.8% 301,600 Betz Laboratories Inc. . . . . . . . . . . . . . . . 12,327,900
-----------
TECHNOLOGY 4.3%
EDP PERIPHERALS 0.2% 222,900 Intergraph Corp.* . . . . . . . . . . . . . . . . . 2,702,663
-----------
ELECTRONIC COMPONENTS/
DISTRIBUTORS 0.7% 120,000 AMP Inc. . . . . . . . . . . . . . . . . . . . . . . 4,620,000
102,900 Avnet, Inc. . . . . . . . . . . . . . . . . . . . . 5,312,212
118 Samsung Electronics Co., Ltd. (b)* . . . . . . . . 28,128
-----------
9,960,340
-----------
ELECTRONIC DATA PROCESSING 1.9% 118,800 Compaq Computers Corp.* . . . . . . . . . . . . . . 5,746,950
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
13
<PAGE>
SCUDDER CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
% OF MARKET
PORTFOLIO SHARES VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
160,000 Digital Equipment Corp.* . . . . . . . . . . . . . . 7,300,000
88,200 Hewlett-Packard Co. . . . . . . . . . . . . . . . . 7,353,675
77,700 International Business Machines Corp. . . . . . . . 7,332,938
-----------
27,733,563
-----------
MILITARY ELECTRONICS 0.7% 187,300 Loral Corp. . . . . . . . . . . . . . . . . . . . . 10,676,100
-----------
OFFICE/PLANT AUTOMATION 0.6% 150,800 Cabletron Systems Inc.* . . . . . . . . . . . . . . 9,933,950
-----------
PRECISION INSTRUMENTS 0.2% 103,500 Perkin-Elmer Corp. . . . . . . . . . . . . . . . . . 3,687,188
-----------
ENERGY 8.0%
ENGINEERING 0.4% 175,800 Foster Wheeler Corp. . . . . . . . . . . . . . . . . 6,218,925
-----------
OIL & GAS PRODUCTION 0.7% 230,500 Triton Energy Corp. . . . . . . . . . . . . . . . . 11,150,438
-----------
OIL COMPANIES 5.4% 115,800 Amoco Corp. . . . . . . . . . . . . . . . . . . . . 7,425,675
200,000 Chevron Corp. . . . . . . . . . . . . . . . . . . . 9,725,000
392,600 Exxon Corp. . . . . . . . . . . . . . . . . . . . . 28,365,350
147,900 Mobil Corp. . . . . . . . . . . . . . . . . . . . . 14,734,538
34,000 Royal Dutch Petroleum Co. . . . . . . . . . . . . . 4,178,272
26,000 Royal Dutch Petroleum Co. (New York shares) . . . . 3,191,500
706,200 YPF SA "D" (ADR) . . . . . . . . . . . . . . . . . . 12,711,600
-----------
80,331,935
-----------
OIL/GAS TRANSMISSION 0.5% 214,400 Enron Corp. . . . . . . . . . . . . . . . . . . . . 7,182,400
-----------
OILFIELD
SERVICES/EQUIPMENT 1.0% 492,500 Baker Hughes, Inc. . . . . . . . . . . . . . . . . 10,034,688
69,600 Schlumberger Ltd. . . . . . . . . . . . . . . . . . 4,541,400
-----------
14,576,088
-----------
METALS & MINERALS 1.7%
STEEL & METALS 425,600 Freeport McMoRan Copper & Gold, Inc. "A" . . . . . . 10,906,000
27,500 Nucor Corp. . . . . . . . . . . . . . . . . . . . . 1,230,625
224,100 Reynolds Metals Co. . . . . . . . . . . . . . . . . 12,941,775
-----------
25,078,400
-----------
CONSTRUCTION 0.6%
FOREST PRODUCTS 346,500 Louisiana-Pacific Corp. . . . . . . . . . . . . . . 8,359,313
-----------
TRANSPORTATION 1.3%
AIRLINES 0.4% 86,000 AMR Corp.* . . . . . . . . . . . . . . . . . . . . . 6,202,750
-----------
RAILROADS 0.9% 201,500 Consolidated Rail Corp. . . . . . . . . . . . . . . 13,853,125
-----------
UTILITIES 4.0%
ELECTRIC UTILITIES 9,999,992 Companhia Energetica de Minas Gerais (pfd.) . . . . 223,493
386,200 Destec Energy Inc.* . . . . . . . . . . . . . . . . 5,793,000
120,000 Korea Electric Power Co. . . . . . . . . . . . . . . 4,514,449
333,300 PacifiCorp . . . . . . . . . . . . . . . . . . . . . 6,332,700
1,023,800 PowerGen PLC . . . . . . . . . . . . . . . . . . . . 8,920,810
533,000 Public Service Co. of New Mexico* . . . . . . . . . 8,727,875
334,400 Southern Company . . . . . . . . . . . . . . . . . . 7,900,200
120,000 TNP Enterprises Inc. . . . . . . . . . . . . . . . 2,130,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
14
<PAGE>
INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
MARKET
SHARES VALUE ($)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
171,100 Texas Utilities Co., Inc. . . . . . . . . . . . . . 5,967,113
319,700 Unicom Corp. . . . . . . . . . . . . . . . . . . . . 9,670,925
-------------
60,180,565
-------------
Total Common Stocks
(Cost $1,281,927,331) . . . . . . . . . . . . . . 1,423,820,850
-------------
- -------------------------------------------------------------------------------------------------------------------------------
