SCUDDER EQUITY TRUST, 485BPOS, 1998-01-30

SCUDDER EQUITY TRUST
485BPOS, 1998-01-30

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Filed with the Securities and Exchange Commission on January 30, 1998.

File No. 2-78724
File No. 811-1444

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.

Post-Effective Amendment No. 27
-----

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 27
-----

Scudder Equity Trust
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)

Two International Place, Boston, MA 02110
----------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code: (617) 295-2567
--------------

Thomas F. McDonough
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------
(Name and Address of Agent for Service)

It is proposed that this filing will become effective

immediately upon filing pursuant to paragraph (b)
-----

X on February 1, 1998 pursuant to paragraph (b)
-----

60 days after filing pursuant to paragraph (a)(i)
-----

on __________ pursuant to paragraph (a)(i)
-----

75 days after filing pursuant to paragraph (a)(ii)
-----

on __________ pursuant to paragraph (a)(ii) of Rule 485
-----

If appropriate, check the following:

this post-effective amendment designates a new effective date
----- for a previously filed post-effective amendment
<PAGE>

SCUDDER LARGE COMPANY VALUE FUND
CROSS-REFERENCE SHEET

Items Required By Form N-1A

PART A

Item
No. Item Caption Prospectus Caption
- --- ------------ ------------------

1. Cover Page COVER PAGE

2. Synopsis EXPENSE INFORMATION

3. Condensed Financial FINANCIAL HIGHLIGHTS
Information DISTRIBUTION AND PERFORMANCE INFORMATION

4. General Description INVESTMENT OBJECTIVE AND POLICIES
of Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION

5. Management of the A MESSAGE FROM THE PRESIDENT
Fund FINANCIAL HIGHLIGHTS
FUND ORGANIZATION--Investment adviser,
Transfer agent
TRUSTEES AND OFFICERS

5A. Management's Discussion SHAREHOLDER BENEFITS--A team approach to
of Fund Performance investing

6. Capital Stock and Other TRANSACTION INFORMATION--Tax information
Securities DISTRIBUTION AND PERFORMANCE
INFORMATION--Dividends and capital gains
distributions
SHAREHOLDER BENEFITS--SAIL(TM)--Scudder
Automated Information Line, T.D.D.
service for the hearing impaired,
Dividend reinvestment plan
FUND ORGANIZATION
HOW TO CONTACT SCUDDER

7. Purchase of Securities Being PURCHASES
Offered TRANSACTION INFORMATION--Purchasing shares,
Share price, Processing time, Third
party transactions, Minimum balances
SHAREHOLDER BENEFITS--Dividend Reinvestment
Plan
INVESTMENT PRODUCTS AND SERVICES
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
FUND ORGANIZATION--Underwriter

8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares,
Tax Identification Number, Minimum
balances

9. Pending Legal Proceedings NOT APPLICABLE

Cross Reference - Page 1
<PAGE>

SCUDDER LARGE COMPANY VALUE FUND
CROSS REFERENCE SHEET

PART B

Item Caption in Statement of
No. Item Caption Additional Information
- --- ------------ ----------------------

10. Cover Page COVER PAGE

11. Table of Contents TABLE OF CONTENTS

12. General Information and FUND ORGANIZATION
History

13. Investment Objectives and THE FUND'S INVESTMENT OBJECTIVE AND
Policies POLICIES
PORTFOLIO TRANSACTIONS--Brokerage
Commissions and Portfolio Turnover

14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders of
Securities

16. Investment Advisory and INVESTMENT ADVISER
Other Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other
Information

17. Brokerage Allocation and PORTFOLIO TRANSACTIONS--Brokerage
Other Practices Commissions and Portfolio Turnover

18. Capital Stock and Other FUND ORGANIZATION
Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

19. Purchase, Redemption and PURCHASES
Pricing of Securities Being EXCHANGES AND REDEMPTIONS
Offered FEATURES AND SERVICES OFFERED BY THE
FUND--Distribution Plans
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE

20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES

21. Underwriters DISTRIBUTOR

22. Calculation of Performance PERFORMANCE INFORMATION
Data

23. Financial Statements FINANCIAL STATEMENTS

Cross Reference - Page 2
<PAGE>

SCUDDER VALUE FUND
CROSS-REFERENCE SHEET

Items Required By Form N-1A

PART A

Item
No. Item Caption Prospectus Caption
- --- ------------ ------------------

1. Cover Page COVER PAGE

2. Synopsis EXPENSE INFORMATION

3. Condensed Financial FINANCIAL HIGHLIGHTS
Information DISTRIBUTION AND PERFORMANCE INFORMATION

4. General Description of INVESTMENT OBJECTIVE AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES AND
INVESTMENTS
FUND ORGANIZATION

