SCUDDER EQUITY TRUST, 497, 1996-02-07

SCUDDER EQUITY TRUST
497, 1996-02-07

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This prospectus sets forth concisely the information about Scudder Capital
Growth Fund, a series of Scudder Equity Trust, an open-end management investment
company, that a prospective investor should know before investing. Please retain
it for future reference.

If you require more detailed information, a combined Statement of Additional
Information dated February 1, 1996, as amended from time to time, may be
obtained without charge by writing Scudder Investor Services, Inc., Two
International Place, Boston, MA 02110-4103 or calling 1-800-225-2470. The
Statement, which is incorporated by reference into this prospectus, has been
filed with the Securities and Exchange Commission.

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

Contents--see page 4.

Scudder
Capital Growth
Fund

Prospectus

February 1, 1996

A pure no-load(TM) (no sales charges) mutual fund which seeks to maximize
long-term capital growth.
<PAGE>

Expense information
- -------------------

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

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

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

Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE

2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended September 30,
1995.

Investment management fee 0.67%
12b-1 fees NONE
Other expenses 0.31%
-----
Total Fund operating expenses 0.98%
=====

Example

Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to shareholders. (As noted above, the Fund has no redemption
fees of any kind.)

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$10 $31 $54 $120

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

* You may redeem by writing or calling the Fund. If you wish to receive your
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction information--Redeeming
shares."

2
<PAGE>

Financial highlights
- --------------------

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

If you would like more detailed information concerning the Fund's performance, a complete portfolio listing and audited financial
statements are available in the Fund's Annual Report dated September 30, 1995 and may be obtained without charge by writing or
calling Scudder Investor Services, Inc.

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

<FN>
(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.
</FN>

</TABLE>

3
<PAGE>

A message from Scudder's chairman
- ---------------------------------

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

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

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

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

/s/Daniel Pierce

Scudder Capital Growth Fund
- ---------------------------

Investment objective

* to maximize long-term capital growth

Investment characteristics

* a broad and flexible investment program emphasizing common stocks

* above-average capital growth potential

* the possibility for above-average stock market risk

* daily liquidity at current net asset value

Contents
- --------

Investment objective and policies ........... 5
Why invest in the Fund? ..................... 5
Investment results .......................... 6
Additional information about policies
and investments .......................... 7
Distribution and performance information .... 10
Fund organization ........................... 10
Transaction information ..................... 11
Purchases ................................... 12
Exchanges and redemptions ................... 13
Shareholder benefits ........................ 17
Trustees and Officers ....................... 20
Investment products and services ............ 21
How to contact Scudder ...................... 22

4
<PAGE>

Investment objective and policies
- ---------------------------------

Scudder Capital Growth Fund (the "Fund"), a diversified series of Scudder Equity
Trust, seeks to maximize long-term capital growth through a broad and flexible
investment program. The Fund invests in marketable securities, principally
common stocks and, consistent with its objective of long-term capital growth,
preferred stocks. Additionally, the Fund may invest in debt securities,
repurchase agreements, convertible securities, and may engage in strategic
transactions as described under "Investment restrictions."

Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. Shareholders
will receive written notice of any changes in the Fund's objective. If there is
a change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.

Investments

The Fund is free to invest in a wide range of marketable securities which the
Fund's investment adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"),
believes offer the potential for long-term, above-average growth. This makes the
Fund different from growth funds with more specialized investment policies.

The Fund's investment flexibility enables it to pursue investment value in all
sectors of the stock market, including:

* companies that generate or apply new technologies, new and improved
distribution techniques or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;

* companies that own or develop natural resources, such as energy exploration
companies;

* companies that may benefit from changing consumer demands and lifestyles,
such as financial service organizations and telecommunications companies;

* foreign companies, including those in countries with more rapid economic
growth than the U.S.;

* companies whose earnings growth is projected at a pace well in excess of
the average (growth companies); and

* companies whose earnings are temporarily depressed and are currently out of
favor with most investors.

Why invest in the Fund?
- -----------------------

The expansion of the U.S. and world economies and ongoing technological
development continuously create new investment opportunities. Through its
investments in common stocks, the Fund gives investors the chance to participate
in these opportunities and the potential they offer to maximize long-term
capital growth.

In seeking capital growth, the Fund looks for companies whose securities appear
to present a favorable relationship between market price and opportunity. These
may include securities of companies whose fundamentals or products may be of
only average promise.

Market misconceptions, temporary bad news, and other factors may cause a
security to be out of favor in the stock market and to trade at a price below
its potential value. These "undervalued" securities can provide the opportunity
for above-average market performance.

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

5
<PAGE>

Investment results
- ------------------

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
The Fund is designed for long-term investors who can accept stock market risk. The value of the Fund's portfolio
securities fluctuates with market and economic conditions, causing returns and principal value to fluctuate. Depending
upon when shares are sold, their value may be higher or lower than when purchased. In return for accepting stock market
risk, there may be a greater return on investment than from a money market or income fund.
-------------------------------------------------------------------------------------------------------------------------

Annual capital changes* Standard & Poor's
Scudder Capital Growth Fund 500 Stock Index
----------------------------------------------------------------- ---------------------------------
Net Asset Capital Gains Capital Price Capital
September 30, Value/Share Dividends Distributions Change Level Change
------------- ----------- --------- ------------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>

1985 $15.35 -- -- -- 182 --
1986 17.17 $0.23 $1.88 +26.7% 231 +26.9%
1987 20.41 0.23 2.46 + 37.3 322 + 39.4
1988 16.10 0.20 2.38 - 6.8 272 - 15.5
1989 22.30 0.07 0.55 + 43.4 349 + 28.3
1990 14.77 0.16 1.45 - 28.8 306 - 12.3
1991 19.30 0.37 1.35 + 42.6 388 + 26.7
1992 19.12 0.22 0.98 + 4.4 418 + 7.7
1993 23.06 0.10 1.25 + 28.2 459 + 9.8
1994 19.54 -- 2.62 - 4.7 463 + 0.9
1995 22.92 -- 0.73 + 22.0 584 + 26.3
-------------------------------------------------------------------------------------------------------------------------

Growth of a $10,000 investment
Standard & Poor's
Scudder Capital Growth Fund 500 Stock Index
----------------------------------------------------------------- ---------------------------------
Total Return Total Return
----------------------- -----------------------
Years Ended Value of Initial Average Value of Initial Average
September 30, 1995 $10,000 Investment Cumulative Annual $10,000 Investment Cumulative Annual
------------------ ------------------ ---------- ------ ------------------ ---------- ------
One Year $ 12,196 + 21.96% +21.96% $ 12,975 + 29.75% +29.75%
Five Years 23,060 + 130.60 +18.19 22,143 + 121.43 +17.22
Ten Years 40,205 + 302.05 +14.93 44,259 + 342.59 +16.03

All total return calculations assume that income dividends and capital gains distributions, if any, were reinvested.
The performance of Scudder Capital Growth Fund is compared with that of Standard & Poor's 500 Stock Index, an unmanaged
index of 500 industrial, transportation, utility and financial companies, widely regarded as representative of the
equity market in general. The Standard & Poor's 500 Stock Index does not take into account the brokerage and other
transaction costs investors incur when investing directly in stocks on the index. The Fund's performance reflects
actual investment experience, net of all operating expenses, which are paid from the Fund's gross investment income.

*For definition of "capital change" please see "Distribution and performance information."

Performance figures are historical and are not intended to indicate future investment performance.
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

6
<PAGE>

Additional information about policies and investments
- -----------------------------------------------------

Investment restrictions

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

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

1) for temporary defensive purposes, in debt securities and short term
indebtedness as market or economic conditions may warrant, and

2) up to 20% of its net assets in debt securities when management anticipates
that the capital appreciation on debt securities is likely to equal or exceed
the capital appreciation on common stocks over a selected time, such as during
periods of unusually high interest rates. As interest rates fall, the prices of
debt securities tend to rise.

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

Debt securities

The Fund may purchase investment-grade debt securities, which are those rated
Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's"), or AAA, AA, A
or BBB by Standard & Poor's ("S&P") or, if unrated, of equivalent quality as
determined by the Adviser. The Fund may also purchase debt securities which are
rated below investment-grade. (See "Risk factors.")

Repurchase agreements

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

Convertible securities

The convertible securities in which the Fund may invest consist of bonds, notes,
debentures and preferred stocks which may be converted or exchanged at a stated
or determinable exchange ratio into underlying shares of common stock.

Prior to their conversion, convertible securities may have characteristics
similar to nonconvertible securities of the same type.

Foreign securities

In addition to investments in companies domiciled in the U.S., the Fund may
invest in listed and unlisted foreign securities that meet the same criteria as
the Fund's domestic holdings. The Fund may invest in foreign securities when the
anticipated performance of foreign securities is believed by the Adviser to
offer more potential than domestic alternatives in keeping with the investment
objective of the Fund.

Strategic Transactions and derivatives

The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements), to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio or to enhance potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and

7
<PAGE>

Additional information about policies and investments (cont'd)
- --------------------------------------------------------------

are regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options thereon, enter into various
interest rate transactions such as swaps, caps, floors or collars, and enter
into various currency transactions such as currency forward contracts, currency
futures contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions").

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

Portfolio turnover

Recent economic and market conditions have necessitated more active trading,
resulting in a higher portfolio turnover rate for the Fund. A higher rate
involves greater transaction costs to the Fund and may result in the realization
of net capital gains, which would be taxable to shareholders when distributed.

Risk factors

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

Debt securities. The Fund may invest in bonds rated Baa or BBB. Moody's
considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics. The Fund may also invest up to 20% of its net
assets in debt securities which are rated below investment- grade, or of
equivalent quality as determined by the Adviser (commonly referred to as "junk
bonds"). The lower the ratings of such debt securities, the greater their risks
render them like equity securities. The Fund will invest no more than 10% of its
net assets in securities rated B or lower by Moody's or S&P, but may invest in

8
<PAGE>

securities rated C by Moody's or D by S&P, which may be in default with respect
to payment of principal or interest. Also, longer maturity bonds tend to
fluctuate more in price as interest rates change than do short-term bonds,
providing both opportunity and risk.

Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted. In
the event of the commencement of bankruptcy or insolvency proceedings of the
seller of the securities before repurchase of the securities under a repurchase
agreement, the Fund may encounter delay and incur costs, including a decline in
value of the securities, before being able to sell the securities.

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

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

Foreign securities. Investments in foreign securities involve special
considerations, due to more limited information, higher brokerage costs and
different accounting standards. They may also entail certain risks, such as
possible imposition of dividend or interest withholding or confiscatory taxes,
possible currency blockages or transfer restrictions, expropriation,
nationalization or other adverse political or economic developments and the
difficulty of enforcing obligations in other countries. Foreign securities may
be less liquid and more volatile than comparable domestic securities, and there
is less government regulation of stock exchanges, brokers, listed companies and
banks than in the U.S. Purchases of foreign securities are usually made in
foreign currencies and, as a result, the Fund may incur currency conversion
costs and may be affected favorably or unfavorably by changes in the value of
foreign currencies against the U.S. dollar.

9
<PAGE>
Additional information about policies and investments (cont'd)

the risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's combined Statement of Additional Information.

Distribution and performance information
- ----------------------------------------

Dividends and capital gains distributions

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

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

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

Performance information

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

Fund organization
- -----------------

Scudder Capital Growth Fund is a diversified series of Scudder Equity Trust (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). The Trust's predecessor was

10
<PAGE>

organized as a Delaware corporation in May 1966. The Trust was reorganized as a
Massachusetts business trust in October 1985.

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

Investment adviser

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

For the fiscal year ended September 30, 1995, the Adviser received an investment
management fee of 0.67% of the Fund's average daily net assets on an annual
basis. The fee is graduated so that increases in the Fund's net assets may
result in a lower fee and decreases in the Fund's net assets may result in a
higher fee. The fee is payable monthly, provided that the Fund will make such
interim payments as may be requested by the Adviser not to exceed 75% of the
amount of the fee then accrued on the books of the Fund and unpaid.

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

Scudder, Stevens & Clark, Inc. is located at Two International Place, Boston,
Massachusetts.

Transfer agent

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

Underwriter

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

Custodian

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

Fund accounting agent

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

Transaction information
- -----------------------

Purchasing shares

Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent in Boston receives the purchase request in good order.
Purchases are made in full and fractional shares. (See "Share price.")

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

(Continued on page 14)

11
<PAGE>

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

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

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

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

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

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

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

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

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

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

12
<PAGE>

Exchanges and redemptions
- -------------------------

<TABLE>
<S> <C>
Exchanging Minimum investments: $1,000 to establish a new account; $100 to exchange among existing accounts
shares
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).

o By Mail Print or type your instructions and include:
or Fax - the name of the Fund and the account number you are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into; and
- your signature(s) as it appears on your account and a daytime telephone
number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:

The Scudder Funds Scudder Shareholder 1-800-821-6234
P.O. Box 2291 Services Center
Boston, MA 02107-2291 42 Longwater Drive
Norwell, MA
02061-1612

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

Redeeming shares o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may have redemption
proceeds sent to your predesignated bank account, or redemption proceeds of up
to $50,000 sent to your address of record.

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

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

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

13
<PAGE>

Transaction information (cont'd)
- --------------------------------
(Continued from page 11)

or exchange requests by telephone prior to the expiration of the seven-day
period will not be accepted.

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

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

Your wire instructions must also include:

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

- -- the account number of the fund, and

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

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

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

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

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

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

If you purchase shares by "AutoBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "AutoBuy" transactions are not
available for Scudder IRA accounts and most other retirement plan accounts.

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

The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be

14
<PAGE>

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

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

Redeeming shares

The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.

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

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

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

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

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

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

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

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

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

Telephone transactions

Shareholders automatically receive the ability to exchange by telephone and the

15
<PAGE>

Transaction information (cont'd)
- --------------------------------

right to redeem by telephone up to $50,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.

Share price

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

Processing time

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

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

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

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

Short-term trading

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

Tax information

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

Tax identification number

Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or tax identification number and certain
other certified information or upon notification from the IRS or a broker that
withholding is required. The Fund reserves the right to reject new account
applications without a certified Social Security or tax identification number.
The Fund also reserves the right, following 30 days' notice, to redeem all
shares in accounts without a certified Social Security or tax identification
number. A shareholder may avoid involuntary redemption by providing the Fund
with a tax identification number during the 30-day notice period.

Minimum balances

16
<PAGE>

sub-minimum accounts, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account.
Reductions in value that result solely from market activity will not trigger an
involuntary redemption. The Fund will mail the proceeds of the redeemed account
to the shareholder. The shareholder may restore the share balance to $1,000 or
more during the 60-day notice period and must maintain it at no lower than that
minimum to avoid involuntary redemption.

Third party transactions

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

Redemption-in-kind

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

Shareholder benefits
- --------------------

Experienced professional management

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

A team approach to investing

Scudder 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 supported 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. Scudder believes
its team approach benefits Fund investors by bringing together many disciplines
and leveraging Scudder's extensive 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.

SAIL(TM)--Scudder Automated Information Line

For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to

17
<PAGE>

Shareholder benefits, (cont'd)
- ------------------------------

obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day.

During periods of extreme economic or market changes, or other conditions, it
may be difficult for you to effect telephone transactions in your account. In
such an event you should write to the Fund; please see "How to contact Scudder"
for the address.

Investment flexibility

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

Dividend reinvestment plan

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

Shareholder statements

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

Shareholder reports

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

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

Newsletters

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

Scudder Funds Centers

As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
Cincinnati, Los Angeles, New York, Portland (OR), San Diego, San Francisco and
Scottsdale.

T.D.D. service for the hearing impaired

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

18
<PAGE>

Scudder tax-advantaged retirement plans
- ---------------------------------------

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

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

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

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

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

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

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

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

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

19
<PAGE>

Trustees and Officers
- ---------------------

Daniel Pierce*
President and Trustee

Paul Bancroft III
Trustee; Venture Capitalist and Consultant

Sheryle J. Bolton
Trustee; Consultant

Thomas J. Devine
Trustee; Consultant

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

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

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

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.

20
<PAGE>

Investment products and services
- --------------------------------
<TABLE>
<S> <C>
The Scudder Family of Funds Income
Money market Scudder Emerging Markets Income Fund
Scudder Cash Investment Trust Scudder Global Bond 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 Zero Coupon 2000 Fund
Tax free+ Growth
Scudder California Tax Free Fund* Scudder Capital Growth Fund
Scudder High Yield Tax Free Fund Scudder Development Fund
Scudder Limited Term Tax Free Fund Scudder Global Fund
Scudder Managed Municipal Bonds Scudder Global Small Company Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Gold Fund
Scudder Massachusetts Tax Free Fund* Scudder Greater Europe Growth Fund
Scudder Medium Term Tax Free Fund Scudder International Fund
Scudder New York Tax Free Fund* Scudder Latin America Fund
Scudder Ohio Tax Free Fund* Scudder Pacific Opportunities Fund
Scudder Pennsylvania Tax Free Fund* Scudder Quality Growth Fund
Growth and Income Scudder Small Company Value Fund
Scudder Balanced Fund Scudder Value Fund
Scudder Growth and Income 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
401(k) Plans Money Purchase Pension Plans
------------------------------------------------------------------------------------------------------------------------
Closed-end Funds#
The Argentina Fund, Inc. Scudder New Europe Fund, Inc.
The Brazil Fund, Inc. Scudder World Income Opportunities Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc. Institutional Cash Management
The Latin America Dollar Income Fund, Inc. Scudder Institutional Fund, Inc.
Montgomery Street Income Securities, Inc. Scudder Fund, Inc.
Scudder New Asia Fund, Inc. Scudder Treasurers Trust(TM)++
------------------------------------------------------------------------------------------------------------------------
For complete information on any of the above Scudder funds, including management fees and expenses, call or write for
a free prospectus. Read it carefully before you invest or send money. +A portion of the income from the tax-free funds
may be subject to federal, state and local taxes. *Not available in all states. +++A no-load variable annuity contract
provided by Charter National Life Insurance Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are traded on various stock exchanges. ++For
information on Scudder Treasurers Trust(TM), an institutional cash management service that utilizes certain portfolios
of Scudder Fund, Inc. ($100,000 minimum), call: 1-800-541-7703.
</TABLE>

21
<PAGE>

How to contact Scudder
- ----------------------
<TABLE>
<S> <C>
Account Service and Information: Please address all correspondence to:

Scudder Investor The Scudder Funds
For existing account Relations P.O. Box 2291
service and transactions 1-800-225-5163 Boston, Massachusetts
02107-2291
For personalized information Scudder Automated
about your Scudder accounts; Information Line (SAIL)
exchanges and redemptions; or 1-800-343-2890
information on any Scudder fund

Investment Information: Or Stop by a Scudder Funds Center:

To receive information about Scudder Investor Many shareholders enjoy the personal, one-on-one
the Scudder funds, for Relations service of the Scudder Funds Centers. Check for a
additional applications and 1-800-225-2470 Funds Center near you--they can be found in the
prospectuses, or for following cities:
investment questions

For establishing 401(k) and Scudder Defined Boca Raton New York
403(b) plans Contribution Boston Portland, OR
Services Chicago San Diego
1-800-323-6105 Cincinnati San Francisco
Los Angeles Scottsdale

For information on Scudder Treasurers Trust(TM), an For information on Scudder Institutional Funds*, funds
institutional cash management service for corporations, designed to meet the broad investment management and
non-profit organizations and trusts which utilizes service needs of banks and other institutions, call:
certain portfolios of Scudder Fund, Inc.* ($100,000 1-800-854-8525.
minimum), call: 1-800-541-7703.