Total Investment Portfolio -- 100.0%
(Cost $1,349,722,375) (a) . . . . . . . . . . . . 1,493,849,553
-------------
-------------
</TABLE>
(a) The cost for federal income tax purposes was $1,352,520,012. At
September 30, 1995, net unrealized appreciation for all securities based on
tax cost was $141,329,541. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $155,503,056 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $14,173,515.
(b) Securities valued in good faith by the Valuation Committee of the Board of
Trustees. The cost of these securities at September 30, 1995 aggregated
$12,935. See Note A of the Notes to Financial Statements.
* Non-income producing security.
At September 30, 1995, outstanding written call options were as follows
(Note A):
<TABLE>
<CAPTION>
NUMBER OF EXPIRATION STRIKE MARKET
CONTRACTS DATE PRICE VALUE ($)
-----------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 Index . . . . . . . . 1,000 Oct. 95 555 3,087,500
S&P 500 Index . . . . . . . . 2,000 Oct. 95 570 3,800,000
S&P 500 Index . . . . . . . . 2,000 Nov. 95 575 3,325,000
S&P 500 Index . . . . . . . . 1,000 Nov. 95 580 1,500,000
----------
Total outstanding written options (Premiums received $9,993,236). . . 11,712,500
----------
----------
</TABLE>
Transactions in written call options during the year ended September 30,
1995 were as follows:
<TABLE>
<CAPTION>
PREMIUMS
NUMBER OF CONTRACTS RECEIVED ($)
--------------------------------------
<S> <C> <C>
Outstanding at
September 30, 1994 . . . . . . . . . -- --
Contracts written . . . . . . . . . 24,000 26,479,814
Contracts closed . . . . . . . . . (17,500) (16,410,456)
Contracts expired . . . . . . . . . (500) (76,122)
--------------------------------------
Outstanding at
September 30, 1995 . . . . . . . . . 6,000 9,993,236
----- ----------
----- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
15
<PAGE>
SCUDDER CAPITAL GROWTH FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at market (identified cost $1,349,722,375)
(Note A)............................................. $ 1,493,849,553
Cash......................................................... 371
Receivables:
Investments sold..................................... 81,545,920
Dividends and interest............................... 3,541,455
Fund shares sold..................................... 738,057
Other assets................................................. 6,146
--------------
Total assets................................. 1,579,681,502
LIABILITIES
Payables:
Investments purchased................................ $74,367,439
Fund shares redeemed................................. 558,202
Accrued management fee (Note C)...................... 824,204
Other accrued expenses (Note C)...................... 549,793
Written options, at market (premiums
received $9,993,236) (Note A)................ 11,712,500
-----------
Total liabilities............................ 88,012,138
--------------
Net assets, at market value.................................. $1,491,669,364
--------------
--------------
NET ASSETS
Net assets consist of:
Unrealized appreciation (depreciation) on:
Investments.................................. $ 144,127,178
Written Options.............................. (1,719,264)
Foreign currency related transactions........ (19,590)
Accumulated net realized gain........................ 225,320,575
Shares of beneficial interest........................ 650,789
Additional paid-in capital........................... 1,123,309,676
--------------
Net assets, at market value.................................. $1,491,669,364
--------------
--------------
Net asset value, offering and redemption price per
share ($1,491,669,364 DIVIDED BY 65,078,938
outstanding shares of beneficial interest,
$.01 par value, unlimited number of shares authorized)....... $22.92
------
------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
16
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $295,631)........ $ 18,582,279
Interest..................................................... 3,107,159
------------
21,689,438
Expenses:
Management fee (Note C)...................................... $ 9,118,015
Services to shareholders (Note C)............................ 3,080,572