5. Management of the Fund A MESSAGE FROM THE PRESIDENT
FINANCIAL HIGHLIGHTS
FUND ORGANIZATION--Investment adviser,
Transfer agent
TRUSTEES AND OFFICERS

5A. Management's Discussion of SHAREHOLDER BENEFITS--A team approach to
Fund Performance investing

8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming shares,
Tax Identification Number, Minimum
balances

9. Pending Legal Proceedings NOT APPLICABLE

Cross Reference - Page 3
<PAGE>

SCUDDER VALUE FUND
CROSS REFERENCE SHEET

PART B

Item Caption in Statement of
No. Item Caption Additional Information
- --- ------------ ----------------------

10. Cover Page COVER PAGE

11. Table of Contents TABLE OF CONTENTS

12. General Information and FUND ORGANIZATION
History

13. Investment Objectives and THE FUND'S INVESTMENT OBJECTIVE AND
Policies POLICIES
PORTFOLIO TRANSACTIONS--Brokerage
Commissions and Portfolio Turnover

14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION

15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders of
Securities

16. Investment Advisory and INVESTMENT ADVISER
Other Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other
Information

17. Brokerage Allocation and PORTFOLIO TRANSACTIONS--Brokerage
Other Practices Commissions and Portfolio Turnover

18. Capital Stock and Other FUND ORGANIZATION
Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

19. Purchase, Redemption and PURCHASES
Pricing of
Securities Being Offered EXCHANGES AND REDEMPTIONS
FEATURES AND SERVICES OFFERED BY THE
FUND--Distribution Plans
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE

20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES

21. Underwriters DISTRIBUTOR

22. Calculation of Performance PERFORMANCE INFORMATION
Data

23. Financial Statements FINANCIAL STATEMENTS

Cross Reference - Page 4
<PAGE>

[Image] Scudder Value Fund Profile [Image]
- ---------------------------------------------------------------------------

The fund profile, a supplement to the full prospectus, is designed as
an easy-to-read summary of fund risks, fees, and objectives. You can
click on any question to link to the Fund's prospectus and get more
information on that topic. Or, if you wish, you can proceed directly
to the Fund's prospectus. Once you have read the prospectus and
considered your investment goals, you can proceed to a Scudder Funds
application.
----------------------------------------------------------------------

Fund Profile
November 1, 1997

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

1. What Is The Fund's Objective?

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

2. What Does The Fund Invest In?

The Fund invests primarily (at least 80% of assets) in the equity
securities of medium- to large-sized domestic companies with annual
revenues or market capitalization of at least $600 million. These
equity securities consist of common stocks, preferred stocks, and
securities convertible into common stocks. The Fund's investment
adviser, Scudder, Stevens & Clark, Inc. conducts extensive analysis of
securities through technologically-supported proprietary research that
uses a quantitative model. The adviser seeks to identify companies
that are currently undervalued in the marketplace in relation to
current and estimated future earnings and dividends. While the Fund
emphasizes U.S. investments, it can invest in securities of foreign
companies which meet the same criteria applicable to domestic
investments.

3. What Are The Risks Of Investing In The Fund?

Investment in undervalued stocks carries the risk that their prices
may not rise to a level reflective of Scudder's valuation. In
addition, movements of the stock market will affect the Fund's share
price, which may vary from day to day. Other risk factors are that the
value of your investment may decline as a result of declines in the
overall stock market or in the types of securities held in the Fund,
and that in rising markets the types of stocks emphasized in the Fund
may underperform other sectors of the stock market. You incur
principal risk when you invest because your shares, when sold, may be
worth more or less than what you paid for them.

4. For Whom Is This Fund Appropriate?

You may wish to consider this Fund if you are seeking capital growth
and:

o plan to hold your investment for several years,
o can tolerate fluctuations in share price,
o have or plan to have other investments for the benefit of
diversification, and
o understand the risks of stock market investing.