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.
</TABLE>

22
<PAGE>

This prospectus sets forth concisely the information about Scudder Value Fund, a
series of Scudder Equity Trust, an open-end management investment company, that
a prospective investor should know before investing. Please retain it for future
reference.

Contents--see page 4.

Scudder
Value
Fund

Prospectus
February 1, 1996

A pure no-load(TM) (no sales charges) mutual fund which seeks long-term growth
of capital through investment in undervalued equity securities.
<PAGE>

Expense information

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

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

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

Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE

Investment management fee (after waiver) 0.51%**
12b-1 fees NONE
Other expenses 0.74%
----
Total Fund operating expenses 1.25%**
====

Example

Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its
net investment income to shareholders. (As noted above, the Fund has no
redemption fees of any kind.)
<TABLE>
<CAPTION>

<C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$13 $40 $69 $151
</TABLE>

** Until July 31, 1996, the Adviser has agreed to waive a portion of its fee
to the extent necessary so that the total annualized expenses of the Fund
do not exceed 1.25% of average daily net assets. If the Adviser had not
agreed to waive a portion of its fee, Fund expenses would have been:
investment management fee 0.70%, other expenses 0.74% and total operating
expenses 1.44% for the fiscal year ended September 30, 1995. To the extent
that expenses fall below 1.25% during the fiscal year, the Adviser reserves
the right to recoup, during the fiscal year incurred, amounts waived during
the period, but only to the extent that the Fund's expenses do not exceed
1.25%.

2
<PAGE>

Financial highlights

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

If you would like more detailed information concerning the Fund's performance, a
complete portfolio listing and audited financial statements are available in the
Fund's Annual Report dated September 30, 1995 and may be obtained without charge
by writing or calling Scudder Investor Services, Inc.

<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 31, 1992
YEARS ENDED SEPTEMBER 30, (COMMENCEMENT
---------------------------- OF OPERATIONS) TO
1995 1994 SEPTEMBER 30, 1993
---------------------------- -------------------
<S> <C> <C> <C>
Net asset value, beginning of period ................................... $13.08 $13.38 $12.00
------ ------ ------
Income from investment operations:
Net investment income (a) .......................................... .18 .13 .10
Net realized and unrealized gain on investments .................... 2.86 .11 1.28
------ ------ ------
Total from investment operations ....................................... 3.04 .24 1.38
------ ------ ------
Less distributions from:
Net investment income .............................................. (.12) (.11) --
Net realized gains on investment transactions ...................... (.13) (.43) --
------ ------ ------
Total distributions .................................................... (.25) (.54) --
------ ------ ------
Net asset value, end of period ......................................... $15.87 $13.08 $13.38
====== ====== ======
TOTAL RETURN (%) ....................................................... 23.62 1.88 11.50**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) ................................. 68 35 29
Ratio of operating expenses, net to average daily net assets (%) (a) ... 1.25 1.25 1.25*
Ratio of net investment income to average daily net assets (%) ......... 1.57 1.16 1.56*
Portfolio turnover rate (%) ............................................ 98.2 74.6 60.8*
(a) Reflects a per share amount of management fee and
other fees not imposed .......................................... $ .02 $ .04 $ .06
Operating expense ratio including expenses
reimbursed, management fee and other expenses
not imposed (%) ................................................. 1.44 1.61 2.16*
<FN>

* Annualized
** Not annualized
</FN>
</TABLE>

3
<PAGE>

A message from Scudder's chairman

/s/ Daniel Pierce

Scudder Value Fund

Investment objective

- - long-term growth of capital through investment in undervalued equity
securities

Investment characteristics

- - a portfolio composed primarily of equity securities that are considered
undervalued relative to current and estimated future earnings and dividends

- - a highly disciplined investment management process incorporating both
traditional fundamental research and modern quantitative techniques

- - a focus on medium- to large-sized companies

- - daily liquidity at current net asset value

Contents

Investment objective and policies 5
Why invest in the Fund? 6
Additional information about policies
and investments 6
Distribution and performance information 9
Fund organization 10
Transaction information 11
Purchases 12
Exchanges and redemptions 13
Shareholder benefits 17
Trustees and Officers 20
Investment products and services 21
How to contact Scudder 22

4
<PAGE>

Investment objective and policies

Scudder Value Fund (the "Fund"), a diversified series of Scudder Equity Trust,
seeks long-term growth of capital through investment in undervalued equity
securities. The Fund invests in the securities of companies that, in the opinion
of its investment adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"), are
undervalued in the marketplace in relation to current and estimated future
earnings and dividends. These companies generally sell at price-earnings ratios
below the market average, as defined by the Standard & Poor's 500 Composite
Price Index.

The Fund invests at least 80% of its assets in equity securities, which consist
of common stocks, preferred stocks and securities convertible into common
stocks. The Fund changes its portfolio securities for long-term investment
considerations and not for trading purposes.

Investments

The Fund invests primarily in the equity securities of medium- to large-sized
domestic companies with annual revenues or market capitalization of at least
$600 million. The Adviser uses in-depth fundamental research and a proprietary
computerized quantitative model to identify companies that are currently
undervalued in relation to current and estimated future earnings and dividends.
The investment process also involves an assessment of business risk, including
the Adviser's analysis of the strength of a company's balance sheet, the
accounting practices a company follows, the volatility of a company's earnings
over time, and the vulnerability of earnings to changes in external factors,
such as the general economy, the competitive environment, governmental action,
and technological change.

The current share price or other valuation measures of these companies may not
reflect their business potential because investors may perform incomplete
analyses, have limited time horizons, or allow emotions to influence their
investment decisions. Other similar factors can also influence short-term market
behavior. The Adviser's quantitative approach is designed to help avoid these
pitfalls.

While a broad range of investments are considered, only those that, in the
Adviser's opinion, are selling at comparatively large discounts to intrinsic
value will be purchased for the Fund. It is anticipated that the prices of the
Fund's investments will rise as a result of both earnings growth and rising
price-earnings ratios over time.

While the Fund emphasizes U.S. investments, it can invest its assets in
securities of foreign companies which meet the same criteria applicable to
domestic investments. The Fund may invest up to 20% of its total assets in debt
obligations, including zero coupon securities and may enter into repurchase
agreements. In addition, the Fund may engage in strategic transactions. See
"Additional information about policies and investments" for more information
about these investment techniques.

From time to time, for temporary defensive or emergency purposes, the Fund may
invest a portion of its assets in cash and cash equivalents when the Adviser
deems such a position advisable in light of economic or market conditions.

5
<PAGE>

Why invest in the Fund?

Scudder Value Fund provides investors with convenient, low-cost access to a
diversified portfolio of stocks believed to be undervalued by the Adviser. The
Fund invests predominantly in the equity securities of financially sound U.S.
companies. These companies tend to have below-market price-earnings ratios yet,
in the opinion of the Adviser, will reward investors with above-average
appreciation over time.

The Fund is distinctive in the manner in which it combines systematic valuation
techniques with intensive, traditional fundamental research. The Adviser's
proprietary computer-based valuation model was developed and tested over several
years before being first implemented in 1987. In addition to identifying
undervalued securities, the quantitative model also provides the discipline
required to sell appreciated securities as their prices rise to reflect their
earnings potential. The model relies on the Adviser's independent equity
research effort for estimates of future earnings and dividend growth and
proprietary quality ratings. The Adviser maintains one of the largest equity
research departments in the industry and has done so for more than 60 years. The
Adviser oversees in excess of $400 million in institutional assets using this
price-sensitive approach.

The Fund is appropriate for investors who understand the risks of stock market
investing. Although the Fund emphasizes securities of companies the Adviser
believes are undervalued, movements of the stock market will affect the Fund's
share price.

While the Fund may invest in a broad range of industries, it is not, by itself,
a complete investment program. Nonetheless, it can serve as a core component of
an investment program that includes money market, bond and specialized equity
investments. Moreover, growth portfolios and value portfolios generally do not
move in tandem, so adding the Fund to your portfolio of growth stocks or growth
mutual funds should increase diversification and reduce investment risk.

Additional information about policies and investments

Investment restrictions

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

As a matter of nonfundamental policy, the Fund may not invest more than 10% of
its total assets, in the aggregate, in securities which are not readily
marketable, in restricted securities and repurchase agreements maturing in more
than seven days. A complete description of these and other policies and
restrictions is contained under "Investment Restrictions" in the Fund's combined
Statement of Additional Information.

Debt securities

Consistent with the Fund's investment objective of long-term capital growth, the
Fund may purchase investment-grade debt securities, which are those rated Aaa,
Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's"), or AAA, AA, A or
BBB by Standard & Poor's ("S&P") or, if unrated, of equivalent quality as

6
<PAGE>

determined by the Adviser. The Fund may also purchase debt securities which are
rated below investment-grade. Capital appreciation in such debt securities may
arise from a favorable change in relative interest rate levels, or in the
creditworthiness of issuers. Receipt of income from debt securities is
incidental to the Fund's objective of long-term growth of capital. (See "Risk
factors.")

Repurchase agreements

Convertible securities

The Fund may invest in convertible securities (bonds, notes, debentures,
preferred stocks and other securities convertible into common stocks) that may
offer higher income than the common stocks into which they are convertible. The
convertible securities in which the Fund may invest include fixed-income or zero
coupon debt securities, which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. Prior to
their conversion, convertible securities may have characteristics similar to
nonconvertible debt securities.

Foreign securities

While the Fund generally emphasizes investments in companies domiciled in the
U.S., it may invest in listed and unlisted foreign securities that meet the same
criteria as the Fund's domestic holdings. The Fund may invest in foreign
securities when the anticipated performance of foreign securities is believed by
the Adviser to offer more potential than domestic alternatives in keeping with
the investment objective of the Fund.

Strategic Transactions and derivatives

7
<PAGE>

Additional information about policies and investments (cont'd)

enhance potential gain although no more than 5% of the Fund's assets will be
committed to Strategic Transactions entered into for non-hedging purposes. Any
or all of these investment techniques may be used at any time and in any
combination, and there is no particular strategy that dictates the use of one
technique rather than another, as use of any Strategic Transaction is a function
of numerous variables including market conditions. The ability of the Fund to
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The Fund
will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not for speculative purposes. Please refer to "Risk factors--Strategic
Transactions and derivatives" for more information.

Risk factors

Debt securities. The Fund may invest up to 20% of its net assets in debt
securities, including securities which are rated below investment-grade or, if
unrated, are considered by the Adviser to be equivalent to below
investment-grade debt securities (commonly referred to as "junk bonds"). The
lower the ratings of such debt securities, the greater their risks render them
like equity securities. The Fund will invest no more than 10% of its net assets
in securities rated B or lower by Moody's or S&P, and may not invest more than
5% of its net assets in securities rated C by Moody's or D by S&P, which may be
in default with respect to payment of principal or interest. Also,
longer-maturity bonds tend to fluctuate more in price as interest rates change
than do short-term bonds, providing both opportunity and risk.

Zero coupon bonds, which do not pay interest until maturity, and pay-in-kind
securities, which pay interest in the form of additional securities, may be more
speculative than debt securities which pay income periodically in cash.

Repurchase agreements. If a seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted. In
the event of the commencement of bankruptcy or insolvency proceedings of the
seller of the securities before repurchase of the securities under a repurchase
agreement, the Fund may encounter delay and incur costs including a decline in
value of the securities before being able to sell the securities.

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

8
<PAGE>

possible currency blockages or transfer restrictions, expropriation,
nationalization or other adverse political or economic developments and the
difficulty of enforcing obligations in other countries. Foreign securities may
be less liquid and more volatile than comparable domestic securities, and there
is less government regulation of stock exchanges, brokers, listed companies and
banks than in the U.S. Purchases of foreign securities are usually made in
foreign currencies and, as a result, the Fund may incur currency conversion
costs and may be affected favorably or unfavorably by changes in the value of
foreign currencies against the U.S. dollar.

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

Distribution and performance information

Dividends and capital gains distributions

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

9
<PAGE>
Distribution and performance information (cont'd)

distributions must be reinvested into the shareholder's account.

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

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

Performance information

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

Fund organization

Scudder Value Fund is a diversified series of Scudder Equity Trust (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). The Trust's predecessor was
organized as a Delaware corporation in May 1966. The Trust was reorganized as a
Massachusetts business trust in October 1985.

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

Investment adviser

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

The Fund pays the Adviser an annual fee of 0.70% of the Fund's average daily net
assets. The Adviser has agreed to maintain the annualized expenses of the Fund
at not more than 1.25% of the average daily net assets of the Fund until July
31, 1996. For the fiscal year ended September 30, 1995, the Adviser took action
to reduce the Fund's total expenses and as a result received an investment
management fee of 0.51% of the Fund's average daily net assets.

10
<PAGE>

The fee is payable monthly, provided that the Fund will make such interim
payments as may be requested by the Adviser not to exceed 75% of the amount of
the fee then accrued on the books of the Fund and unpaid.

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

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

Transfer agent

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

Underwriter

Custodian

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

Fund accounting agent

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

Transaction information

Purchasing shares

Your wire instructions must also include:
- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).

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

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

(Continued on page 14)

11
<PAGE>

Purchases

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

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

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

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

o In Person Visit one of our Funds Centers to complete your application with the help
of a Scudder representative. Funds Center locations are listed under
Shareholder benefits.

-----------------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional shares Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums. See appropriate
plan literature.

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

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

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

</TABLE>

12
<PAGE>

Exchanges and redemptions

<TABLE>
<CAPTION>
<C> <C>
Exchanging shares Minimum investments: $1,000 to establish a new
account; $100 to exchange among existing accounts

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

Send your instructions

by regular mail to: or by express, registered, or by fax to:
or certified mail to:

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

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

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

13
<PAGE>

Transaction information (cont'd)

(Continued from page 11)

that day. Orders must be for $10,000 or more and cannot be for an amount greater
than four times the value of your account at the time the order is placed. A
confirmation with complete purchase information is sent shortly after your order
is received. You must include with your payment the order number given at the
time the order is placed. If payment by check or wire is not received within
three business days, the order is subject to cancellation and the shareholder
will be responsible for any loss to the Fund resulting from this cancellation.
Telephone orders are not available for shares held in Scudder IRA accounts and
most other Scudder retirement plan accounts.

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

The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.

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

Redeeming shares

The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.

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

If you open an account by wire, you cannot redeem shares by telephone until the

14
<PAGE>

Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.

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

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

Telephone transactions

Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $50,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.

Share price

Processing time

All purchase and redemption requests received in good order by the Fund's
transfer agent in Boston by the close of regular trading on the Exchange

15
<PAGE>

Transaction information (cont'd)

are executed at the net asset value per share calculated at the close of regular
trading that day.

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

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

Short-term trading

Tax information

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

Tax identification number

Minimum balances

Shareholders should maintain a share balance worth at least $1,000, which amount
may be changed by the Board of Trustees. Scudder retirement plans have similar
or lower minimum share balance requirements. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
sub-minimum accounts, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account.
Reductions in value that result solely from market activity will not trigger an
involuntary redemption. The Fund will mail the proceeds of the redeemed account
to the shareholder. The shareholder may restore the share balance to $1,000 or
more during the 60-day notice period and must maintain it at no lower than that
minimum to avoid involuntary redemption.

Third party transactions

Redemption-in-kind

16
<PAGE>

redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities to cash. The Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, as a result
of which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.

Shareholder benefits

Experienced professional management

A team approach to investing

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

Lead Portfolio Manager Donald E. Hall has had responsibility for the Fund's
day-to-day management since its inception in 1992. Mr. Hall, who has 13 years of
experience in the value style of investing, joined Scudder in 1982. William J.
Wallace, Portfolio Manager, has been a member of the Fund's team since 1992 and
has 15 years of investment experience.

SAIL(TM)--Scudder Automated Information Line

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

Investment flexibility

Dividend reinvestment plan

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

Shareholder statements

17
<PAGE>

Shareholder benefits (cont'd)

Shareholder reports

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

Newsletters

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

Scudder Funds Centers

T.D.D. service for the hearing impaired

18
<PAGE>

Scudder tax-advantaged retirement plans

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

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

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

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

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

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

19
<PAGE>

Trustees and Officers

Daniel Pierce*
President and Trustee

Paul Bancroft III
Trustee; Venture Capitalist and Consultant

Sheryle J. Bolton
Trustee; Consultant

Thomas J. Devine
Trustee; Consultant

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

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

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

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.