Custodian and accounting fees (Note C)....................... 413,975
Trustees' fees (Note C)...................................... 42,609
Reports to shareholders...................................... 413,706
Auditing..................................................... 48,638
State registration........................................... 33,175
Legal........................................................ 17,643
Other........................................................ 72,858 13,241,191
------------ ------------
Net investment income........................................ 8,448,247
------------
Net realized and unrealized gain (loss) on
investment transactions
Net realized gain (loss) from:
Investments.......................................... 248,304,942
Options.............................................. (15,247,243)
Foreign currency related transactions................ (104,594) 232,953,105
------------
Net unrealized appreciation (depreciation) during
the period on:
Investments.......................................... 34,582,456
Written Options...................................... (1,719,264)
Foreign currency related transactions................ (19,590) 32,843,602
------------ ------------
Net gain on investment transactions.......................... 265,796,707
------------
Net increase in net assets resulting from operations......... $274,244,954
------------
------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
17
<PAGE>
SCUDDER CAPITAL GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years Ended September 30,
----------------------------
INCREASE (DECREASE) IN NET ASSETS 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss)................................ $ 8,448,247 $ (1,586,189)
Net realized gain from investment transactions.............. 232,953,105 82,893,794
Net unrealized appreciation (depreciation) on
investment transactions during the period........... 32,843,602 (146,799,743)
------------- --------------
Net increase (decrease) in net assets
resulting from operations........................... 274,244,954 (65,492,138)
------------- --------------
Distributions to shareholders from
net realized gains ($.73 and $2.62
per share, respectively)............................ (48,924,819) (156,922,223)
-------------- --------------
Fund share transactions:
Proceeds from shares sold................................... 198,066,318 406,188,595
Net asset value of shares issued to
shareholders in reinvestment of
distributions....................................... 47,065,999 150,450,426
Cost of shares redeemed..................................... (317,084,600) (383,278,397)
-------------- --------------
Net increase (decrease) in net assets from
Fund share transactions............................. (71,952,283) 173,360,624
-------------- --------------
Increase (decrease) in net assets........................... 153,367,852 (49,053,737)
Net assets at beginning of period........................... 1,338,301,512 1,387,355,249
-------------- --------------
Net assets at end of period (including
accumulated net investment loss of
$59,464 in 1994).................................... $1,491,669,364 $1,338,301,512
-------------- --------------
-------------- --------------
Other Information
Increase (decrease) in Fund shares
Shares outstanding at beginning of period................... 68,475,991 60,171,937
-------------- --------------
Shares sold................................................. 9,981,199 19,506,116
Shares issued to shareholders in reinvestment
of distributions.................................... 2,577,547 7,147,289
Shares redeemed............................................. (15,955,799) (18,349,351)
-------------- --------------
Net increase (decrease) in Fund shares...................... (3,397,053) 8,304,054
-------------- --------------
Shares outstanding at end of period......................... 65,078,938 68,475,991
-------------- --------------
-------------- --------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
18
<PAGE>
FINANCIAL HIGHLIGHTS
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD AND OTHER PERFORMANCE INFORMATION DERIVED FROM THE FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------------------------------------------------