5. What Are The Fund's Expenses And Fees?

There are two kinds of expenses that a shareholder may incur, directly
or indirectly, by investing in a mutual fund. These types of expenses,
as they relate to Scudder Value Fund, are:

Shareholder transaction expenses -
Expenses charged directly to your account for various transactions.
Please note that there is a $5 service fee if you request redemption
proceeds via wire.

Sales Commission None

Commissions to Reinvest Dividends None

Redemption Fee None

Exchange Fee None

Annual Fund operating expenses (after expense maintenance) -
Expenses paid by the Fund before it distributes its net investment
income, expressed as a percentage of the Fund's average daily net
assets. Figures below are for the fiscal year ended September 30,
1996, during which Scudder maintained the total annualized expenses
of the Fund at not more than 1.25% of average daily net assets.
Scudder continued this expense maintenance until July 31, 1997. The
figures below show what the fees and expenses of the Fund would have
been if expense maintenance had not been in effect.

Investment management fee (after waiver) 0.70%

12b-1 fees None

Other expenses 0.61%
------

Total Fund operating expenses 1.31%
====

Example:
Assuming a 5% annual return and redemption at the end of each
period, the total expenses relating to a $1,000 investment would be:

1 Year 3 Years 5 Years 10 Years

$13 $42 $72 $158

This example assumes reinvestment of all dividends and distributions
and that the total Fund operating expenses listed above 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.

6. How Has The Fund Performed Historically?

This chart shows how the Fund has performed since it commenced
operations on December 31, 1992, assuming reinvestment of all
distributions. Performance is historical and is no guarantee of future
results. Total return and principal value will fluctuate.
[Image]

If the adviser had not maintained the Fund's expenses, average annual
total return for the one year and life of Fund periods would have been
lower.

7. Who Manages The Fund?

The Fund's investment adviser is Scudder, Stevens & Clark, Inc., a
leading provider of U.S. and international investment management for
clients throughout the world. The Fund is managed by a team of Scudder
investment professionals who each play an important role in the Fund's
management process.

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 14 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 16 years of investment
experience.

8. How Can I Invest?

To make it easy for you to open an account, you may invest by mail,
phone, fax, or in person. The minimum initial investment is $2,500,
except that shareholders may open an account with at least $1,000 if
an automatic investment plan of $100/month is established. Scudder
retirement plans and certain other accounts have similar or lower
minimum share balance requirements. A shareholder who maintains a
nonfiduciary account balance of less than $2,500 without establishing
an automatic investment plan, will be assessed an annual fee of
$10.00, payable to the Fund. Retirement accounts and certain other
accounts will not be assessed the $10.00 charge. You may also exchange
Fund shares free of charge within the Scudder Family of Funds.

9. How Can I Redeem Shares?

You may redeem shares at the current share price on any business day
by telephone, fax, or mail.

10. When Are Distributions Made?

The Fund typically makes dividends and capital gains distributions, if
any, in December. You may elect to receive distributions in cash or
have them reinvested in additional shares of the Fund.

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.

11. What Services Does Scudder Provide?

As a shareholder, you'll enjoy:

o professional service from representatives who can answer your
questions and execute your transactions
o automated toll-free touchtone access to account information,
share prices and yields, and to perform transactions
o Scudder's quarterly shareholder newsletter, Scudder Perspectives
o regular, informative reports about the performance of your Fund

[Image]

----------------------------------------------------------------------
[Image]Scudder wants you to make informed investment decisions. This
Fund Profile contains key information about the Fund. If you would
like more information before you invest, please consult the Fund's
accompanying prospectus. For details about the Fund's holdings or
recent investment strategies, please review the Fund's most recent
annual or semiannual report. The reports are free and may be ordered
by calling 1-800-225-2470.

----------------------------------------------------------------------
Contact Scudder

<PAGE>

This prospectus sets forth concisely the information about Scudder Value Fund, a
diversified 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, 1998, 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 and is available along with
other related materials on the SEC's Internet Web site (http://www.sec.gov).

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.

- ----------------------------
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
- ----------------------------

[PRINTED WITH SOY INK LOGO] [RECYCLE LOGO] Printed on recycled paper

SCUDDER [SCUDDER LOGO]

Scudder
Value
Fund

Prospectus
February 1, 1998

A pure no-load(TM) 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 Family of Funds 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

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,
1997.

Investment management fee 0.70%**
12b-1 fees NONE
Other expenses 0.58%
----
Total Fund operating expenses 1.28%**
====

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
------ ------- ------- --------
$13 $41 $70 $155

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."