20
<PAGE>

Investment products and services

The Scudder Family of Funds Income
Money market Scudder Emerging Markets Income Fund
Scudder Cash Investment Trust Scudder Global Bond 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 Zero Coupon 2000 Fund
Tax free+ Growth
Scudder California Tax Free Fund* Scudder Capital Growth Fund
Scudder High Yield Tax Free Fund Scudder Development Fund
Scudder Limited Term Tax Free Fund Scudder Global Fund
Scudder Managed Municipal Bonds Scudder Global Small Company Fund
Scudder Massachusetts Limited Term Tax Free Fund* Scudder Gold Fund
Scudder Massachusetts Tax Free Fund* Scudder Greater Europe Growth Fund
Scudder Medium Term Tax Free Fund Scudder International Fund
Scudder New York Tax Free Fund* Scudder Latin America Fund
Scudder Ohio Tax Free Fund* Scudder Pacific Opportunities Fund
Scudder Pennsylvania Tax Free Fund* Scudder Quality Growth Fund
Growth and Income Scudder Small Company Value Fund
Scudder Balanced Fund Scudder Value Fund
Scudder Growth and Income 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
401(k) Plans Money Purchase Pension Plans
------------------------------------------------------------------------------------------------------------------------
Closed-end Funds#
The Argentina Fund, Inc. Scudder New Europe Fund, Inc.
The Brazil Fund, Inc. Scudder World Income Opportunities Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc. Institutional Cash Management
The Latin America Dollar Income Fund, Inc. Scudder Institutional Fund, Inc.
Montgomery Street Income Securities, Inc. Scudder Fund, Inc.
Scudder New Asia Fund, Inc. Scudder Treasurers Trust(TM)++
------------------------------------------------------------------------------------------------------------------------
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from the
tax-free funds may be subject to federal, state and local taxes. *Not available
in all states. +++A no-load variable annuity contract provided by Charter
National Life Insurance Company and its affiliate, offered by Scudder's
insurance agencies, 1-800-225-2470. #These funds, advised by Scudder, Stevens &
Clark, Inc., are traded on various stock exchanges. ++For information on
Scudder Treasurers Trust(TM), an institutional cash management service that
utilizes certain portfolios of Scudder Fund, Inc. ($100,000 minimum), call:
1-800-541-7703.
</TABLE>

21
<PAGE>

How to contact Scudder
<TABLE>
<CAPTION>

Account Service and Information: Please address all correspondence to:

<C> <C> <C>
For existing account service Scudder Investor Relations The Scudder Funds
and transactions 1-800-225-5163 P.O. Box 2291
Boston, Massachusetts
02107-2291

For personalized information Scudder Automated
about your Scudder accounts; Information Line (SAIL)
exchanges and redemptions; or 1-800-343-2890
information on any Scudder
fund

Investment Information: Or Stop by a Scudder Funds Center:

To receive information about Scudder Investor Relations Many shareholders enjoy the personal, one-on-one
the Scudder funds, for 1-800-225-2470 service of the Scudder Funds Centers. Check for a
additional applications and Funds Center near you--they can be found in the
prospectuses, or for following cities:
investment questions

For establishing 401(k) and Scudder Defined Boca Raton New York
403(b) plans Contribution Services Boston Portland, OR
1-800-323-6105 Chicago San Diego
Cincinnati San Francisco
Los Angeles Scottsdale

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

22
<PAGE>

SCUDDER CAPITAL GROWTH FUND

A Pure No-Load(TM) (No Sales Charges) Diversified Mutual Fund
which Seeks to Maximize Long-Term Capital Growth

and

SCUDDER VALUE FUND

A Pure No-Load(TM) (No Sales Charges) Diversified Mutual Fund
which Seeks Long-Term Growth of Capital through
Investment in Undervalued Equity Securities

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

STATEMENT OF ADDITIONAL INFORMATION

February 1, 1996

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

This combined Statement of Additional Information is not a prospectus
and should be read in conjunction with the prospectuses of Scudder Capital
Growth Fund and Scudder Value Fund each dated February 1, 1996, as amended from
time to time, copies of which may be obtained without charge by writing to
Scudder Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103.

<PAGE>

TABLE OF CONTENTS
Page
<S> <C>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES.........................................................................1
General Investment Objective and Policies of Scudder Capital Growth Fund.....................................1
General Investment Objective and Policies of Scudder Value Fund..............................................1
Investments and Investment Techniques........................................................................3
Investment Restrictions.....................................................................................13
Other Investment Policies...................................................................................14

PURCHASES............................................................................................................15
Additional Information About Opening An Account.............................................................15
Additional Information About Making Subsequent Investments..................................................16
Additional Information About Making Subsequent Investments by AutoBuy.......................................16
Checks......................................................................................................17
Wire Transfer of Federal Funds..............................................................................17
Share Price.................................................................................................17
Share Certificates..........................................................................................17
Other Information...........................................................................................17

EXCHANGES AND REDEMPTIONS............................................................................................18
Exchanges...................................................................................................18
Redemption by Telephone.....................................................................................19
Redemption By AutoSell......................................................................................19
Redemption by Mail or Fax...................................................................................20
Redemption-in-Kind..........................................................................................20
Other Information...........................................................................................20

FEATURES AND SERVICES OFFERED BY THE FUNDS...........................................................................21
The Pure No-Load(TM) Concept................................................................................21
Dividends and Capital Gains Distribution Options............................................................22
Diversification.............................................................................................23
Scudder Funds Centers.......................................................................................23
Reports to Shareholders.....................................................................................23
Transaction Summaries.......................................................................................23

THE SCUDDER FAMILY OF FUNDS..........................................................................................23

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

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................30

PERFORMANCE INFORMATION..............................................................................................30
Average Annual Total Return.................................................................................30
Cumulative Total Return.....................................................................................31
Total Return................................................................................................32
Capital Change..............................................................................................32

i
<PAGE>
TABLE OF CONTENTS (continued)
Page
ORGANIZATION OF THE FUNDS............................................................................................36

INVESTMENT ADVISER...................................................................................................38
Personal Investments by Employees of the Adviser............................................................40

TRUSTEES AND OFFICERS................................................................................................41

REMUNERATION.........................................................................................................43

DISTRIBUTOR..........................................................................................................44

TAXES................................................................................................................44

PORTFOLIO TRANSACTIONS...............................................................................................48
Brokerage Commissions.......................................................................................48
Portfolio Turnover..........................................................................................49

NET ASSET VALUE......................................................................................................49

ADDITIONAL INFORMATION...............................................................................................50
Experts.....................................................................................................50
Shareholder Indemnification.................................................................................50
Other Information...........................................................................................50

FINANCIAL STATEMENTS.................................................................................................51

APPENDIX
</TABLE>

<PAGE>

THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES

(See"Investment objective and policies" and "Additional information
about policies and investments" in the Funds' prospectuses.)

Scudder Capital Growth Fund and Scudder Value Fund (each a "Fund,"
collectively, the "Funds") are diversified series of Scudder Equity Trust (the
"Trust"), a pure no-load(TM), open-end, management investment company organized
as a Massachusetts business trust.

General Investment Objective and Policies of Scudder Capital Growth Fund

Scudder Capital Growth Fund ("Capital Growth Fund") seeks to maximize
long-term growth of capital through a broad and flexible investment program. The
Fund seeks to achieve its objective by investing: (i) in marketable securities,
principally common stocks; (ii) up to 20% of its net assets in debt securities
where capital appreciation from debt securities is expected to exceed the
capital appreciation available from common stocks; and (iii) for temporary
defensive purposes, during periods when market or economic conditions may
warrant, in debt securities and short-term indebtedness. The Fund may also
invest in preferred stocks consistent with its objective. The securities in
which the Fund may invest are described under "Investment objective and
policies" in the Fund's prospectus.

Investments in common stocks have a wide range of characteristics, and
management of the Fund believes that opportunity for long-term growth of capital
may be found in all sectors of the market for publicly traded equity securities.
Thus the search for equity investments for the Fund may encompass any sector of
the market and companies of all sizes. It is a fundamental policy of the Fund,
which may not be changed without approval of a majority of the Fund's
outstanding shares, that the Fund will not concentrate its investments in any
particular industry. However, the Fund reserves the right to invest up to 25% of
its total assets (taken at market value) in any one industry. The use of this
tactic is, in the opinion of management, consistent with the Fund's flexible
approach of seeking to maximize long-term growth of capital.

The Fund may purchase, for capital appreciation, investment-grade debt
securities including zero coupon bonds. Investment-grade debt securities are
those rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's"), or
AAA, AA, A or BBB by Standard & Poor's ("S&P") or, if unrated, of equivalent
quality as determined by the Fund's investment adviser, Scudder, Stevens &
Clark, Inc. (the "Adviser"). Moody's considers bonds it rates Baa to have
speculative elements as well as investment-grade characteristics.

The Fund may also purchase debt securities which are rated below
investment-grade (that is, rated below Baa by Moody's or below BBB by S&P), and
unrated securities of comparable quality in the Adviser's judgment, which
usually entail greater risk (including the possibility of default or bankruptcy
of the issuers of such securities), generally involve greater volatility of
price and risk of principal and income, and may be less liquid and more
difficult to value than securities in the higher rating categories. The Fund may
invest up to 10% of its net assets in securities rated B or lower by Moody's or
S&P and may invest in securities which are rated as low as C by Moody's or D by
S&P. Securities rated B or lower involve a high degree of speculation with
respect to the payment of principal and interest and those securities rated C or
D may be in default with respect to payment of principal or interest.
(See "High Yield, High Risk Securities.")

Changes in portfolio securities are made on the basis of investment
considerations and it is against the policy of management to make changes for
trading purposes.

The objective of the Fund is not fundamental and may be changed by the
Trustees without a vote of shareholders. The Fund cannot guarantee a gain or
eliminate the risk of loss. The net asset value of the Fund's shares will
increase or decrease with changes in the market price of the Fund's investments
and there is no assurance that the Fund's objective will be achieved.

General Investment Objective and Policies of Scudder Value Fund

Scudder Value Fund ("Value Fund") seeks long-term growth of capital
through investment in undervalued equity securities. This objective is not
fundamental and may be changed by the Trustees without a shareholder vote. The
Fund seeks to achieve its objective by investing in the equity securities of
companies that, in the opinion of its Adviser, are undervalued in the

<PAGE>

marketplace in relation to current and estimated future earnings and dividends.
These companies generally sell at price-earnings ratios below the market
average, as defined by the Standard & Poor's 500 Composite Price Index (S&P
500). The securities in which the Fund may invest are described under
"Investment objective and policies" in the Fund's prospectus.

The Fund invests at least 80% of its assets in equity securities
consisting of common stocks, preferred stocks and securities convertible into
common stocks. The Fund changes its portfolio securities for long-term
investment considerations and not for trading purposes.

The Fund invests primarily in the equity securities of medium-to-large
size domestic companies with annual revenues or market capitalization of at
least $600 million. The Adviser uses in-depth fundamental research and a
proprietary computerized quantitative model to identify companies that are
currently undervalued in relation to current and estimated future earnings and
dividends. The investment process also involves an assessment of business risk,
including the Adviser's analysis of the strength of a company's balance sheet,
the accounting practices a company follows, the volatility of a company's
earnings over time, and the vulnerability of earnings to changes in external
factors, such as the general economy, the competitive environment, governmental
action and technological change.

While a broad range of investments are considered, only those that, in
the Adviser's opinion, are selling at comparatively large discounts to intrinsic
value will be purchased for the Fund. It is anticipated that the prices of the
Fund's investments will rise as a result of both earnings growth and rising
price-earnings ratios over time.

Value investing, as measured by the Wilshire Large Company Value
Index--a well-known source of value-oriented portfolio returns--has provided an
average annual return of 15.69% for the ten-year period ended September 30,
1995. This compares to a 12.37% return for the S&P 500, 14.14% for the Lipper
Growth Fund Average, and 13.62% for the Lipper Growth and Income Fund Average
over the same period. Using active investment management, the Fund hopes to
outperform passive indices. The performance of the indices is not representative
of the performance of the Fund or the future performance of the Fund. The
indices do not bear the transaction and other costs that the Fund will bear.

While the Fund emphasizes U.S. investments, it can invest in securities
of foreign companies that meet the same criteria applicable to domestic
investments if the performance of foreign securities is believed by the Adviser
to offer more potential than domestic investments.

For capital appreciation, the Fund may use up to 20% of its assets to
purchase debt securities, including zero coupon bonds. Investment-grade debt
securities are those rated Aaa, Aa, A or Baa by Moody's, or AAA, AA, A or BBB by
S&P or, if unrated, of equivalent quality as determined by the Adviser.

The Fund may also purchase debt securities which are rated below
investment-grade (that is, rated below Baa by Moody's or below BBB by S&P) and
unrated securities of equivalent quality as determined by the Adviser, which
usually entail greater risk (including the possibility of default or bankruptcy
of the issues of such securities), generally involve greater volatility of price
and risk of principal and income, and may be less liquid and more difficult to
value than securities in the higher rating categories. The Fund may invest up to
20% of its net assets in such securities ("high yield/high risk securities") but
will invest no more than 10% of its net assets in securities rated B or lower by
Moody's or S&P and may not invest more than 5% of its net assets in securities
which are rated C by Moody's or D by S&P or of equivalent quality as determined
by the Adviser. Securities rated C or D may be in default with respect to
payment of principal or interest. Also, longer maturity bonds tend to fluctuate
more in price as interest rates change than do short-term bonds, providing both
opportunity and risk. (See "High Yield, High Risk Securities.")

The objective of the Fund is not fundamental and may be changed by the
Trustees without a vote of shareholders. The Fund cannot guarantee a gain or
eliminate the risk of loss. The net asset value of the Fund's shares will
increase or decrease with changes in the market price of the Fund's investments,
and there is no assurance that the Fund's objective will be achieved.

2
<PAGE>

Investments and Investment Techniques

Foreign Securities. While the Funds generally emphasize investments in companies
domiciled in the U.S., they may invest in listed and unlisted foreign securities
of the same types as the domestic securities in which they may invest, when the
anticipated performance of foreign securities is believed by the Adviser to
offer more potential than domestic alternatives, in keeping with the investment
objectives of the Funds.

Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect the Funds' performance. As foreign companies are
not generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign stock markets, while growing
in volume of trading activity, have substantially less volume than the New York
Stock Exchange (the "Exchange") and securities of some foreign companies are
less liquid and more volatile than securities of domestic companies. Similarly,
volume and liquidity in most foreign bond markets are less than the volume and
liquidity in the U.S. and at times, volatility of price can be greater than in
the U.S. Further, foreign markets have different clearance and settlement
procedures and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Funds are uninvested and no return is
earned thereon. The inability of the Funds to make intended security purchases
due to settlement problems could cause the Funds to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems either could result in losses to the Funds due to subsequent declines
in value of the portfolio security or, if the Funds have entered into a contract
to sell the security, could result in possible liability to the purchaser. Fixed
commissions on some foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges although the Funds will endeavor to achieve the
most favorable net results on their portfolio transactions. Further, the Funds
may encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts. There is generally less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the U.S. It may be more difficult for the Funds' agents
to keep currently informed about corporate actions such as stock dividends or
other matters which may affect the prices of portfolio securities.
Communications between the U.S. and foreign countries may be less reliable than
within the U.S. thereby increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. Delivery of
securities without payment is required in some foreign markets. In addition,
with respect to certain foreign countries, there is the possibility of
nationalization, expropriation, the imposition of withholding or confiscatory
taxes, political, social, or economic instability, or diplomatic developments
which could affect U.S. investments in those countries. Investments in foreign
securities may also entail certain risks, such as possible currency blockages or
transfer restrictions, and the difficulty of enforcing rights in other
countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.

These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in those countries than in developed
countries. The management of the Funds seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, the Funds will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.

Investments in foreign securities usually will involve currencies of
foreign countries. Moreover, the Funds may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
the value of the assets for the Funds, as measured in U.S. dollars, may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and the Funds may incur costs in connection
with conversions between various currencies. Although the Funds value their
assets daily in terms of U.S. dollars, the Funds do not intend to convert their
holdings of foreign currencies, if any, into U.S. dollars on a daily basis. The
Funds may do so from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Funds at one rate,

3
<PAGE>

while offering a lesser rate of exchange should the Funds desire to resell that
currency to the dealer. The Funds will conduct their foreign currency exchange
transactions, if any, either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through forward foreign
currency exchange contracts.

To the extent that the Funds invest in foreign securities, each Fund's
share price could reflect the movements of both the different stock and bond
markets in which it is invested and the currencies in which the investments are
denominated: the strength or weakness of the U.S. dollar against foreign
currencies could account for part of each Fund's investment performance.

High Yield, High Risk Securities. Below investment-grade securities (rated below
Baa by Moody's and below BBB by S&P) or unrated securities of equivalent quality
in the Adviser's judgment, carry a high degree of risk (including the
possibility of default or bankruptcy of the issuers of such securities),
generally involve greater volatility of price and risk of principal and income,
may be less liquid and more difficult to value than securities in the higher
ratings categories and are considered speculative. The lower the ratings of such
debt securities the greater their risks render them like equity securities. See
the Appendix to this Statement of Additional Information for a more complete
description of the ratings assigned by ratings organizations and their
respective characteristics.

Each Fund may invest up to 20% of its net assets in debt securities
rated below investment-grade but will invest no more than 10% of its net assets
in securities rated B or lower by Moody's or by S&P.

An economic downturn could disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates could adversely affect the value of such obligations held by the
Funds. Prices and yields of high yield securities will fluctuate over time and
may affect each Fund's net asset value. In addition, investments in high yield
zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations
in value due to changes in interest rates.

The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a decline in
the value of such securities. A thin trading market may limit the ability of a
Fund to accurately value high yield securities in the Fund's portfolio and to
dispose of those securities. Adverse publicity and investor perceptions may
decrease the value and liquidity of high yield securities. These securities may
also involve special registration responsibilities, liabilities and costs.