1995 1994 1993(b) 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . . . . . $19.54 $23.06 $19.12 $19.30 $14.77 $22.30 $16.10 $20.41 $17.17 $15.35
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment
income (loss) . . . . . .13 (.02) .06 .12 .20 .30(a) .21 .09 .16 .26
Net realized and
unrealized gain (loss)
on investment
transactions . . . . . . 3.98 (.88) 5.23 .90 6.05 (6.22) 6.61 (1.82) 5.77 3.67
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations . . . . . . . 4.11 (.90) 5.29 1.02 6.25 (5.92) 6.82 (1.73) 5.93 3.93
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment
income . . . . . . . . . -- -- (.10) (.22) (.37) (.16) (.07) (.20) (.23) (.23)
Net realized gains
on investment
transactions . . . . . . (.73) (2.62) (1.25) (.98) (1.35) (1.45) (.55) (2.38) (2.46) (1.88)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions. . . . . . . (.73) (2.62) (1.35) (1.20) (1.72) (1.61) (.62) (2.58) (2.69) (2.11)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period . . . . . . . . $22.92 $19.54 $23.06 $19.12 $19.30 $14.77 $22.30 $16.10 $20.41 $17.17
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Return (%) . . . . . . . . 21.96 (4.72) 28.83 5.61 45.85 (28.20) 44.05 (5.61) 39.03 28.46
Ratios and
Supplemental Data
Net assets, end of
period ($ millions) . . . . . 1,492 1,338 1,387 1,054 1,058 712 1,013 491 583 414
Ratio of operating
expenses to average
net assets (%). . . . . . . . .98 .97 .96 .98 1.04 .94 .88 .95 .88 .84
Ratio of net
investment income
(loss) to average
net assets (%). . . . . . . . .62 (.12) .22 .57 1.24 1.56 1.22 .63 .86 1.50
Portfolio turnover
rate (%). . . . . . . . . . . 153.6 75.8 92.2 92.4 93.2 87.9 55.7 48.5 58.2 55.8
</TABLE>
(a) Net investment income per share includes nonrecurring dividend income
amounting to $.14 per share.
(b) Effective October 1, 1992, the Fund discontinued using equalization
accounting.
19
<PAGE>
SCUDDER CAPITAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
Scudder Capital Growth Fund (the "Fund") is a diversified series of Scudder
Equity Trust (the "Trust"). The Trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The policies described
below are followed consistently by the Fund in the preparation of its
financial statements in conformity with generally accepted accounting
principles.
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
National Association of Securities Dealers Automatic Quotation ("NASDAQ")
System, for which there have been sales, are valued at the most recent sale
price reported on such system. If there are no such sales, the value is the
high or "inside" bid quotation. Securities which are not quoted on the NASDAQ
System but are traded in another over-the-counter market are valued at the
most recent sale price on such market. If no sale occurred, the security is
then valued at the calculated mean between the most recent bid and asked
quotations. If there are no such bid and asked
quotations, the most recent bid quotation shall be used.
Portfolio debt securities with remaining maturities greater than sixty days
are valued by pricing agents approved by the officers of the Fund, which
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market
maker shall be used. Short-term investments having a maturity of sixty days
or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good
faith by the Valuation Committee of the Board of Trustees. Securities valued
in good faith by the Valuation Committee of the Board of Trustees at fair
value amounted to $28,128 (less than .01% of net assets) and have been noted
in the investment portfolio as of September 30, 1995.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OPTIONS. An option contract is a contract in which the writer of the option
grants the buyer of the option the right to purchase from (call option), or
sell to (put option), the writer a designated instrument at a specified price
within a specified period of time. Certain options, including options on
indices, will require cash settlement by the Fund if the option is exercised.
During the period, the Fund purchased put options and wrote call options on
other financial instruments as a hedge against potential adverse price
movements in the value of portfolio assets.