** Until July 31, 1997, the Adviser waived a portion of its investment
management fee to the extent necessary so that the total annualized
expenses of the Fund did not exceed 1.25% of average daily net assets.
Expenses shown above are restated to reflect what the Fund would have paid
during the fiscal year ended September 30, 1997 absent such waiver.

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

- --
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, 1997 which may be obtained without
charge by writing or calling Scudder Investor Services, Inc.

-----------------------------------------------------
Net asset value, end of period ...... $23.53 $17.52 $15.87 $13.08 $13.38
- --------------------------------------------------------------------------------------------
Total Return (%) (b) ................ 45.80 17.18 23.62 1.88 11.50**
Ratios and Supplemental Data
Net assets, end of period
($ millions) ...................... 298 89 68 35 29
Ratio of operating expenses,
net to average daily net assets (%) 1.24 1.25 1.25 1.25 1.25*
Ratio of operating expenses
before expense reductions,
to average daily net assets (%) ... 1.28 1.31 1.44 1.61 2.16*
Ratio of net investment
income to average daily
net assets (%) .................... 1.67 1.34 1.57 1.16 1.56*
Portfolio turnover rate (%) ......... 47.40 90.8 98.2 74.6 60.8*
Average commission rate paid (c) .... $.0577 $.0577 $ -- $ -- $ --
</TABLE>

(a) Based on monthly average shares outstanding during the period.

(b) Total return would have been lower had certain expenses not
been reduced.

(c) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years beginning on or after October 1, 1995.

* Annualized

** Not annualized

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

--
3
<PAGE>

- ----------------------------------------
A message from the President
- ----------------------------------------

[PHOTO]

Edmond D. Villani, President
and CEO, Scudder Kemper
Investments, Inc.

Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide, managing more than $200 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts. It is one of the ten
largest mutual fund companies in the U.S.

We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 45 no-load mutual fund portfolios. We also 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 numerous
other open and closed-end funds that invest in this country and other 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 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 Investor Centers.

The Scudder Family of Funds includes those Funds, or classes of Funds, advised
by Scudder Kemper Investments, Inc., that are offered without commissions to
purchase or redeem 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/ Edmond D. Villani

- ----------------------------------------
Scudder Value Fund
- ----------------------------------------

Investment objective

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

Investment characteristics

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

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

o a focus on medium- to large-sized companies

- ----------------------------------------
Contents
- ----------------------------------------

Investment objective and policies ........... 7
Why invest in the Fund? ..................... 8
Additional information about policies
and investments ........................... 8
Distribution and performance information .... 12
Fund organization ........................... 13
Transaction information ..................... 14
Shareholder benefits ........................ 18
Purchases ................................... 21
Exchanges and redemptions ................... 22
Trustees and Officers ....................... 24
Investment products and services ............ 21
How to contact Scudder ...................... 29

- --
4
<PAGE>

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

Scudder Value Fund (the "Fund"), a diversified series of Scudder Equity Trust
(the "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 Kemper Investments, 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, securities convertible into common stocks,
rights and warrants. The Fund changes its portfolio securities for long-term
investment considerations and not for trading purposes.

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

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 assets in debt
obligations, including zero coupon securities and commercial paper and may enter
into repurchase agreements and reverse repurchase agreements. In addition, the
Fund may engage in strategic transactions and invest in illiquid and restricted
securities. See "Additional information about policies and investments" for more
information about these investment techniques.

For temporary defensive purposes, the Fund may invest without limit in cash and
cash equivalents when the Adviser deems such a position advisable in light of
economic or market conditions. It is impossible to predict accurately how long
such alternate strategies may be utilized. More information about these

--
5
<PAGE>

investment techniques is provided under "Additional information about policies
and investments."

- ----------------------------------------
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, an important measure of risk. The Adviser maintains
one of the largest equity research departments in the industry and has done so
for more than 60 years. The Adviser also oversees separately managed
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 certain investment restrictions which are designed to reduce the
Fund's investment risk. Fundamental investment restrictions may not be changed
without a vote of shareholders; non-fundamental investment restrictions may be
changed by a vote of the Trust's Board of Trustees.

As a matter of fundamental policy, the Fund may not borrow money, except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Fund may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes, although the Fund may engage up to 5% of
total assets in reverse repurchase agreements or dollar rolls.