Credit quality in the high-yield securities market can change suddenly
and unexpectedly and even recently issued credit ratings may not fully reflect
the actual risks posed by a particular high-yield security. For these reasons,
it is the policy of the Adviser not to rely exclusively on ratings issued by
established credit rating agencies, but to supplement such ratings with its own
independent and on-going review of credit quality. The achievement of each
Fund's investment objective may be more dependent on the Adviser's credit
analysis than is the case for higher quality bonds. Should the rating of a
portfolio security be downgraded the Adviser will determine whether it is in the
best interest of a Fund to retain or dispose of the security.

Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, federal rules require
savings and loan institutions to gradually reduce their holdings of this type of
security. Also, Congress has from time to time considered legislation which
would restrict or eliminate the corporate tax deduction for interest payments in
these securities and regulate corporate restructurings. Such legislation may
significantly depress the prices of outstanding securities of this type. For
more information regarding tax issues related to high yield securities see
"TAXES."

Convertible Securities. The Funds may each invest in convertible securities,
that is, bonds, notes, debentures, preferred stocks and other securities which
are convertible into common stock. Investments in convertible securities can
provide an opportunity for capital appreciation and/or income through interest
and dividend payments by virtue of their conversion or exchange features. The
Funds will limit their purchases of convertible securities to debt securities
convertible into common stocks.

The convertible securities in which the Funds may invest are either
fixed income or zero coupon debt securities which may be converted or exchanged
at a stated or determinable exchange ratio into underlying shares of common
stock. The exchange ratio for any particular convertible security may be

4
<PAGE>

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

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

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

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

Illiquid and Restricted Securities. Each Fund may occasionally purchase
securities other than in the open market. While such purchases may often offer
attractive opportunities for investment not otherwise available on the open
market, the securities so purchased are often "restricted securities", i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933 or the availability of an exemption from registration
(such as Rules 144 or 144A), or which are "not readily marketable" because they
are subject to other legal or contractual delays in or restrictions on resale.

The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid investments may
involve time-consuming negotiation and legal expenses, and it may be difficult
or impossible for the Fund to sell them promptly at an acceptable price. The
Fund may have to bear the extra expense of registering such securities for
resale and the risk of substantial delay in effecting such registration. Also
market quotations are less readily available. The judgment of the Adviser may at
times play a greater role in valuing these securities than in the case of
unrestricted securities.

Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the Securities Act of 1933. The Funds may be deemed to be an
"underwriter" for purposes of the Securities Act of 1933 when selling restricted

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securities to the public, and in such event the Fund may be liable to purchasers
of such securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.

Each Fund will not invest more than 10% of its total assets in
securities which are not readily marketable, the disposition of which is
restricted under Federal securities laws or in repurchase agreements not
terminable within seven days.

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

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

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

Strategic Transactions and Derivatives. Each Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of fixed-income securities of a Fund's portfolio, or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.

In the course of pursuing these investment strategies, a Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against

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<PAGE>

possible changes in the market value of securities held in or to be purchased
for a Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect a Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in a Fund's portfolio, or to establish a position in the derivatives
markets as a temporary substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of a Fund's assets will be committed to Strategic
Transactions entered into for non-hedging purposes. Any or all of these
investment techniques may be used at any time and in any combination, and there
is no particular strategy that dictates the use of one technique rather than
another, as use of any Strategic Transaction is a function of numerous variables
including market conditions. The ability of a Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market movements, which cannot be assured. Each Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not for
speculative purposes.

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

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

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

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With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.

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

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

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

Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, a Fund will
lose any premium it paid for the option as well as any anticipated benefit of
the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. Each Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the Securities and Exchange Commission ("SEC") currently takes the
position that OTC options purchased by a Fund, and portfolio securities
"covering" the amount of a Fund's obligation pursuant to an OTC option sold by
it (the cost of the sell-back plus the in-the-money amount, if any) are
illiquid, and are subject to each Fund's limitation on investing no more than
10% of its assets in illiquid securities.

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

Each Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar

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<PAGE>

instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by a Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though a Fund will receive the option premium to help protect it against
loss, a call sold by a Fund exposes that Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require that Fund to hold a security
or instrument which it might otherwise have sold.

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

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

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

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

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

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option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.

Currency Transactions. Each Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. Each Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or are determined to be of
equivalent credit quality by the Adviser.

Each Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of a Fund, which will generally arise
in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.

Each Fund will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging or cross hedging as described
below.

Each Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which that Fund has or in which that Fund
expects to have portfolio exposure.

To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, each Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which a Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of a Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of that Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
a Fund holds securities denominated in schillings and the Adviser believes that
the value of schillings will decline against the U.S. dollar, the Adviser may
enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to a Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that a Fund is engaging in proxy hedging. If a Fund
enters into a currency hedging transaction, that Fund will comply with the asset
segregation requirements described below.

Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the

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same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.

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

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

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

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

Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign

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securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.

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

Except when a Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates a Fund to buy or sell currency
will generally require that Fund to hold an amount of that currency or liquid
securities denominated in that currency equal to that Fund's obligations or to
segregate liquid high grade assets equal to the amount of that Fund's
obligation.

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

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

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

Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. Each Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, a Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by that Fund. Moreover, instead of segregating assets if a Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary

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<PAGE>

transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.

Each Fund's activities involving Strategic Transactions may be limited
by the requirements of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company. (See
"TAXES.")

Investment Restrictions

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

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

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

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

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

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

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

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

In addition, as a matter of fundamental policy, Capital Growth Fund may
not:

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

(2) purchase or sell physical commodities or contracts relating
to physical commodities.

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<PAGE>

In addition, as a matter of fundamental policy, Value Fund may not:

Other Investment Policies

The Trustees of the Trust have voluntarily adopted certain policies and
restrictions which are observed in the conduct of each Fund's affairs. These
represent intentions of the Trustees based upon current circumstances. They
differ from fundamental investment policies in that they may be changed or
amended by action of the Trustees without requiring prior notice to or approval
of shareholders.

As a matter of nonfundamental policy, each Fund may not:

(a) purchase or retain securities of any open-end investment company,
or securities of closed-end investment companies except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchases, or except when
such purchase, though not made in the open market, is part of a
plan of merger, consolidation, reorganization or acquisition of
assets; in any event the Fund may not purchase more than 3% of
the outstanding voting securities of another investment company,
may not invest more than 5% of its assets in another investment
company, and may not invest more than 10% of its assets in other
investment companies;

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

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

(d) purchase securities on margin or make short sales, unless, by
virtue of its ownership of other securities, it has the right to
obtain securities equivalent in kind and amount to the securities
sold and, if the right is conditional, the sale is made upon the
same conditions, except in connection with arbitrage
transactions, and except that the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of securities;

(e) invest more than 10% of its total assets in securities which are
not readily marketable, the disposition of which is restricted
under federal securities laws, or in repurchase agreements not
terminable within seven days, and the Fund will not invest more
than 10% of its total assets in restricted securities; Capital
Growth Fund has no current intention of investing more than 5% of
its assets in repurchase agreements;

(f) purchase securities of any issuer with a record of less than
three years continuous operations, including predecessors, except
U.S. Government securities, securities of such issuers which are
rated by at least one nationally recognized statistical rating
organization, municipal obligations and obligations issued or
guaranteed by any foreign government or its agencies or
instrumentalities, if such purchase would cause the investments
of the Fund in all such issuers to exceed 5% of the total assets
of the Fund taken at market value;

14
<PAGE>

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

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

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

(j) borrow money, including reverse repurchase agreements, in excess
of 5% of its total assets (taken at market value) except for
temporary or emergency purposes or borrow other than from banks;

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

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

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

In addition, as a matter of nonfundamental policy, Capital Growth Fund
may not:

(1) invest more than 20% of its net assets in debt securities
(including convertible securities), and not more than 10% of its
net assets in those rated B or lower by Moody's or S&P and may
invest in securities rated D by S&P.

If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" and "Other Investment Policies" above
is adhered to at the time an investment is made, a later change in percentage
resulting from changes in the value or the total cost of a Fund's assets will
not be considered a violation of the restriction.

In addition, other nonfundamental policies may be established from time
to time by the Funds' Trustees and would not require the approval of
shareholders.

PURCHASES

(See "Purchases" and "Transaction information" in the Funds'
prospectuses.)

Additional Information About Opening An Account

Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $1,000 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, or telephone.

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<PAGE>

Shareholders of other Scudder funds who have submitted an account
application and have certified a tax identification number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call, the investor will be asked to
indicate the Fund name, amount to be wired ($1,000 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the tax identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, State Street Bank and Trust Company, Boston, MA
02110, ABA Number 011000028, DDA Account Number 9903-5552. The investor must
give the Scudder fund name, account name and the new account number. Finally,
the investor must send the completed and signed application to the Fund
promptly.

The minimum initial purchase amount may be less than $1,000 under
certain special plan accounts.

Additional Information About Making Subsequent Investments

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

Additional Information About Making Subsequent Investments by AutoBuy

Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the AutoBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $50,000 but not less than $250. To
purchase shares by AutoBuy, shareholders should call before 4 p.m. eastern time.
Proceeds in the amount of your purchase will be transferred from your bank
checking account two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
purchased at the net asset value per share calculated at the close of trading on
the day of your call. AutoBuy requests received after the close of regular
trading on the Exchange will begin their processing and be purchased at the net
asset value calculated the following business day. If you purchase shares by
AutoBuy and redeem them within seven days of the purchase, the Fund may hold the
redemption proceeds for a period of up to seven business days. If you purchase
shares and there are insufficient funds in your bank account the purchase will
be canceled and you will be subject to any losses or fees incurred in the
transaction. AutoBuy transactions are not available for Scudder IRA accounts and
most other retirement plan accounts.

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

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

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<PAGE>

Checks

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

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

Wire Transfer of Federal Funds

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

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

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

Share Price

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

Share Certificates

Due to the desire of Trust management to afford ease of redemption,
certificates will not be issued to indicate ownership in the Funds. With respect
to Capital Growth Fund, share certificates now in a shareholder's possession may
be sent to the Trust's transfer agent, Scudder Service Corporation (the
"Transfer Agent"), for cancellation and credit to such shareholder's account.
Shareholders who prefer may hold the certificates in their possession until they
wish to exchange or redeem such shares. See "Purchases" and "Exchanges and
redemptions" in Capital Growth Fund's prospectus.

Other Information

If purchases or redemptions of the Funds' shares are arranged and
settlement is made at the investor's election through a member of the NASD,
other than the Distributor, that member may, at its discretion, charge a fee for
that service. The Trustees and Scudder Investor Services, Inc., the Trust's
principal underwriter, each has the right to limit the amount of purchases by,
and to refuse to sell to, any person. The Trustees and the Distributor each may
suspend or terminate the offering of shares of either Fund at any time.

The Tax Identification Number section of the Funds' application must be
completed when opening an account. Applications and purchase orders without a
certified tax identification number and certain other certified information

17
<PAGE>

(e.g., from exempt investors, certification of exempt status) may be returned to
the investor if a certified tax identification number and certain other required
certificates are not supplied.

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

EXCHANGES AND REDEMPTIONS

(See "Exchanges and redemptions" and "Transaction information" in the Funds'
prospectuses.)

Exchanges

Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange either may
be an additional investment into an existing account or may involve opening a
new account in the other fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $1,000. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request must
be in writing and must contain an original signature guarantee as described
under "Transaction Information--Signature guarantees" in the Funds'
prospectuses.

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

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

There is no charge to the shareholder for any exchange described above.
An exchange into another Scudder fund is a redemption of shares, and therefore
may result in tax consequences (gain or loss) to the shareholder, and the
proceeds of such an exchange may be subject to backup withholding. (See
"TAXES.")

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

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

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

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<PAGE>

Redemption by Telephone

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

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

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

Telephone redemption is not available with respect to shares
represented by share certificates for the Capital Growth Fund or shares held in
certain retirement accounts for both Funds.

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

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

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

Redemption requests by telephone (technically a repurchase by agreement
between the Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.

Redemption By AutoSell

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

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<PAGE>

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

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

Redemption by Mail or Fax

Any existing share certificates for the Capital Growth Fund
representing shares being redeemed must accompany a request for redemption and
be duly endorsed or accompanied by a proper stock assignment form with signature
guaranteed as explained in that Fund's prospectus.

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

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

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

Redemption-in-Kind

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

Other Information

Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct redemption requests to the
Trust through Scudder Investor Services, Inc. at Two International Place,
Boston, Massachusetts 02110-4103 by letter, fax, TWX, or telephone. A two-part
confirmation will be mailed out promptly after receipt of the request. A written
request in good order as described above and any certificates with a proper
original signature guarantee(s), as described in the Funds' prospectuses under
"Transaction information--Signature guarantees", should be sent with a copy of
the invoice to Scudder Service Corporation, Confirmed Processing Department, Two
International Place, Boston, Massachusetts 02110-4103. Failure to deliver shares
or required documents (see above) by the settlement date may result in
cancellation of the trade and the shareholder will be responsible for any loss
incurred by a Fund or the principal underwriter by reason of such cancellation.
The Trust shall have the authority, as agent of the shareholder, to redeem

20
<PAGE>

shares in the account to reimburse a Fund or the principal underwriter for the
loss incurred. Net losses on such transactions which are not recovered from the
shareholder will be absorbed by the principal underwriter. Any net gains so
resulting will accrue to a Fund. For this group, repurchases will be carried out
at the net asset value next computed after such repurchase requests have been
received. The arrangements described in this paragraph for repurchasing shares
are discretionary and may be discontinued at any time.

If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder will receive in addition to the net asset
value thereof, all declared but unpaid dividends thereon. The value of shares
redeemed or repurchased may be more or less than the shareholder's cost
depending on the net asset value at the time of redemption or repurchase. The
Funds do not impose a redemption or repurchase charge, although a wire charge
may be applicable for redemption proceeds wired to an investor's bank account.
Redemption of shares, including an exchange into another Scudder fund, may
result in tax consequences (gain or loss) to the shareholder and the proceeds of
such redemptions may be subject to backup withholding. (See "TAXES.")

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

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

If transactions at any time reduce a shareholder's account balance in
the Fund to below $1,000 in value, the Trust may notify the shareholder that,
unless the account balance is brought up to at least $1,000, the Trust will
redeem all shares in the Fund and close the account by making payment to the
shareholder. The shareholder has sixty days to bring the account balance up to
$1,000 before any action will be taken by the Trust. No transfer from an
existing account to a new Scudder fund account should be for less than $1,000;
otherwise the new account may be redeemed as described above. (This policy
applies to accounts of new shareholders but does not apply to certain Special
Plan Accounts.) The Trustees have the authority to change the minimum account
size.

FEATURES AND SERVICES OFFERED BY THE FUNDS

(See "Shareholder benefits" in the Funds' prospectuses.)

The Pure No-Load(TM) Concept

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

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

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

21
<PAGE>

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

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

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

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

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

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

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

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

Dividends and Capital Gains Distribution Options

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

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

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

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

22
<PAGE>

Diversification

Your investment in each Fund represents an interest in a large,
diversified portfolio of carefully selected securities. Diversification may
protect you against the possible risks associated with concentrating in fewer
securities.

Scudder Funds Centers

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

Reports to Shareholders

The Trust issues shareholders unaudited semiannual financial statements
and annual financial statements audited by independent accountants, including a
list of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights. The Trust presently intends to
distribute to shareholders informal quarterly reports during the intervening
quarters, containing a statement of the investments of the Funds.

Transaction Summaries

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

THE SCUDDER FAMILY OF FUNDS

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

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

MONEY MARKET

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

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

INCOME

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

23
<PAGE>

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

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

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

Scudder International Bond Fund seeks to provide income from a
portfolio of high-grade bonds denominated in foreign currencies. As a
secondary objective, the Fund seeks protection and possible enhancement
of principal value by actively managing currency, bond market and
maturity exposure and by security selection.

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

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

TAX FREE MONEY MARKET

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

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

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

TAX FREE

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

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

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

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

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

24
<PAGE>

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

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

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

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

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

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

GROWTH AND INCOME

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

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

GROWTH

Scudder Capital Growth Fund seeks to maximize long-term growth of
capital through a broad and flexible investment program emphasizing
common stocks.

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

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

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

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

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

25
<PAGE>

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

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

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

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

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

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

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

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

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

The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and diversified
investment portfolios; pure no-load funds with no commissions to purchase or
redeem shares or Rule 12b-1 distribution fees; individual attention from a
service representative of Scudder Investor Relations; easy telephone exchanges
into other Scudder funds; shares redeemable at net asset value at any time.

SPECIAL PLAN ACCOUNTS

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

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

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

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

26
<PAGE>

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

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

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

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

Scudder IRA: Individual Retirement Account

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

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

An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,250 for married couples if one spouse has earned income of no
more than $250). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.

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

27
<PAGE>

<TABLE>
<CAPTION>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution

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

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

<TABLE>
<CAPTION>
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
<C> <C> <C> <C>
Starting
Age of Annual Rate of Return
Contributions 5% 10% 15%
- ---------------------------- ------------------------- -------------------------- -------------------------
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>

Scudder 403(b) Plan

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

Automatic Withdrawal Plan

Non-retirement plan shareholders who currently own or purchase $10,000
or more of shares of a Fund may establish an Automatic Withdrawal Plan. The
investor can then receive monthly, quarterly or periodic redemptions from his or
her account for any designated amount of $50 or more. Payments are mailed at the
end of each month. The check amounts may be based on the redemption of a fixed
dollar amount, fixed share amount, percent of account value or declining
balance. The Plan provides for income dividends and capital gains distributions,
if any, to be reinvested in additional shares. Shares are then liquidated as
necessary to provide for withdrawal payments. Since the withdrawals are in
amounts selected by the investor and have no relationship to yield or income,
payments received cannot be considered as yield or income on the investment and
the resulting liquidations may deplete or possibly extinguish the initial
investment. Requests for increases in withdrawal amounts or to change payee must
be submitted in writing, signed exactly as the account is registered and contain
signature guarantee(s) as described under "Transaction information--Redeeming
shares--Signature guarantees" in each Fund's prospectus. Any such requests must
be received by the Funds' transfer agent by the 15th of the month in which such
change is to take effect. An Automatic Withdrawal Plan may be terminated at any
time by the shareholder, the Trust or its agent on written notice, and will be

28
<PAGE>

terminated when all shares of a Fund under the Plan have been liquidated or upon
receipt by the Trust of notice of death of the shareholder.