If the Fund writes an option and the option expires unexercised, the Fund
will realize income, in the form of a capital gain, to the extent of the
amount received for the option (the "premium"). If the Fund elects to close
out the option it would recognize a gain or loss based on the difference
between the cost of closing the option and the initial premium received. If
the Fund purchased an option and allows the option to expire it would realize
a loss to the extent of the premium paid. If the Fund elects to close out the
option it would recognize a gain or loss equal to the difference between the
cost of acquiring the option and the amount realized upon the sale of the
option.
The gain or loss recognized by the Fund upon the exercise of a written call
or purchased put option is adjusted for the amount of option premium. If a
written put or purchased call option is exercised the Fund's cost basis of
the acquired security or currency would be the exercise price adjusted for
the amount of the option premium.
The liability representing the Fund's obligation under an exchange traded
written option or investment in a purchased option is valued at the last sale
price or, in the absence of a sale, the mean between the closing bid and
asked price or at the most recent asked price (bid for purchased options) if
no bid and asked price are available. Over-the-counter written or purchased
options are valued using dealer supplied quotations.
When the Fund writes a covered call option, the Fund foregoes, in exchange
for the premium, the opportunity to profit during the option period from an
increase in the market value of the underlying security or currency above the
exercise price. When the Fund writes a put option it accepts the risk of a
decline in the market value of the underlying security or currency below the
exercise price. Over-the-counter options have the risk of the potential
inability of counterparties to meet the terms of their contracts. The Fund's
21
<PAGE>
SCUDDER CAPITAL GROWTH FUND
maximum exposure to purchased options is limited to the premium initially
paid. In addition, certain risks may arise upon entering into option
contracts including the risk that an illiquid secondary market will limit the
Fund's ability to close out an option contract prior to the expiration date
and, that a change in the value of the option contract may not correlate
exactly with changes in the value of the securities or currencies hedged.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the
time of purchase and each subsequent business day is required to be
maintained at such a level that the market value, depending on the maturity
of the repurchase agreement and the underlying collateral, is equal to at
least 100.5% of the resale price.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract (forward contract) is a commitment to purchase or sell a
foreign currency at the settlement date at a negotiated rate. During the
period, the Fund utilized forward contracts as a hedge in connection with
portfolio purchases and sales of securities denominated in foreign currencies.
Forward contracts are valued at the prevailing forward exchange rate of the
underlying currencies and unrealized gain/loss is recorded daily. Forward
contracts having the same settlement date and broker are offset and any gain
(loss) is realized on the date of offset; otherwise, gain (loss) is realized
on settlement date. Realized and unrealized gains and losses which represent
the difference between the value of the forward contract to buy and the
forward contract to sell are included in net realized and unrealized gain
(loss) from foreign currency related transactions.
Certain risks may arise upon entering into forward contracts from the
potential inability of counterparties to meet the terms of their contracts.
Additionally, when utilizing forward contracts to hedge, the Fund gives up
the opportunity to profit from favorable exchange rate movements during the
term of the contract.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are
maintained in U.S. dollars. Foreign currency transactions are translated into
U.S. dollars on the following basis:
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(i) market value of investment securities, other assets and other
liabilities at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on the
respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included
with the net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment
companies and to distribute all of its taxable income to its shareholders.
Accordingly, the Fund paid no federal income taxes and no federal income tax
provision was required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax. Earnings
and profits distributed to shareholders on redemption of Fund shares ("tax
equalization") may be utilized by the Fund, to the extent permissible, as
part of the Fund's dividends paid deduction on its federal tax return.
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.
The differences primarily relate to foreign denominated investments,
investments in options, and deferral of certain losses for tax purposes. As a
result, net investment income (loss) and net realized gain (loss) on
investment transactions for a reporting period may differ
23
<PAGE>
SCUDDER CAPITAL GROWTH FUND
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.
OTHER. Investment security transactions are accounted for on a trade-date
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on an accrual basis. Original
issue discounts and market discounts are accreted for both tax and financial
reporting purposes.
B. PURCHASES AND SALES OF SECURITIES
During the year ended September 30, 1995, purchases and sales of investment
securities (excluding short-term investments) aggregated $2,042,293,094 and
$2,182,986,483, respectively.