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

Group or Salary Deduction Plan

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

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

Automatic Investment Plan

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

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

Uniform Transfers/Gifts to Minors Act

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

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

Scudder Trust Company

Annual service fees are paid by each Fund to Scudder Trust Company, an
affiliate of the Adviser, for certain retirement plan accounts and are included
in the fees paid to the Transfer Agent.

29
<PAGE>

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

(See "Distribution and performance information--Dividends and
capital gains distributions" in the Funds' prospectuses.)

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

The Funds intend to declare in December any net realized capital gains
resulting from its investment activity and any dividend from investment company
taxable income. The Funds intend to distribute the December dividends and
capital gains either in December or in the following January. Any dividends or
capital gains distributions declared in October, November, or December with a
record date in that month and paid during the following January will be treated
by shareholders for federal income tax purposes as if received on December 31 of
the calendar year declared. If a shareholder has elected to reinvest any
dividends and/or other distributions, such distributions will be made in shares
of that Fund and confirmations will be mailed to each shareholder. If a
shareholder has chosen to receive cash, a check will be sent.

PERFORMANCE INFORMATION

(See "Distribution and performance
information--Performance information"
in the Funds' prospectuses.)

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

Average Annual Total Return

Average annual total return is the average annual compound rate of
return for the periods of one year, five years and ten years (or such shorter
periods as may be applicable dating from the commencement of a Fund's
operations), all ended on the last day of a recent calendar quarter. Average
annual total return quotations reflect changes in the price of the Funds' shares
and assume that all dividends and capital gains distributions during the
respective periods were reinvested in Fund shares. Average annual total return
is calculated by computing the average annual compound rates of return of a
hypothetical investment over such periods, according to the following formula
(average annual total return is then expressed as a percentage):

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

Where:

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

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<PAGE>

Average Annual Total Return for the periods ended September 30, 1995

One year Five years Ten years
-------- ---------- ---------

Capital Growth Fund 21.96% 18.19% 14.93%

One year Life of Fund^(1)
-------- ----------------

Value Fund 23.62%* 13.15%*

(1) For the period beginning December 31, 1992 (commencement of operations).

* The Adviser maintained Fund expenses for the period December 31, 1992
through September 30, 1993 and for the two fiscal years ended September
30, 1995. The Average Annual Total Return for one year and for the life
of the Fund, had the Adviser not maintained Fund expenses, would have
been lower.

As described above, average annual total return is based on historical
earnings and is not intended to indicate future performance. Average annual
total return for a Fund will vary based on changes in market conditions and the
level of a Fund's expenses.

In connection with communicating its average annual total return to
current or prospective shareholders, the Fund also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.

Cumulative Total Return

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

C = (ERV/P) - 1
Where:

C = Cumulative Total Return

P = a hypothetical initial investment of $1,000

ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.

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<PAGE>

Cumulative Total Return for the periods ended September 30, 1995

One year Five years Ten years
-------- ---------- ---------

Capital Growth Fund 21.96% 130.60% 302.05%

One year Life of Fund^(1)
-------- ----------------

Value Fund 23.62%* 40.43%*

(1) For the period beginning December 31, 1992 (commencement of operations).

* The Adviser maintained Fund expenses for the period December 31, 1992
through September 30, 1993 and for the two fiscal years ended September
30, 1995. The Cumulative Total Return for one year and for the life of
the Fund, had the Adviser not maintained Fund expenses, would have been
lower.

Total Return

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

Capital Change

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

From time to time, in advertisements, sales literature, and reports to
shareholders or prospective investors, figures relating to the growth in the
total net assets of a Fund apart from capital appreciation will be cited, as an
update to the information in this section, including, but not limited to: net
cash flow, net subscriptions, gross subscriptions, net asset growth, net account
growth, and subscription rates. Capital appreciation generally will be covered
by marketing literature as part of the Funds' performance data.

These figures can be described in the following manner:

Net cash flow is gross subscriptions minus gross redemptions for a
particular time period. Net cash flow is a negative number when redemptions
exceed subscriptions.

Net subscriptions is any positive net cash flow.

Gross subscriptions are the sum of all the individual subscriptions
over a specified period of time. It should be noted that subscriptions include
distributions reinvested at the shareholders' request.

In the period from September 30, 1994, to September 30, 1995, Capital
Growth Fund went from 93,315 accounts to 84,417 accounts and Value Fund went
from 3,926 accounts to 6,953 accounts. During the same period, net assets for
Capital Growth Fund went from $1.338 billion to $1.491 billion and from $35.099
million to $68.1 million for Value Fund. In this period, gross subscriptions for
the Capital Growth Fund and Value Fund were $245.2 million and $49.2 million,
respectively.

Net asset growth is any positive outcome of the following: gross
subscriptions less gross redemptions plus any capital change due to the
fluctuating prices of the securities in a Fund. Basically, therefore, it is net
cash flow plus any capital change where the outcome of that summation is
positive. The formula is:

Net Asset Growth = Gross Subscriptions - Gross Redemptions + Capital
Change

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<PAGE>

Net account growth is the total number of accounts in a Fund at one
point in time minus the total number of accounts at an earlier point in time
where the outcome of the calculation is positive. This is a quick way of
describing what is in fact a more complicated process of adding new accounts
even as some old accounts are closing. If new accounts open faster than old
accounts close, there is net account growth. This growth can also be expressed
as a percentage.

The net subscription rate is described as a matter of those new net
assets not due to capital change. Specifically, the net subscription rate is the
net cash flow divided by the average asset size of a Fund for the period in
question, expressed as a percentage.

The gross subscription rate can also be similarly described. In fact,
the formula would follow the pattern for the net subscription rate, but uses a
gross figure instead of a net figure. Gross subscriptions would be substituted
for net cash flow in a simple variation on the same basic idea.

Comparison of Portfolio Performance

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

In connection with communicating its performance to current or
prospective shareholders, a Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500 Composite
Stock Price Index (S&P 500), the NASDAQ OTC Composite Index, the NASDAQ
Industrials Index, the Russell 2000 Index, and statistics published by the Small
Business Administration.

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

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

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

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

Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Funds. The
description may include a "risk/return spectrum" which compares the Funds to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are

33
<PAGE>

designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Funds to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.

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

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

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

Scudder's Theme: Build Create Provide Marketing and fund literature may refer to
Scudder's theme: "Build Create Provide." This theme intends to encapsulate the
composition of a sound investment philosophy, one through which Scudder can help
provide investors appropriate avenues for pursuing dreams. Individuals recognize
the need to build investment plans that are suitable and directed at achieving
one's financial goals. The desired result from planning and a long-term
commitment to it is the ability to build wealth over time. While there are no
guarantees in the pursuit of wealth through investing, Scudder believes that a
sound investment plan can enhance one's ability to achieve financial goals that
are clearly defined and appropriately approached. Wealth, while a relative term,
may be defined as the freedom to provide for those interests which you hold most
important -- your family, future, and/or your community.

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

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

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

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

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

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

34
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

35
<PAGE>

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

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

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

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

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

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

USA Today, a leading national daily newspaper.

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

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

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

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

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

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

ORGANIZATION OF THE FUNDS

(See "Fund organization" in the Funds' prospectuses.)

The Funds are separate series of Scudder Equity Trust. Scudder Equity
Trust, formerly Scudder Capital Growth Fund, is a Massachusetts business trust
established under a Declaration of Trust dated October 16, 1985, as amended. The
Trust's authorized capital consists of an unlimited number of shares of
beneficial interest, par value $0.01 per share. The Trustees have the authority
to issue additional series of shares. If more than one series of shares were
issued and a series were unable to meet its obligations, the remaining series
might have to assume the unsatisfied obligations of that series. All shares of
Scudder Capital Growth Fund and Scudder Value Fund are of one class and have
equal rights as to voting, dividends and liquidation. All shares issued and
outstanding will be fully paid and nonassessable by the Trust, and redeemable as
described in this Statement of Additional Information and in the Funds'
prospectuses.

The Trustees, in their discretion, may authorize the division of shares
of a Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution. The Trustees have no present
intention of taking the action necessary to effect the division of shares into
separate classes (which under present regulations would require a Fund first to

36
<PAGE>

obtain an exemptive order of the SEC), nor of changing the method of
distribution of shares of a Fund.

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

The Trust's predecessor was organized in 1966 as a Delaware corporation
under the name "Scudder Duo-Vest Inc." as a closed-end, diversified dual-purpose
investment company. Effective April 1, 1982, its original dual-purpose nature
was terminated and it became an open-end investment company with only one class
of shares outstanding. At a Special Meeting of Shareholders held May 18, 1982,
the shareholders voted to amend the investment objective to seek to maximize
long-term growth of capital and to change the name of the corporation to
"Scudder Capital Growth Fund, Inc." ("SCGF, Inc."). The fiscal year end of SCGF,
Inc. was changed from March 31 to September 30 by action of its Directors on May
18, 1982. Effective as of September 30, 1982, Scudder Special Fund, Inc. was
merged into SCGF, Inc. In October 1985, the Fund's form of organization was
changed to a Massachusetts business trust upon approval of the shareholders.

Shares of Scudder Equity Trust entitle their holders to one vote per
share; however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to the other
series.

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

No series of the Trust shall be liable for the obligations of any other
series.

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<PAGE>

INVESTMENT ADVISER

(See "Fund organization--Investment adviser" in the Funds'
prospectuses.)

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

The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder Institutional Fund,
Inc., Scudder International Fund, Inc., Scudder Investment Trust, Scudder
Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder Securities Trust, Scudder State Tax Free
Trust, Scudder Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S.
Treasury Money Fund, Scudder Variable Life Investment Fund, Scudder World Income
Opportunities Fund, Inc., The Argentina Fund, Inc., The Brazil Fund, Inc., The
First Iberian Fund, Inc., The Korea Fund, Inc., The Japan Fund, Inc. and The
Latin America Dollar Income Fund, Inc. Some of the foregoing companies or trusts
have two or more series.

The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $11 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust and AARP Cash
Investment Funds.

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

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

The Investment Management Agreement between the Trust, on behalf of
Capital Growth Fund, and the Adviser was last approved by the Trustees on
September 6, 1995 and by the Fund's shareholders on December 13, 1990. The
Investment Management Agreement between the Trust, on behalf of Value Fund, and
the Adviser was last approved by the Trustees on September 6, 1995 and by the
initial shareholders of the Fund on December 30, 1992. The Capital Growth Fund
Agreement dated December 14, 1990 and the Value Fund Agreement dated December
28, 1992 (collectively, the "Agreements") will continue in effect until
September 30, 1996 and from year to year thereafter only if their continuance is
approved annually by the vote of a majority of those Trustees who are not
parties to such Agreements or interested persons of the Adviser or the Trust,
cast in person at a meeting called for the purpose of voting on such approval,
and either by vote of the Trustees or by a majority of the outstanding voting

38
<PAGE>

securities of that Fund. The Agreements may be terminated at any time without
payment of penalty by either party on sixty days' written notice, and
automatically terminates in the event of their assignment.

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

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

For the Adviser's services, Capital Growth Fund pays the Adviser a fee
equal to 0.75 of 1% on the first $500 million of average daily net assets; 0.65
of 1% on the next $500 million of such assets; and 0.60 of 1% on assets in
excess of $1 billion, payable monthly, provided the Fund will make such interim
payments as may be requested by the Adviser not to exceed 75% of the amount of
the fee then accrued on the books of the Fund and unpaid.

For the fiscal years ended September 30, 1993, 1994 and 1995, Capital
Growth Fund incurred aggregate fees pursuant to its then effective investment
advisory agreement of $8,539,125, $9,199,315 and $9,118,015, respectively.

For the Adviser's services, Value Fund pays the Adviser an annual fee
equal to 0.70% of average daily net assets, payable monthly, provided the Fund
will make such interim payments as may be requested by the Adviser not to exceed
75% of the amount of the fee then accrued on the books of the Fund and unpaid.
For the period December 31, 1992 (commencement of operations) to September 30,
1993 and for the fiscal year ended September 30, 1994, the Adviser did not
impose a portion of its management fees amounting to $29,834 and $119,841,
respectively and the amounts imposed amounted to $17,827 and $112,125,
respectively. The Adviser has voluntarily agreed to waive management fees or
reimburse the Fund to the extent necessary so that the total annualized expenses
of the Fund do not exceed 1.25% of the average daily net assets until July 31,
1996. The Adviser retains the ability to be repaid by the Fund if expenses fall
below the specified limit prior to the end of the fiscal year. These expense
limitation arrangements can decrease the Fund's expenses and improve its
performance. During the fiscal year ended September 30, 1995, these agreements
resulted in a reduction of management fees paid by the Fund of $95,355. For the
fiscal year ended September 30, 1995, the Adviser imposed a portion of its
management fee amounting to $257,942.

Under each Agreement a Fund is responsible for all of its other
expenses including broker's commissions; legal, auditing and accounting
expenses; the calculation of net asset value; taxes and governmental fees; the
fees and expenses of the Transfer Agent; the cost of preparing share
certificates or any other expenses including clerical expenses of issue, sale,
underwriting, distribution, redemption or repurchase of shares; the expenses of
and the fees for registering or qualifying securities for sale; fees and
expenses incurred in connection with membership in investment company
organizations; the fees and expenses of the Trustees, officers and employees of
the Fund who are not affiliated with the Adviser; the cost of printing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians. The Trust may arrange to have third parties assume all or part of
the expenses of sale, underwriting and distribution of shares of the Funds. The
Funds are also responsible for expenses incurred in connection with litigation,
proceedings and claims and the legal obligation it may have to indemnify its
officers and Trustees with respect thereto. Each Agreement expressly provides
that the Adviser shall not be required to pay a pricing agent of any Fund for
portfolio pricing services, if any.

Each Agreement requires the Adviser to reimburse the Funds for annual
expenses in excess of the lowest applicable expense limitation imposed by the
states in which a Fund is at the time offering its shares for sale, although no
payments are required to be made by the Adviser pursuant to this reimbursement

39
<PAGE>

provision in excess of the annual fee paid by a Fund to the Adviser. Management
has been advised that, while some states have eliminated expense limitations and
others may do so in the future, the lowest of such limitations is presently 2
1/2% of such net assets up to $30 million, 2% of the next $70 million of such
net assets and 1 1/2% of such net assets in excess of that amount. Certain
expenses such as brokerage commissions, taxes, extraordinary expenses and
interest are excluded from such limitation. For the fiscal years ended September
30, 1993, 1994 and 1995, such expenses for Capital Growth Fund equaled 0.96%,
0.97% and 0.98%, respectively, of the Fund's average net assets. For the period
December 31, 1992 (commencement of operations) to September 30, 1993 and the
fiscal years ended September 30, 1994 and 1995, such expenses for Value Fund
equaled 1.25% of the Fund's average net assets. If reimbursement is required, it
will be made as promptly as practicable after the end of the Funds' fiscal year.
However, no fee payment will be made to the Adviser during any fiscal year which
will cause year-to-date expenses to exceed the cumulative pro-rata expense
limitation at the time of such payment.

The Adviser renders significant administrative services (not otherwise
provided by third parties) necessary for a Fund's operations as an open-end
investment company including, but not limited to, preparing reports and notices
to the Trustees and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Funds (such as the Funds' transfer agent, pricing agents, custodian, accountants
and others); preparing and making filings with the SEC and other regulatory
agencies; assisting in the preparation and filing of the Funds' federal, state
and local tax returns; preparing and filing the Funds' federal excise tax
returns; assisting with investor and public relations matters; monitoring the
valuation of securities and the calculation of net asset value, monitoring the
registration of shares of the Funds under applicable federal and state
securities laws; maintaining the Funds' books and records to the extent not
otherwise maintained by a third party; assisting in establishing accounting
policies of the Funds; assisting in the resolution of accounting and legal
issues; establishing and monitoring the Funds' operating budget; processing the
payment of the Funds' bills; assisting the Funds in, and otherwise arranging
for, the payment of distributions and dividends and otherwise assisting the
Funds in the conduct of its business, subject to the direction and control of
the Trustees.

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

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

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

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

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

Personal Investments by Employees of the Adviser

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

40
<PAGE>

<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS

<C> <C> <C> <C>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trust Occupation** Services, Inc.
- ----------- ---------- ------------ --------------

Daniel Pierce*#+ President and Chairman of the Board and Vice President,
Trustee Managing Director of Scudder, Assistant Treasurer and
Stevens & Clark, Inc. Director

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

Sheryle J. Bolton Trustee Consultant --
20 Hilltop Road
Waccabue, NY 10597

Thomas J. Devine Trustee Consultant --
641 Lexington Avenue
New York, NY

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

David S. Lee*+ Vice President and Managing Director of Scudder, President, Assistant
Trustee Stevens and Clark, Inc. Treasurer and Director

Douglas M. Loudon*++ Vice President and Managing Director of Scudder, Senior Vice President
Trustee Stevens and Clark, Inc.

Wilson Nolen Trustee Consultant, June 1989 to --
1120 Fifth Avenue present, Corporate Vice
New York, NY President of Becton, Dickinson &
Company (manufacturer of medical
and scientific products), from
1973 to June 1989

Juris Padegs*++# Vice President and Managing Director of Scudder, Vice President and
Trustee Stevens and Clark, Inc. Director

Gordon Shillinglaw Trustee Professor Emeritus of --
196 Villard Avenue Accounting, Columbia University
Hastings-on-Hudson, NY Graduate School of Business

Robert W. Lear Honorary Trustee Executive-in-Residence Columbia --
429 Silvermine Road University Graduate School of
New Canaan, CT Business

41
<PAGE>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trust Occupation** Services, Inc.
- ----------- ---------- ------------ --------------

Robert G. Stone, Jr. Honorary Trustee Chairman of the Board and --
405 Lexington Avenue Director, Kirby Corporation
39th Floor (marine transportation, diesel
New York, NY 10174 repair and property and casualty
insurance in Puerto Rico)

Donald E. Hall@ Vice President Managing Director of Scudder, --
Stevens and Clark, Inc.

Jerard K. Hartman++ Vice President Managing Director of Scudder, --
Stevens and Clark, Inc.

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

Kathleen T. Millard++ Vice President Principal of Scudder, Stevens & --
Clark, Inc.

Thomas F. McDonough+ Vice President, Principal of Scudder, Stevens & Clerk
Secretary and Clark, Inc.
Assistant Treasurer

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

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

Kathryn L. Quirk++ Vice President and Managing Director of Scudder, Vice President
Assistant Secretary Stevens and Clark, Inc.

Coleen Downs Dinneen+ Assistant Secretary Vice President of Scudder, Assistant Clerk
Stevens & Clark, Inc.
</TABLE>

* Messrs. Lee, Loudon, Padegs and Pierce are considered by the Trust and
its counsel to be persons who are "interested persons" of the Adviser
or of the Trust (within the meaning of the 1940 Act).
** Unless otherwise stated, all the Trustees and officers have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
# Messrs. Padegs and Pierce are members of the Executive Committee,
which may exercise all of the powers of the Trustees when they are not
in session.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
@ Address: 333 South Hope Street, Los Angeles, California

As of December 31, 1995 all Trustees and officers of the Trust as a
group owned beneficially (as that term is defined in Section 13(d) under the
Securities and Exchange Act of 1934) 1,244,749 shares, or 1.65% of the shares of
Capital Growth Fund.

As of December 31, 1995 all Trustees and officers of the Trust as a
group owned beneficially (as that term is defined in Section 13(d) under the
Securities and Exchange Act of 1934) 216,297 shares, or 4.60% of the shares of

42
<PAGE>

Value Fund. Certain accounts for which the Adviser acts as investment adviser
owned 790,934 shares in the aggregate of Value Fund, or 16.81% of the
outstanding shares on December 31, 1995. The Adviser may be deemed to be the
beneficial owner of such shares but disclaims any beneficial ownership in such
shares.

To the best of the Trust's knowledge, as of December 31, 1995 no person
owned beneficially more than 5% of a Fund's outstanding shares.

The Trustees and officers of the Trust also serve in similar capacities
with other Scudder funds.

REMUNERATION

Several of the officers and Trustees of the Trust may be officers or
employees of the Adviser, the Distributor, the Transfer Agent, Scudder Trust
Company or Scudder Fund Accounting Corporation, from whom they receive
compensation, as a result of which they may be deemed to participate in the fees
paid by the Trust. The Funds pay no direct remuneration to any officer of the
Trust. However, each of the Trustees who is not affiliated with the Adviser will
be paid by the Trust. Each of these unaffiliated Trustees receives an annual
Trustee's fee of $4,000 plus $400 for attending each Trustees' meeting, audit
committee meeting or meeting held for the purpose of considering arrangements
between the Fund and the Adviser or any of its affiliates. Each unaffiliated
Trustee also receives $150 per committee meeting attended other than those set
forth above. For the fiscal year ended September 30, 1995, Capital Growth Fund
paid such Trustees $42,609 and Value Fund paid such Trustees $43,076.

The following Compensation Table provides, in tabular form, the following data:

Column (1): All Trustees who receive compensation from the Trust.
Column (2): Aggregate compensation received by a Trustee from all the series of
the Trust.
Columns (3) and (4): Pension or retirement benefits accrued or proposed be paid
by the Fund Complex. Scudder Equity Trust does not pay its Trustees such
benefits.
Column (5): Total compensation received by a Trustee from the Trust, plus
compensation received from all funds managed by the Adviser for which a Trustee
serves. The total number of funds from which a Trustee receives such
compensation is also provided in column (5). Generally, compensation received by
a Trustee for serving on the board of a closed-end fund is greater than the
compensation received by a Trustee for serving on the board of an open-end fund.

Compensation Table
for the year ended December 31, 1995
<C> <C> <C> <C> <C>

(1) (2) (3) (4) (5)

Aggregate Compensation from Total Compensation
Scudder Equity Trust Pension or From
(consisting of two Funds: Retirement Benefits Estimated Annual Scudder Equity Trust
Name of Person, Scudder Capital Growth Fund Accrued As Part of Benefits Upon and Fund Complex
Position and Scudder Value Fund) Fund Expenses Retirement Paid to Trustee
===================== ============================== ==================== ===================== =========================

Paul Bancroft III, $17,200 N/A N/A $142,067
Trustee (15 funds)

Sheryle J. Bolton, $1,686 N/A N/A $5,501
Trustee (7 funds)

Thomas J. Devine, $17,200 N/A N/A $146,267
Trustee (17 funds)

Keith R. Fox, $1,686 N/A N/A $1,686
Trustee (2 funds)

Wilson Nolen, $16,400 N/A N/A $148,342
Trustee (16 funds)

Gordon Shillinglaw, $18,000 N/A N/A $102,097
Trustee (15 funds)

Robert G. Stone, Jr., $15,534 N/A N/A $137,514
Honorary Trustee (15 funds)
</TABLE>

43
<PAGE>

DISTRIBUTOR

The Trust has an underwriting agreement with Scudder Investor Services,
Inc. (the "Distributor"), a Massachusetts corporation, which is a subsidiary of
the Adviser. This underwriting agreement dated May 1, 1987 will remain in effect
until September 30, 1996 and from year to year thereafter only if its
continuance is approved annually by a majority of the Trustees who are not
parties to such agreement or interested persons of any such party and either by
vote of a majority of the Trustees or a majority of the outstanding voting
securities of the Trust. The underwriting agreement was last approved by the
Trustees on September 6, 1995.

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

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

Note: Although each Fund currently has no 12b-1 Plan and shareholder
approval would be required in order to adopt one, the underwriting
agreement provides that a Fund will also pay those fees and expenses
permitted to be paid or assumed by a Fund pursuant to a 12b-1 Plan, if
any, adopted by a Fund, notwithstanding any other provision to the
contrary in the underwriting agreement and a Fund or a third party will
pay those fees and expenses not specifically allocated to the
Distributor in the underwriting agreement.

As agent, the Distributor currently offers shares of a Fund on a
continuous basis to investors in all states. The underwriting agreement provides
that the Distributor accepts orders for shares at net asset value as no sales
commission or load is charged the investor. The Distributor has made no firm
commitment to acquire shares of a Fund.

TAXES

(See "Distribution and performance information--Dividends and capital gains
distributions" and "Transaction information--Tax information and Tax
identification number" in the Funds'
prospectuses.)

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

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

Investment company taxable income generally is made up of dividends,
interest, and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net capital gains (the excess of net long-term capital

44
<PAGE>

gain over net short-term capital loss) are computed by taking into account any
capital loss carryforward of a Fund. Presently, each Fund has no capital loss
carryforward.

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

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

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

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

If any net capital gains are retained by a Fund for reinvestment,
requiring federal income taxes to be paid thereon by that Fund, each Fund
intends to elect to treat such capital gains as having been distributed to
shareholders. As a result, each shareholder will report such capital gains as
long-term capital gains, will be able to claim a relative share of the federal
income taxes paid by a Fund on such gains as a credit against personal federal
income tax liabilities, and will be entitled to increase the adjusted tax basis
on Fund shares by the difference between a pro-rata share of such gains and the
individual tax credit. However, retention of such gains by a Fund may cause the
Fund to be liable for an excise tax on all or a portion of those gains.

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

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

An individual may make a deductible IRA contribution for any taxable
year only if (i) neither the individual nor his or her spouse (unless filing
separate returns) is an active participant in an employer's retirement plan, or
(ii) the individual (and his or her spouse, if applicable) has an adjusted gross
income below a certain level ($40,050 for married individuals filing a joint
return, with a phase-out of the deduction for adjusted gross income between
$40,050 and $50,000; $25,050 for a single individual, with a phase-out for
adjusted gross income between $25,050 and $35,000). However, an individual not
permitted to make a deductible contribution to an IRA for any such taxable year
may nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,250 to IRAs for an individual and his or her nonearning spouse) for that
year. There are special rules for determining how withdrawals are to be taxed if
an IRA contains both deductible and nondeductible amounts. In general, a
proportionate amount of each withdrawal will be deemed to be made from

45
<PAGE>

nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, contributions may be made to a spousal
IRA even if the spouse has earnings in a given year, if the spouse elects to be
treated as having no earnings (for IRA contribution purposes) for the year.

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

If a Fund invests in stock of certain foreign investment companies,
that Fund may be subject to U.S. federal income taxation on a portion of any
"excess distribution" with respect to, or gain from the disposition of, such
stock. The tax would be determined by allocating such distribution or gain
ratably to each day of the Fund's holding period for the stock. The distribution
or gain so allocated to any taxable year of the Fund, other than the taxable
year of the excess distribution or disposition, would be taxed to the Fund at
the highest ordinary income rate in effect for such year, and the tax would be
further increased by an interest charge to reflect the value of the tax deferral
deemed to have resulted from the ownership of the foreign company's stock. Any
amount of distribution or gain allocated to the taxable year of the distribution
or disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.

Proposed regulations have been issued which may allow a Fund to make an
election to mark to market its shares of these foreign investment companies in
lieu of being subject to U.S. federal income taxation. At the end of each
taxable year to which the election applies, a Fund would report as ordinary
income the amount by which the fair market value of the foreign company's stock
exceeds the Fund's adjusted basis in these shares. No mark to market losses may
be recognized. The effect of the election would be to treat excess distributions
and gain on dispositions as ordinary income which is not subject to a fund level
tax when distributed to shareholders as a dividend. Alternatively, a Fund may
elect to include as income and gain its share of the ordinary earnings and net
capital gain of certain foreign investment companies in lieu of being taxed in
the manner described above.

Equity options (including covered call options written on portfolio
stock) and over-the-counter options on debt securities written or purchased by
the Fund will be subject to tax under Section 1234 of the Code. In general, no
loss will be recognized by a Fund upon payment of a premium in connection with
the purchase of a put or call option. The character of any gain or loss
recognized (i.e. long-term or short-term) will generally depend, in the case of
a lapse or sale of the option, on a Fund's holding period for the option, and in
the case of the exercise of a put option, on a Fund's holding period for the
underlying property. The purchase of a put option may constitute a short sale
for federal income tax purposes, causing an adjustment in the holding period of
the underlying security or a substantially identical security in a Fund's
portfolio.

If a Fund writes a covered call option on portfolio stock, no gain is
recognized upon its receipt of a premium. If the option lapses or is closed out,
any gain or loss is treated as short-term capital gain or loss. If the option is
exercised, the character of the gain or loss depends on the holding period of
the underlying stock.

Positions of a Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes a Fund's risk of loss with respect to such stock could
be treated as a "straddle" which is governed by Section 1092 of the Code, the
operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by a Fund.

Many or all futures and forward contracts entered into by a Fund and
many or all listed nonequity options written or purchased by a Fund (including
options on debt securities, options on futures contracts, options on foreign
currencies and options on securities indices) will be governed by Section 1256
of the Code. Absent a tax election to the contrary, gain or loss attributable to
the lapse, exercise or closing out of any such position generally will be
treated as 60% long-term and 40% short-term capital gain or loss, and on the
last day of the Funds' fiscal year (as well as on October 31 for purposes of the
4% excise tax), all outstanding Section 1256 positions will be marked to market

46
<PAGE>

(i.e. treated as if such positions were sold at their closing price on such
day), with any resulting gain or loss recognized as 60% long-term and 40%
short-term capital gain or loss. Under Section 988 of the Code, discussed below,
foreign currency gain or loss from foreign currency-related forward contracts,
certain futures and options, and similar financial instruments entered into or
acquired by the Fund will be treated as ordinary income. Under certain
circumstances, entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment in the holding
period of the underlying security or a substantially identical security in the
relevant Fund's portfolio.

Subchapter M of the Code requires that a Fund realize less than 30% of
its annual gross income from the sale or other disposition of stock or
securities held for less than three months and from options, futures and forward
contracts (not including certain foreign currency options, futures and forward
contracts) and certain foreign currencies held less than three months. Options,
futures and forward activities of a Fund may increase the amount of gains
realized by the Fund that are subject to the 30% limitation. Accordingly, the
amount of such activities that each Fund may engage in may be limited.

Positions of a Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or nonequity option
or other position governed by Section 1256 which substantially diminishes a
Fund's risk of loss with respect to such other position may be treated as a
"mixed straddle." Mixed straddles are subject to the straddle rules of Section
1092 of the Code and may result in the deferral of losses if the non-Section
1256 position is in an unrealized gain at the end of a reporting period.

Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues receivables or
liabilities denominated in a foreign currency and the time a Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency and on disposition of certain futures
contracts, forward contracts and options, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the security or contract and the date of disposition are also treated as
ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may increase or decrease the amount of a Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.

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

Shareholders may be subject to state and local taxes on distributions
received from a Fund and on redemptions of each Fund's shares. Each distribution
is accompanied by a brief explanation of the form and character of the
distribution. By January 31 of each year the Fund issues to each shareholder a
statement of the federal income tax status of all distributions.

The Trust is organized as a Massachusetts business trust. Neither the
Trust nor a Fund is expected to be liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that each Fund qualifies as a regulated
investment company under the Code.

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

47
<PAGE>

Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.

PORTFOLIO TRANSACTIONS

Brokerage Commissions

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

The primary objective of the Adviser in placing orders for the purchase
and sale of securities for a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable
(negotiable in the case of U.S. national securities exchange transactions), size
of order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by a Fund to reported commissions paid by others.
The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.

The Funds' purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by a Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.

When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply market quotations to Scudder Fund Accounting
Corporation for appraisal purposes, or who supply research, market and
statistical information to a Fund or the Adviser. The term "research, market and
statistical information" includes advice as to the value of securities, the
advisability of investing in, purchasing or selling securities, and the
availability of securities or purchasers or sellers of securities, and
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is not authorized when placing portfolio transactions for a Fund to
pay a brokerage commission (to the extent applicable) in excess of that which
another broker might charge for executing the same transaction solely on account
of the receipt of research, market or statistical information. The Adviser will
not place orders with broker/dealers on the basis that the broker/dealer has or
has not sold shares of a Fund. Except for implementing the policy stated above,
there is no intention to place portfolio transactions with particular brokers or
dealers or groups thereof. In effecting transactions in over-the-counter
securities, orders are placed with the principal market makers for the security
being traded unless, after exercising care, it appears that more favorable
results are available elsewhere.

Subject also to obtaining the most favorable net results, the Adviser
may place brokerage transactions with Bear, Stearns & Co. A credit against the
custodian fee due to State Street Bank and Trust Company equal to one-half of
the commission on any such transaction will be given on any such transaction.

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

In the fiscal years ended September 30, 1993, 1994 and 1995, Capital
Growth Fund paid brokerage commissions of $2,522,135, $2,242,087 and $5,222,945,
respectively. In the fiscal year ended September 30, 1995, the Fund paid

48
<PAGE>

brokerage commissions of $4,648,421 (89% of the total brokerage commissions),
resulting from orders placed, consistent with the policy of seeking to obtain
the most favorable net results, for transactions placed with brokers and dealers
who provided supplementary research, market and statistical information to the
Trust or Adviser. The amount of such transactions aggregated $1,448,192,812 (89%
of all brokerage transactions). The balance of such brokerage was not allocated
to any particular broker or dealer or with regard to the above-mentioned or any
other special factors.

For the fiscal years ended September 30, 1993, 1994 and 1995, Value
Fund paid brokerage commissions of $62,324.54, $78,912 and $165,577,
respectively. For the fiscal year ended September 30, 1995, the Fund paid
brokerage commissions of $152,330 (92% of the total brokerage commissions),
resulting from orders placed consistent with the policy of seeking to obtain the
most favorable net results for transactions placed with brokers and dealers who
provided supplementary research, market and statistical information to the Trust
or Adviser. The amount of such transactions aggregated $136,573,848 (91% of all
brokerage transactions). The balance of such brokerage was not allocated to any
particular broker or dealer or with regard to the above-mentioned or any other
special factors.

The Trustees review from time to time whether the recapture for the
benefit of a Fund of some portion of the brokerage commissions or similar fees
paid by a Fund on portfolio transactions is legally permissible and advisable.
To date no such recapture has been effected.

Portfolio Turnover

Capital Growth Fund's average annual portfolio turnover rate, i.e. the
ratio of the lesser of sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator all securities
with maturities at the time of acquisition of one year or less), for the fiscal
years ended September 30, 1994 and 1995 was 75.8% and 153.6%, respectively. For
the fiscal years ended September 30, 1994 and 1995, Value Fund had an annualized
portfolio turnover rate of 74.6% and 98.2%, respectively. Higher levels of
activity by the Funds result in higher transaction costs and may also result in
taxes on realized capital gains to be borne by the Funds' shareholders.
Purchases and sales are made for a Fund whenever necessary, in management's
opinion, to meet the Funds' objectives.

NET ASSET VALUE

The net asset value of shares of each Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas. Net asset value per share is determined by dividing
the value of the total assets of the Fund, less all liabilities, by the total
number of shares outstanding.

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

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

An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated

49
<PAGE>

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

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

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

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

ADDITIONAL INFORMATION

Experts

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

Shareholder Indemnification

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

Other Information

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

The name "Scudder Equity Trust" is the designation of the Trustees for
the time being under a Declaration of Trust dated October 16, 1985, as amended,
and all persons dealing with a Fund must look solely to the property of a Fund
for the enforcement of any claims against a Fund as neither the Trustees,
officers, agents, shareholders nor other series of the Trust assumes any
personal liability for obligations entered into on behalf of a Fund. Upon the
initial purchase of shares of a Fund, the shareholder agrees to be bound by the
Trust's Declaration of Trust, as amended from time to time. The Declaration of
Trust is on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts. All persons dealing with the Fund must look only to the assets of
the Fund for the enforcement of any claims against a Fund as no other series of
the Trust assumes any liabilities for obligations entered into on behalf of a
Fund.

50
<PAGE>

The CUSIP number of Capital Growth Fund is 81114T-10-9.