C. RELATED PARTIES
Under the Fund's Investment Management Agreement (the "Agreement") with
Scudder, Stevens & Clark, Inc. (the "Adviser"), the Fund agrees to pay to the
Adviser a fee equal to an annual rate of approximately 0.75% of the first
$500,000,000 of average daily net assets, 0.65% of the next $500,000,000 of
such net assets and 0.60% of such net assets in excess of $1,000,000,000,
computed and accrued daily and payable monthly. As manager of the assets of
the Fund, the Adviser directs the investments of the Fund in accordance with
its investment objectives, policies, and restrictions. The Adviser determines
the securities, instruments, and other contracts relating to investments to
be purchased, sold or entered into by the Fund. In addition to portfolio
management services, the Adviser provides certain administrative services in
accordance with the Agreement. The Agreement also provides that if the Fund's
expenses, exclusive of taxes, interest, and extraordinary expenses, exceed
specified limits, such excess, up to the amount of the management fee, will
be paid by the Adviser. For the year ended September 30, 1995, the fee
pursuant to the Agreement amounted to $9,118,015 which was equivalent to an
annual effective rate of 0.67% of the Fund's average daily net assets.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the
Adviser, is the transfer, dividend paying and shareholder service agent for
the Fund. Included in services to shareholders is $2,650,164 charged to the
Fund by SSC for the year ended September 30, 1995, of which $292,229 is
unpaid at September 30, 1995.
Effective October 18, 1994, Scudder Fund Accounting Corporation ("SFAC"), a
wholly-owned subsidiary of the Adviser, assumed responsibility for
determining the daily net asset value per share and maintaining the portfolio
and general accounting records of the Fund. For the year ended September 30,
1995, the amount charged to the Fund by SFAC aggregated $152,460, of which
$28,581 is unpaid at September 30, 1995.
The Fund pays each of its Trustees not affiliated with the Adviser $4,000
annually plus specified amounts for attended board and committee meetings.
For the year ended September 30, 1995, Trustees' fees aggregated $42,609.
25
<PAGE>
SCUDDER CAPITAL GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF SCUDDER EQUITY TRUST AND THE SHAREHOLDERS OF SCUDDER
CAPITAL GROWTH FUND:
We have audited the accompanying statement of assets and liabilities of
Scudder Capital Growth Fund, including the investment portfolio, as of
September 30, 1995, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the ten years
in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 1995 by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Capital Growth Fund as of September 30, 1995, the results of its
operations for the year 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 ten years in the period then ended, in conformity with generally
accepted accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
November 6, 1995
26
<PAGE>
TAX INFORMATION
The Fund paid distributions of $.575 per share from long-term capital gains
during its taxable year ended September 30, 1995. Pursuant to section 852 of
the Internal Revenue Code, the Fund designates $181,100,000 as capital gain
dividends for the year ended September 30, 1995.
Pursuant to section 854 of the Internal Revenue Code, the Fund designates
$15,681,157 as dividends eligible for the dividends received deduction for
corporations for the year ended September 30, 1995.
27
<PAGE>
(This page intentionally left blank.)
28
<PAGE>
OFFICERS AND TRUSTEES
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and Consultant
Thomas J. Devine
Trustee; Consultant
David S. Lee*
Vice President and Trustee
Douglas M. Loudon*
Vice President and Trustee
Dr. Wilson Nolen
Trustee; Consultant
Juris Padegs*
Vice President and Trustee
Dr. Gordon Shillinglaw
Trustee; Professor Emeritus of Accounting, Columbia University Graduate
School of Business
Robert G. Stone, Jr.