The CUSIP number of Value Fund is 811114T-20-8.

Each Fund has a fiscal year end of September 30.

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

Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts 02110-4103, a subsidiary of the Adviser, computes net asset values
for the Funds. Each Fund pays Scudder Fund Accounting Corporation an annual fee
equal to 0.025% of the first $150 million of average daily net assets, 0.0075%
of such assets in excess of $150 million and 0.0045% of such assets in excess of
$1 billion, plus holding and transaction charges for this service.

Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer,
dividend disbursing and shareholder service agent for each Fund. Service
Corporation also provides subaccounting and recordkeeping services for
shareholder accounts in certain retirement and employee benefit plans. Each Fund
pays Service Corporation a fee for each account maintained for a participant of
$17.55 which is $8.05 for its services as transfer and dividend paying agent and
$9.50 for its services as shareholder service agent. For the fiscal year ended
September 30, 1995, Capital Growth Fund and Value Fund incurred annual fees of
$2,650,164 and $125,734, respectively. Please refer to "How to contact Scudder"
in each Fund's prospectus or call 1-800-225-5163 for specific mailing
instructions regarding your investment.

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

This Statement of Additional Information combines the information of
both Scudder Capital Growth Fund and Scudder Value Fund. Each Fund, through its
individual prospectus, offers only its own shares, yet it is possible that one
Fund might become liable for a misstatement regarding the other Fund. The
Trustees of each Fund have considered this, and have approved the use of a
combined Statement of Additional Information.

Costs of $44,657 incurred by Value Fund in conjunction with its
organization are amortized over the five year period beginning December 31,
1992.

FINANCIAL STATEMENTS

Capital Growth Fund

The financial statements, including the investment portfolio of Capital
Growth Fund, together with the Report of Independent Accountants, Financial
Highlights, and notes to financial statements are incorporated by reference and
attached hereto in the Annual Report to Shareholders of the Fund dated September
30, 1995, and are hereby deemed to be part of this Statement of Additional
Information.

Value Fund

The financial statements, including the investment portfolio of Value
Fund together with the Report of Independent Accountants, Financial Highlights
and notes to financial statements are incorporated by reference and attached
hereto in the Annual Report to Shareholders of the Fund dated September 30,
1995, and are hereby deemed to be part of this Statement of Additional
Information.

51
<PAGE>

APPENDIX

The following is a description of the ratings given by Moody's and
Standard & Poor's to corporate and municipal bonds.

Ratings of Municipal and Corporate Bonds

Standard & Poor's:

Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.

Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major exposures to adverse conditions.

Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.

Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal in the event of
adverse business, financial, or economic conditions. It is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating. The rating CC typically is applied to debt subordinated
to senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt which is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.

Moody's:

Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.

52
<PAGE>

Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds which are rated Ba are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during other good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
which are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.

Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.

<PAGE>

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

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

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.

<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>

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

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.

<PAGE>
INVESTMENT PORTFOLIO

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

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.

<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

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.

<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):

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.

<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.

<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 investment
income . . . . . . . . . -- -- (.10) (.22) (.37) (.16) (.07) (.20) (.23) (.23)

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.

<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.

<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

<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:

<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

<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.

<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.

<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

<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.

<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
<PAGE>

Celebrating Over 75 Years of Serving Investors

Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder, Stevens & Clark was the first independent investment counsel
firm in the United States. Since its birth, Scudder's pioneering spirit and
commitment to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load mutual
fund. Today we offer 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.

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

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

Scudder
Value Fund

Annual Report
September 30, 1995

o For investors seeking long-term growth of capital through investment
in undervalued equity securities.

o A pure no-load(TM) fund with no commissions to buy, sell, or exchange
shares.

<PAGE>

SCUDDER VALUE FUND

CONTENTS

2 In Brief
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
14 Financial Statements
17 Financial Highlights
18 Notes to Financial Statements
24 Report of Independent Accountants
25 Tax Information
25 Officers and Trustees
26 Investment Products and Services
27 How to Contact Scudder

IN BRIEF

o Scudder Value Fund provided a 23.62% total return for the 12-month
period ended September 30, 1995, aided by strong performance from many
of its financial, healthcare, and technology holdings.

o Declining interest rates, gains in corporate earnings, and strong
investor demand for equity mutual funds propelled the U.S. stock
market to new highs during the Fund's fiscal year.

o The Fund's net assets nearly doubled during the year, from $35.1
million to $68.1 million, reflecting stock price appreciation and over
3,000 new shareholder accounts.

o The Fund continues to employ a rigorous value-oriented approach to
stock selection, emphasizing below-average price/earnings ratios
combined with positive momentum in earnings revisions.

2
<PAGE>

LETTER FROM THE FUND'S PRESIDENT

Dear Shareholders,

Scudder Value Fund had a great year, with net assets nearly doubling
from $35.1 to $68.1 million. This increase reflected a net cash inflow of $22
million and a strong stock market. Stock prices rallied sharply in 1995 after a
lackluster 1994, propelled by a confluence of positive economic and
market-related factors. Moreover, stock market corrections in this period have
been few and unusually mild. Given this environment, we are pleased with the
solid performance of Scudder Value Fund, which returned 23.62% for the fiscal
year just ended.

After such impressive stock market gains -- and given the late stage of
the economic cycle -- some market correction would be natural. This might be
precipitated by growing investor recognition that a mild slowdown in economic
activity next year, resulting from the lack of corporate pricing power and a
reduction in consumer spending, is likely. With its focus on undervalued
securities, Scudder Value Fund should provide relatively strong returns in such
an environment, because historically the Fund's investments have been less
sensitive to earnings disappointments than stocks with higher multiples. Despite
near-term uncertainties, it is important to keep in mind that the longer-term
outlook for U.S. equities is favorable, characterized by low inflation, low
interest rates, and strong profit growth.

We would also like to take this opportunity to announce that on October
6, 1995, we introduced another value-oriented fund to the Scudder family of
funds: Scudder Small Company Value Fund. The difference between this new fund
and Scudder Value Fund is that its investment focus will be on small companies.
Further, its investment approach will rely heavily on a proprietary quantitative
discipline. For more information about Scudder Small Company Value Fund and
other investment products and services, see page 26. If you have questions about
Scudder Value Fund, please call a Scudder Investor Relations representative at
1-800-225-2470.
Sincerely,

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

3
<PAGE>

Scudder Value Fund
Performance Update as of September 30, 1995
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
Scudder Value Fund
- ----------------------------------------
Total Return
Period Growth --------------
Ended of Average
9/30/95 $10,000 Cumulative Annual
- -------- ------- ---------- ------
1 Year $12,362 23.62% 23.62%
Life of
Fund* $14,043 40.43% 13.15%

*The Fund commenced operations on December 31, 1992.

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

Scudder Value Fund
Year Amount
- ----------------------
12/92* $10,000
3/93 $10,933
9/93 $11,150
3/94 $10,830
9/94 $11,360
3/95 $12,070
9/95 $14,043

S&P 500 Index
Year Amount
- ----------------------
12/92* $10,000
3/93 $10,437
9/93 $10,758
3/94 $10,590
9/94 $11,155
3/95 $12,239
9/95 $14,473

- -----------------------------------------------------------------
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>
1993* 1994 1995
-------------------------
Net Asset Value... $13.38 $13.08 $15.87
Income Dividends.. -- .11 .12
Capital Gains
Distributions..... -- .43 .13
Fund Total
Return (%)........ 11.50 1.88 23.62
Index Total
Return (%)........ 7.56 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.
If the Adviser had not maintained the Fund's expenses, the average annual
total return for the one year and life of Fund periods would have been
lower.

4
<PAGE>

Equity Securities 100% The Fund's cash position was
==== eliminated in the third quarter of
1995, after months of strong inflows
had built it up to nearly 20%.

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

- --------------------------------------------------------------------------
Sectors
- --------------------------------------------------------------------------
Financial 21%
Manufacturing 14%
Technology 13% The Fund's holdings in the
Energy 9% financial, technology, and
Communications 7% healthcare sectors contributed
Health 6% greatly to the Fund's strong
Consumer Staples 6% total return.
Consumer Discretionary 5%
Utilities 5%
Other 14%
----
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. Philips NV.
Manufacturer of electrical equipment
2. Sterling Software Inc.
Computer software products
3. Tele Danmark A/S
Telecommunication services
4. Intel Corp.
Semiconductor memory circuits
5. TRW Inc.
Defense electronics, automotive parts and systems
6. Destec Energy Inc.
Non-utility producer of cogeneration and coal gasification power
7. Philip Morris Companies Inc.
Tobacco, food products and brewing
8. Sara Lee Corp.
Processed foods maker
9. Allstate Corp.
Property, liability and life insurance company
10. Acclaim Entertainment Inc.
Developer of video game cartridges

The 36.4% gain in Destec Energy during the year was particularly
gratifying, given its -54.5% return in fiscal 1994.

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>
PORTFOLIO MANAGEMENT DISCUSSION

Dear Shareholders,

Thanks to declining interest rates, rising profits, and strong demand
by mutual fund investors, U.S. stock returns exceeded virtually everyone's
expectations during the 12 months ended September 30, 1995. For the 12-month
period, Scudder Value Fund returned 23.62%, based on a $2.79 increase in net
asset value to $15.87 at the end of September and $0.25 per share in income and
capital gain distributions. This compares with a 29.75% total return for the
unmanaged S&P 500 Index and 25.87% on average for the 550 growth funds tracked
by Lipper Analytical Services.

The average U.S. stock in the Fund was up 30% for the 12-month period.
The difference between this return and the return for the total portfolio is
explained by the Fund's cash position and the underperformance of some foreign
holdings. We expect the impact of neither to be as significant going forward.
For the year ended September 30, U.S. stocks outperformed foreign stocks in
general by one of the largest margins ever. We believe that foreign stocks have
some catching up to do and that the Fund's 18% position in foreign holdings will
likely boost returns in the future. The Fund's cash position, as high as 20% of
the portfolio during the period, reflected the fact that strong inflows doubled
the Fund's size over the course of the fiscal year. Typically, we seek to use
such flows to the Fund's advantage by adding to existing holdings during market
dips. However, there were no significant roll-backs in the market during the
period. The monthly string of advances through September without a meaningful
decline was the longest in some forty years. It is unlikely we will experience a
similar combination -- a doubling of the Fund's assets under management and such
persistently higher markets -- in the near future.

Financial Stocks Provide Largest Gains

As mentioned, the U.S. stocks in the Fund generally performed well, led
by holdings in the financial sector, our most significant weighting. The Fund's
sector emphasis contrasts with that of most growth-oriented funds, whose
superior performance for the year was largely due to heavy exposure to the
spectacularly performing technology sector. Financial companies may lack the
excitement of the latest new software company, but the stock returns of the
financial sector over the last 12 months were exciting -- up 42% on average. The
performance of the Fund's financial stocks (21% of portfolio holdings as of
September 30) supports an underlying tenet of our investment strategy: Strong
returns can be produced by relatively staid companies if their stocks are
sufficiently undervalued.

6
<PAGE>

Included among the better-performing financial stocks were Dean Witter,
Discover and Co. and Student Loan Marketing Association (Sallie Mae). A year
ago, Dean Witter, Discover shares were trading at seven times what the company
was likely to earn in 1995, and Student Loan Marketing was under a cloud
associated with losing market share to a government direct loan program. Dean
Witter, Discover (up 50%) saw continued strength in both of its businesses this
year: credit cards and brokerage. With proposals to limit government gaining
steam in Congress, Sallie Mae shares appreciated 64% over the last year and
still sell at only 12 times 1995's estimate.

Drug stocks were also good performers during the period, and the Fund's
most important pharmaceutical position, Eli Lilly, outperformed the group as a
whole. Investors grew to appreciate the wisdom of the company's strategic
alliances and restructurings as a means to focus on "disease management" versus
merely treating symptoms.

Technology was clearly the strongest-performing market group. Important
contributors to the Fund in this area were Intel and Texas Instruments. Other
outperforming holdings included airlines and utilities. Leading the Fund's
utility holdings was the turnaround in Destec Energy, which was gratifying,
given that it was one of the poorest performers last year. Lagging groups
included the Fund's steel, auto-related, and non-U.S. holdings. Shares of steel
stocks were reduced during the period due to declining earnings expectations. We
believe the Fund's auto-related and foreign holdings still offer excellent
value.
Looking Forward

The Fund's primary selection tool is a rigorous valuation discipline.
Stocks attractively ranked by our valuation model typically have below-average
price/earnings ratios. A secondary criterion is the direction of earnings
estimate revisions. A company must demonstrate that an improvement in earnings
revisions is under way or clearly imminent before its stocks can pass our
"directional" screen.

Financial stocks, especially insurance stocks, continue to enjoy the
best valuations among companies with positive earnings revisions. Despite strong
performance this past year, the financial stocks held in the Fund are still
selling at large P/E discounts to the market and have solid earnings prospects
that are not solely dependent on falling interest rates.

7
<PAGE>

The technology sector is controversial in that while strong upward
earnings revisions are occurring, stock prices reflect the sector's positive
outlook. Our conservative valuation discipline dictates extreme selectivity.
Technology is inherently a volatile group, and emotional selling could very well
surface in the coming months, providing some buying opportunities for the Fund.
For the time being, we are content with holdings such as Intel (at 12 times 1996
earnings) and IBM (at less than 8 times). These multiples appear to reflect more
skepticism than enthusiasm.

Some of the more recent additions to the Fund and their 1996 estimated
earnings multiples are as follows:

P/E (based on est. '96 EPS)

Champion International 5x
Royal Caribbean Cruises 9x
Bergen Brunswig 11x
Allstate 9x

These multiples compare favorably with a P/E of 17x for the S&P 500 Index, based
on our 1996 earnings estimates.

Our outlook for a mild slowdown in economic activity may lead to some
temporary stock market disappointment. However, we believe this Fund's value
approach, which is reflected in a broad list of holdings with average- to
above-average growth prospects and priced at modest relative valuations,
positions the Fund well for such an environment.

Sincerely,

Your Portfolio Management Team

/s/Donald E. Hall /s/William J. Wallace
Donald E. Hall William J. Wallace

Scudder Value Fund: A Team Approach to Investing

Scudder Value Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by Scudder's large staff
of 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 extensive resources.

Lead Portfolio Manager Donald E. Hall has had responsibility for Scudder
Value Fund's day-to-day management since its inception in 1992. Don, who joined
Scudder in 1982, has 12 years of experience in the value style of investing.
William J. Wallace, Portfolio Manager, has been a member of Scudder Value Fund's
team since 1992 and has 14 years of investment experience.

8
<PAGE>

<PAGE>

INVESTMENT PORTFOLIO as of September 30, 1995
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-------------------------------------------------------------------------
0.6% CONVERTIBLE BONDS
-------------------------------------------------------------------------
MEDIA

Cable Television 1,250,000 Rogers Communications Inc., LYON, 5/20/13
(Cost $499,855)........................ 426,563
------------
-------------------------------------------------------------------------
0.5% CONVERTIBLE PREFERRED STOCKS
-------------------------------------------------------------------------
Shares
-------------------------------------------------------------------------
FINANCIAL

Other Financial Companies 12,200 California Federal Bank "A" Non#Cum. 7.75%
(Cost $ 253,627)....................... 295,850
------------
-------------------------------------------------------------------------
98.9% COMMON STOCKS
-------------------------------------------------------------------------
CONSUMER DISCRETIONARY 5.6%

Department & Chain Stores 1.7% 10,000 J.C. Penney Co., Inc. .................. 496,250
35,000 Price/Costco Inc.* ..................... 599,375
------------
1,095,625
------------
Hotels & Casinos 1.7% 9,100 Carnival Corp., Class A ................ 218,400
36,300 Royal Caribbean Cruises Ltd. ........... 880,275
------------
1,098,675
------------
Recreational Products 2.2% 57,600 Acclaim Entertainment Inc.* ............ 1,483,200
------------
CONSUMER STAPLES 5.6%

Alcohol & Tobacco 2.7% 21,500 Philip Morris Companies Inc. ........... 1,795,250
------------
Food & Beverage 2.9% 10,400 ConAgra Inc. ........................... 412,100
50,400 Sara Lee Corp. ......................... 1,499,400
------------
1,911,500
------------
HEALTH 6.0%

Biotechnology 0.2% 4,810 Guidant Corp. .......................... 140,692
------------
Hospital Management 0.8% 30,400 Tenet Healthcare Corp.* ................ 528,200
------------
Medical Supply & Specialty 1.1% 33,900 Bergen Brunswig Corp. "A" .............. 724,612
------------
Pharmaceutical 3.9% 10,000 Astra AB "A" (Free) .................... 358,428
26,700 BioChem Pharma, Inc.* .................. 851,062
12,422 Eli Lilly Co. .......................... 1,116,427
4,900 Schering#Plough Corp. .................. 252,350
------------
2,578,267
------------

</TABLE>

The accompanying notes are an integral part of the financial statements.
---
9

<PAGE>

SCUDDER VALUE FUND
- --------------------------------------------------------------------------------

Telephone/Communications 48,100 Century Telephone Enterprises ............... 1,461,037
13,600 Sprint Corp. ................................ 476,000
80,600 Tele Danmark A/S (ADR) ...................... 2,085,525
17,500 Telefonos de Mexico S.A. de C.V. "L" (ADR) .. 555,625
-----------
4,578,187
-----------

FINANCIAL 20.5%

Banks 8.3% 6,000 BankAmerica Corp. ........................... 359,250
6,800 Bankers Trust New York Corp. ................ 477,700
12,000 Chemical Banking Corp. ...................... 730,500
7,600 J.P. Morgan & Co., Inc. ..................... 588,050
25,300 Mellon Bank Corp. ........................... 1,129,013
9,200 NBD Bancorp, Inc. ........................... 351,900
22,800 Norwest Corp. ............................... 746,700
27,800 State Street Boston Corp. ................... 1,112,000
-----------
5,495,113
-----------
Insurance 8.9% 26,800 AMBAC Inc. .................................. 1,179,200
42,100 Allstate Corp. .............................. 1,489,287
9,800 EXEL, Ltd. .................................. 569,625
2,300 MBIA Inc. ................................... 162,150
41,200 PartnerRe Holdings Ltd. ..................... 1,019,700
27,400 UNUM Corp. .................................. 1,445,350
-----------
5,865,312
-----------
Other Financial Companies 2.6% 9,400 Federal National Mortgage Association ....... 972,900
14,100 Student Loan Marketing Association .......... 761,400
-----------
1,734,300
-----------
Real Estate 0.7% 13,900 Meditrust SBI (REIT) ........................ 481,288
-----------
MEDIA 0.2%