Trustee; Chairman of the Board and Director, Kirby Corporation
Robert W. Lear
Honorary Trustee; Executive-in-Residence, Visiting Professor,
Columbia University Graduate School of Business
Donald E. Hall*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Kathleen T. Millard*
Vice President
Thomas F. McDonough*
Vice President, Secretary and Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Vice President and Assistant Secretary
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
29
<PAGE>
<TABLE>
INVESTMENT PRODUCTS AND SERVICES
The Scudder Family of Funds
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Money Market Income
Scudder Cash Investment Trust Scudder Emerging Markets Income Fund
Scudder U.S. Treasury Money Fund Scudder GNMA Fund
Tax Free Money Market+ Scudder Income Fund
Scudder Tax Free Money Fund Scudder International Bond Fund
Scudder California Tax Free Money Fund* Scudder Short Term Bond Fund
Scudder New York Tax Free Money Fund* Scudder Short Term Global Income Fund
Tax Free+ Scudder Zero Coupon 2000 Fund
Scudder California Tax Free Fund* Growth
Scudder High Yield Tax Free Fund Scudder Capital Growth Fund
Scudder Limited Term Tax Free Fund Scudder Development Fund
Scudder Managed Municipal Bonds Scudder Global Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Global Small Company Fund
Scudder Massachusetts Tax Free Fund* Scudder Gold Fund
Scudder Medium Term Tax Free Fund Scudder Greater Europe Growth Fund
Scudder New York Tax Free Fund* Scudder International Fund
Scudder Ohio Tax Free Fund* Scudder Latin America Fund
Scudder Pennsylvania Tax Free Fund* Scudder Pacific Opportunities Fund
Growth and Income Scudder Quality Growth Fund
Scudder Balanced Fund Scudder Small Company Value Fund
Scudder Growth and Income Fund Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
- -----------------------------------------------------------------------------------------------------------------
IRAs 403(b) Plans
Keogh Plans SEP-IRAs
Scudder Horizon Plan+++* (a variable annuity) Profit Sharing and Money Purchase
401(k) Plans Pension Plans
Closed-End Funds#
- -----------------------------------------------------------------------------------------------------------------
The Argentina Fund, Inc. The Latin America Dollar Income Fund, Inc.
The Brazil Fund, Inc. Montgomery Street Income Securities, Inc.
The First Iberian Fund, Inc. Scudder New Asia Fund, Inc.
The Korea Fund, Inc. Scudder New Europe Fund, Inc.
Scudder World Income
Opportunities Fund, Inc.
Institutional Cash Management
- -----------------------------------------------------------------------------------------------------------------
Scudder Institutional Fund, Inc. Scudder Treasurers Trust(TM)++
Scudder Fund, Inc.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *Not
available in all states. +++A no-load variable annuity contract provided by
Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder, Stevens & Clark, Inc. are traded on various stock exchanges. ++For
information on Scudder Treasurers Trust,(TM) an institutional cash
management service that utilizes certain portfolios of Scudder Fund, Inc.
($100,000 minimum), call 1-800-541-7703.
30
<PAGE>
HOW TO CONTACT SCUDDER
<TABLE>
<S> <C>
Account Service and Information
- -------------------------------------------------------------------------------------------------------------
For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163
For personalized information about your Scudder accounts;
exchanges and redemptions; or information on any Scudder fund
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
- -------------------------------------------------------------------------------------------------------------
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR RELATIONS
1-800-225-2470
For establishing 401(k) and 403(b) plans
SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105
Please address all correspondence to
- -------------------------------------------------------------------------------------------------------------
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
- -------------------------------------------------------------------------------------------------------------
Many shareholders enjoy the personal,
one-on-one service of the Scudder Funds
Centers. Check for a Funds Center near
you--they can be found in the following
cities:
Boca Raton New York
Boston Portland, OR
Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale
-------------------------------------------------------------------------------------------------------------
For information on Scudder Trea- For information on Scudder
surers Trust,(TM) an institutional Institutional Funds,* funds
cash management service for designed to meet the broad
corporations, non-profit organiza- investment management
tions and trusts that uses certain and service needs of banks
portfolios of Scudder Fund, Inc.* and other institutions, call
($100,00 minimum), call 1-800-854-8525.
1-800-541-7703.
-------------------------------------------------------------------------------------------------------------
</TABLE>
Scudder Investor Relations and Scudder Funds Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees and
expenses. Please read it carefully before you invest or send money.
31
Celebrating Over 75 Years of Serving Investors
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment counsel
firm in the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load mutual
fund. Today we offer 37 pure no load(TM) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.