Cable Television 13,909 Rogers Communications Inc. "B"* ............. 137,129
-----------
SERVICE INDUSTRIES 3.8%

Environmental Services 1.2% 87,600 Laidlaw Inc. Class B ........................ 766,500
-----------
Investment 0.7% 7,900 Dean Witter, Discover & Co. ................. 444,375
-----------
Miscellaneous Consumer
Services 0.4% 6,700 H & R Block Inc. ............................ 254,600
-----------
Printing/Publishing 1.5% 30,700 Deluxe Corp. ................................ 1,016,937
-----------
DURABLES 4.5%

Aerospace 1.6% 3,749 Lockheed Corp. .............................. 251,652
-----------
8,800 United Technologies Corp. ................... 777,700
-----------
1,029,352
-----------

</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>
Automobiles 1.4% 2,000 Chrysler Corp. ............................. 106,000
7,600 Ford Motor Co. ............................. 236,550
12,700 Magna International, Inc. "A" .............. 573,088
-----------
915,638
-----------
Tires 1.5% 42,600 Cooper Tire & Rubber Co. ................... 1,033,050
-----------
MANUFACTURING 13.9%

Chemicals 1.7% 23,100 Sigma#Aldrich Corp. ........................ 1,120,350
-----------
Containers & Paper 1.5% 18,500 Champion International Corp. ............... 996,687
-----------
Diversified Manufacturing 3.4% 27,000 Canadian Pacific Ltd. ...................... 431,936
24,700 TRW Inc. ................................... 1,837,063
-----------
2,268,999
-----------
Electrical Products 4.2% 8,600 Mabuchi Motor Co., Ltd. .................... 507,900
46,800 Philips NV (New York shares) ............... 2,281,500
-----------
2,789,400
-----------
Industrial Specialty 2.6% 1,000 Schindler Holdings AG (PC) ................. 886,870
78,800 Wandel & Goltermann Technologies, Inc.* .... 807,700
-----------
1,694,570
-----------
Specialty Chemical 0.5% 7,900 Betz Laboratories Inc. ..................... 322,912
-----------
TECHNOLOGY 13.3%

Computer Software 3.2% 46,400 Sterling Software Inc.* .................... 2,111,200
-----------
EDP Peripherals 1.3% 71,300 Intergraph Corp.* .......................... 864,513
-----------
Electronic Data Processing 0.6% 4,300 International Business Machines Corp. ...... 405,813
-----------
Office/Plant Automation 2.0% 18,900 Cisco Systems, Inc.* ....................... 1,304,100
-----------
Semiconductors 6.2% 21,800 Atmel Corp.* ............................... 735,750
34,400 Intel Corp. ................................ 2,068,300
16,400 Texas Instruments Inc. ..................... 1,309,950
-----------
4,114,000
-----------
ENERGY 8.7%

Engineering 1.3% 7,400 VA Technologie AG .......................... 852,132
-----------
Oil & Gas Production 0.5% 9,600 Imperial Oil Ltd. .......................... 357,600
-----------
Oil Companies 6.9% 5,300 Amoco Corp. ................................ 339,862
9,900 Exxon Corp. ................................ 715,275
12,900 Mobil Corp. ................................ 1,285,163
23,100 Repsol SA (ADR) ............................ 733,425
10,803 Total SA (ADR) ............................. 325,440
64,400 YPF SA "D" (ADR) ........................... 1,159,200
-----------
4,558,365
-----------

</TABLE>

The accompanying notes are an integral part of the financial statements.
----
11

<PAGE>

SCUDDER VALUE FUND
- --------------------------------------------------------------------------------

Steel & Metals 23,500 Allegheny Ludlum Corp. ..................... 478,812
12,200 Nucor Corp. ................................ 545,950
-----------
1,024,762
-----------
CONSTRUCTION 0.4%

Forest Products 11,900 Louisiana#Pacific Corp. .................... 287,088
-----------
TRANSPORTATION 3.3%

Airlines 3.1% 10,700 AMR Corp.* ................................. 771,738
46,100 America West Airlines, Inc.* ............... 714,550
17,500 ValueJet Airlines Inc.* .................... 570,938
-----------
2,057,226
-----------
Marine Transportation 0.2% 5,800 Teekay Shipping Corp.* ..................... 139,200
-----------
UTILITIES 4.6%

Electric Utilities 121,700 Destec Energy Inc.* ........................ 1,825,500
25,200 Public Service Co. of New Mexico* .......... 412,650
31,100 TNP Enterprises Inc. ....................... 552,025
9,200 Unicom Corp. ............................... 278,300
-----------
3,068,475
-----------
TOTAL COMMON STOCKS
(Cost $57,739,574) ........................ 65,445,194
-----------
- -----------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO # 100.0%
(Cost $58,493,056) (a) .................... 66,167,607
===========

<FN>
(a) The cost for federal income tax purposes was $58,482,598. At September 30, 1995, net unrealized appreciation
for all securities based on tax cost was $7,685,009. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax cost of $8,870,957 and aggregate gross
unrealized depreciation for all securities in which there was an excess of tax cost over market value of
$1,185,948.

* Non#income producing security.

</FN>
</TABLE>

The accompanying notes are an integral part of the financial statements.
- ----
12

<PAGE>

INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------

<TABLE>
- ------------------------------------------------------------------------------------------------
At September 30, 1995, outstanding written call options were as follows (Note A):
<CAPTION>
NUMBER OF EXPIRATION STRIKE MARKET
CONTRACTS DATE PRICE VALUE ($)
------------------------------------------------------------

<S> <C> <C> <C> <C>
S&P 500 Index ............. 200 Oct. 95 590 75,000
------
Total outstanding written options (Premiums received $91,897) ............ 75,000
======

</TABLE>

<TABLE>
Transactions in written call options during the year ended September 30, 1995 were:
<CAPTION>
PREMIUMS
NUMBER OF CONTRACTS RECEIVED ($)
-----------------------------------------------
<S> <C> <C>
Outstanding at
September 30, 1994 .................. -- --
Contracts written ................... 1,825 1,178,993
Contracts expired ................... (100) (15,224)
Contracts closed ................... (1,265) (1,030,403)
Contracts exercised ................. (260) (41,469)
-----------------------------------------------
Outstanding at
September 30, 1995 .................. 200 91,897
=== ======

</TABLE>

The accompanying notes are an integral part of the financial statements.
----
13

<PAGE>

SCUDDER VALUE FUND
FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
---------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
---------------------------------------------------

<TABLE>
SEPTEMBER 30, 1995
------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $58,493,056)
(Note A) ........................................ $ 66,167,607
Cash ................................................ 568
Receivables:
Investments sold ................................ 7,649,738
Dividends and interest .......................... 89,340
Fund shares sold ................................ 66,233
Deferred organization expense (Note A) .............. 24,853
------------
Total assets ................................ 73,998,339

LIABILITIES
Payables:
Investments purchased ........................... $ 109,193
Fund shares redeemed ............................ 55,283
Note payable (Note D) ........................... 5,592,000
Interest payable on note (Note D) .............. 2,718
Accrued management fee (Note C) ................. 31,923
Other accrued expenses (Note C) ................. 57,810
Written options, at market (premiums
received $91,897) (Note A) .................. 75,000
-----------
Total liabilities ........................... 5,923,927
------------
Net assets, at market value ......................... $ 68,074,412
============
NET ASSETS
Net assets consist of:
Undistributed net investment income ............. $ 102,110
Unrealized appreciation on:
Investments ................................. 7,674,551
Options ..................................... 16,897
Accumulated net realized gain ................... 2,557,715
Shares of beneficial interest ................... 42,884
Additional paid#in capital ...................... 57,680,255
------------
Net assets, at market value ......................... $ 68,074,412
============
NET ASSET VALUE, offering and redemption price per
share ($68,074,412 / 4,288,446 outstanding
shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) ......... $ 15.87
=======

</TABLE>

The accompanying notes are an integral part of the financial statements.
- ----
14

<PAGE>

FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
- --------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------

<TABLE>
YEAR ENDED SEPTEMBER 30, 1995
- --------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income:
Dividends ....................................... $ 1,010,746
Interest ........................................ 411,465
-----------
1,422,211

Expenses:
Management fee (Note C) ......................... $ 257,942
Services to shareholders (Note C) ............... 152,097
Custodian and accounting fees (Note C)........... 56,129
Trustees' fees (Note C) ......................... 43,076
Reports to shareholders ......................... 35,499
Registration .................................... 22,984
Auditing ........................................ 26,258
Legal ........................................... 12,243
Amortization of organization expense (Note A) ... 8,932
Interest expense (Note D) ....................... 2,718
Other ........................................... 13,064 630,942
-----------------------
Net investment income ........................... 791,269
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments ................................. 3,810,528
Options ..................................... (1,381,331)
Futures ..................................... 338,400 2,767,597
----------
Net unrealized appreciation during the period on:
Investments ................................. 7,347,398
Options ..................................... 16,897 7,364,295
-----------------------
Net gain on investment transactions ............. 10,131,892
------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS................................ $ 10,923,161
============

</TABLE>

The accompanying notes are an integral part of the financial statements.
----
15

<PAGE>

SCUDDER VALUE 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 .............................. $ 791,269 $ 384,856
Net realized gain from investment
transactions ................................... 2,767,597 486,834
Net unrealized appreciation (depreciation) on
investment transactions during the period ...... 7,364,295 (213,830)
------------ ------------
Net increase in net assets resulting from
operations ..................................... 10,923,161 657,860
------------ ------------
Distributions to shareholders from:
Net investment income ($.12 and $.11
per share, respectively) ....................... (309,372) (271,039)
------------ ------------
Net realized gains ($.13 and $.43
per share, respectively) ....................... (336,274) (1,059,888)
------------ ------------
Fund share transactions:
Proceeds from shares sold .......................... 48,559,462 17,585,449
Net asset value of shares issued to
shareholders in reinvestment of distributions .. 599,884 1,279,362
Cost of shares redeemed ............................ (26,461,130) (11,604,314)
------------ ------------
Net increase in net assets from Fund share
transactions ................................... 22,698,216 7,260,497
INCREASE IN NET ASSETS ............................. 32,975,731 6,587,430
Net assets at beginning of period .................. 35,098,681 28,511,251
NET ASSETS AT END OF PERIOD (including
undistributed net investment income of
$102,110 and $314,180, respectively) ........... $ 68,074,412 $ 35,098,681
============ ============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period .......... 2,683,720 2,131,497
------------ ------------
Shares sold ........................................ 3,327,977 1,354,224
Shares issued to shareholders in
reinvestment of distributions .................. 47,124 99,950
Shares redeemed .................................... (1,770,375) (901,951)
------------ ------------
Net increase in Fund shares ........................ 1,604,726 552,223
------------ ------------
Shares outstanding at end of period ................ 4,288,446 2,683,720
============ ============
</TABLE>

The accompanying notes are an integral part of the financial statements.
- ----
16

<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.

* Annualized
** Not annualized
</FN>
</TABLE>

----
17

<PAGE>

SCUDDER VALUE FUND NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
A. SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
Scudder Value 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.

- ----
18

<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 wrote call
options on 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 maximum
exposure to purchased options is limited to the premium initially paid.
In addition, certain risks may arise upon entering into

----
19

<PAGE>

SCUDDER VALUE FUND
- -------------------------------------------------------------------------------

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.

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

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

Certain risks may arise upon entering into futures contracts including
the risk that an illiquid secondary market will limit the Fund's
ability to close out a futures contract prior to the settlement date
and that a change in the value of a futures contract may not correlate
exactly with changes in the value of the securities or currencies
hedged. When utilizing futures contracts to hedge, the Fund gives up
the opportunity to profit from favorable price movements in the hedged
positions during the term of the contract.

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.

- ----
20

<PAGE>

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

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.

In addition, from November 1, 1994 through September 30, 1995, the Fund
incurred approximately $136,302 of net long-term capital losses which
the Fund intends to elect to defer and treat as arising in the fiscal
year ended September 30, 1996.

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 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 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 and initial registration of shares have been deferred and
are being amortized on a straight-line basis over a five-year period.

Other. Investment security transactions are accounted for on a
trade-date basis. Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Interest income is recorded on an
accrual basis. Original issue discounts are accreted for both tax and
financial reporting purposes.

----
21

<PAGE>

SCUDDER VALUE FUND
- --------------------------------------------------------------------------------

B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
During the year ended September 30, 1995, purchases and sales of
investment securities (excluding short-term investments) aggregated
$65,934,349 and $43,629,606, respectively.

The aggregate face value of futures contracts opened and closed during
the year ended September 30, 1995 was $14,768,600.

C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Fund's Investment Management Agreement (the "Agreement") with
Scudder, Stevens & Clark, Inc. (the "Adviser"), the Fund pays the
Adviser a fee equal to an annual rate of 0.70% of the Fund's average
daily net assets, computed and accrued daily and payable monthly. As
manager of the assets of the Fund, the Adviser directs the investments
of the Fund in accordance with its investment objectives, policies, and
restrictions. The Adviser determines the securities, instruments, and
other contracts relating to investments to be purchased, sold or
entered into by the Fund. In addition to portfolio management services,
the Adviser provides certain administrative services in accordance with
the Agreement. The Agreement provides that if the Fund's expenses,
exclusive of taxes, interest, and extraordinary expenses, exceed
specified limits, such excess, up to the amount of the management fee,
will be paid by the Adviser. In addition, the Adviser has agreed not
to impose all or a portion of its management fee until January 31, 1996
in order to maintain the annualized expenses of the Fund at not more
than 1.25% of average daily net assets. For the year ended September
30, 1995, the Adviser did not impose a portion of its management fee
amounting to $95,355, and the amount imposed amounted to $257,942.

Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the
Adviser, is the transfer, dividend paying and shareholder service agent
for the Fund. For the year ended September 30, 1995, the amount charged
to the Fund by SSC aggregated $125,734, of which $14,964 is unpaid at
September 30, 1995.

Effective October 24, 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

- ----
22

<PAGE>

NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

Fund by SFAC aggregated $35,363, of which $6,250 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 $43,076.

D. SHORT-TERM DEBT
- ------------------------------------------------------------------------
During the year ended September 30, 1995, the Fund borrowed an amount
from a bank at the existing prime rate. The arrangement with the
bank allows the Fund to borrow a maximum amount based on the Fund's net
asset value. Borrowings outstanding at the end of the period amounted
to $5,592,000.

During the year ended September 30, 1995, the weighted average
outstanding daily balance of bank loans (based on the number of
days the loans were outstanding) was $5,592,000 with a weighted average
interest rate of 8.75%. Interest expense for the year ended September
30, 1995 was $2,718 (less than $.01 per share).

----
23

<PAGE>

SCUDDER VALUE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------

TO THE TRUSTEES OF SCUDDER EQUITY TRUST AND THE SHAREHOLDERS OF SCUDDER
VALUE FUND:

We have audited the accompanying statement of assets and liabilities of
Scudder Value 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 two years in the period then ended and for the period December
31, 1992 (commencement of operations) to September 30, 1993. 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 Value 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 two years in the period then ended
and for the period December 31, 1992 (commencement of operations) to
September 30, 1993, in conformity with generally accepted accounting
principles.

Boston, Massachusetts COOPERS & LYBRAND L.L.P.

November 3, 1995

- ----
24

<PAGE>

TAX INFORMATION

Pursuant to section 854 of the Internal Revenue Code, the Fund designates
$780,043 as dividends eligible for the dividends received deduction for
corporations for the year ended September 30, 1995.

OFFICERS AND TRUSTESS

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.

25
<PAGE>

INVESTMENT PRODUCTS AND SERVICES

The Scudder Family of Funds
-----------------------------------------------------------------------------------------------------------------
<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.
-----------------------------------------------------------------------------------------------------------------
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *Not
available in all states. +++A no-load variable annuity contract provided by
Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder, Stevens & Clark, Inc. are traded on various stock exchanges. ++For
information on Scudder Treasurers Trust,(TM) an institutional cash
management service that utilizes certain portfolios of Scudder Fund, Inc.
($100,000 minimum), call 1-800-541-7703.

26
<PAGE>

HOW TO CONTACT SCUDDER

Account Service and Information

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

For existing account service and transactions
SCUDDER INVESTOR RELATIONS
1-800-225-5163

For personalized information about your
Scudder accounts; exchanges and
redemptions; or information on any
Scudder fund SCUDDER AUTOMATED
INFORMATION LINE (SAIL) 1-800-343-2890
Investment Information
-------------------------------------------------------------------------------------------------------------

To receive information about the
Scudder funds, for additional
applications and prospectuses, or for
investment questions SCUDDER INVESTOR
RELATIONS 1-800-225-2470

For establishing 401(k) and 403(b) plans
SCUDDER DEFINED CONTRIBUTION SERVICES
1-800-323-6105
Please address all correspondence to
-------------------------------------------------------------------------------------------------------------

THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
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 For information on Scudder
Treasurers Trust,(TM) an Institutional Funds,* funds
institutional cash management designed to meet the broad
service for corporations, investment management and
non-profit organizations and service needs of banks and
trusts that uses certain portfolios other institutions, call
of Scudder Fund, Inc.* ($100,000 1-800-854-8525.
minimum), call 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.

27
<PAGE>

Celebrating Over 75 Years of Serving Investors

Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the investment
industry. In 1928, we introduced the nation's first no-load mutual fund. Today
we offer 37 pure no load(TM) funds, including the first international mutual
fund offered to U.S. investors.