As a matter of fundamental policy, the Fund may not make loans except through
the lending of portfolio securities, the purchase of debt securities or
interests in indebtedness, or through repurchase agreements. The Fund has
adopted a non-fundamental policy restricting the lending of portfolio securities
to no more than 5% of total assets.

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

Common stocks

Under normal circumstances, the Fund invests primarily in common stocks. Common
stock is issued by companies to raise cash for business purposes and represents
a proportionate interest

- --
6
<PAGE>

in the issuing companies. Therefore, the Fund participates in the success or
failure of any company in which it holds stock. The market values of common
stock can fluctuate significantly, reflecting the business performance of the
issuing company, investor perception and general economic or financial market
movements. Smaller companies are especially sensitive to these factors and may
even become valueless. Despite the risk of price volatility, however, common
stocks also offer the greatest potential for gain on investment, compared to
other classes of financial assets such as bonds or cash equivalents.

Debt securities

The Fund may purchase investment-grade debt securities, which are those rated
Aaa, Aa, A or Baa by Moody's Investor Services, Inc. ("Moody's"), or AAA, AA, A
or BBB by Standard & Poor's Corporation ("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 at a specified time and price.

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 return potential than domestic alternatives in keeping
with the investment objective of the Fund.

Illiquid securities

The Fund may invest in securities for which there is not an active trading
market, or which have resale restrictions. These types of securities generally
offer a higher return than more readily marketable securities, but carry the
risk that the Fund may not be able to dispose of them at an advantageous time or
price.

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
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.

--
7
<PAGE>

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 to create exposure in the Fund. Please refer to "Risk factors--Strategic
Transactions and derivatives" for more information.

Risk factors

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

Debt securities. The Fund may invest up to 20% of its 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 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.

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.

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

- --
8
<PAGE>

securities entail less credit risk than the issuer's common stock.

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.

Illiquid securities. The absence of a trading market can make it difficult to
ascertain a market value for these 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.

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's
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.

--
9
<PAGE>

- ----------------------------------------
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 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 at a
maximum 20% or 28% capital gains rate (depending on the Fund's holding period
for the assets giving rise to the gain), 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. 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, 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.

- --
10
<PAGE>

Investment adviser

The Fund retains the investment management firm of Scudder Kemper Investments,
Inc., a Delaware corporation formerly known as Scudder, Stevens & Clark, Inc.,
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.

Scudder, Stevens & Clark, Inc. ("Scudder"), and Zurich Insurance Company
("Zurich"), an international insurance and financial services organization, have
formed a new global investment organization by combining Scudder's business with
that of Zurich's subsidiary, Zurich Kemper Investments, Inc. and Scudder has
changed its name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owns approximately 70% of the Adviser, with the balance
owned by the Adviser's officers and employees.

The Fund pays the Adviser an annual fee of 0.70% of the Fund's average daily net
assets. The Adviser 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,
1997. As a result of this waiver the Adviser received an investment management
fee of 0.66% of the Fund's average daily net assets for the fiscal period ended
September 30, 1997.

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 Kemper Investments, Inc. is located at 345 Park Avenue, New York, New
York.

Transfer agent

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

Underwriter

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

Fund accounting agent

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

Custodian

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

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

Purchasing shares

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

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

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11
<PAGE>

expiration of the seven-day period will not be accepted.

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

Scudder fund account number. Contact your bank to arrange a wire transfer to:

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

Your wire instructions must also include:

- -- the name of the fund in which the money is to be invested,
- -- the account number of the fund, and
- -- the name(s) of the account holder(s).

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

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

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

By "QuickBuy." If you elected "QuickBuy" 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
"QuickBuy," call 1-800-225-5163 for more information.

To purchase additional shares, call 1-800-225-5163. Purchases may not be for
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. "QuickBuy" 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 "QuickBuy" 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. "QuickBuy" transactions are not
available for most retirement plan accounts. However, "QuickBuy" transactions
are available for Scudder IRA accounts.

By exchange. The Fund may be exchanged for shares of other funds in the Scudder
Family of Funds unless otherwise determined by the Board of Trustees. 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.

- --
12
<PAGE>

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
provided your banking information on your application, you can call to request
that federal funds be sent to your authorized bank account. If you did not
include your banking information on your application, call 1-800-225-5163 for
more information.

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

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

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

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

By "QuickSell." If you elected "QuickSell" 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 "QuickSell,"
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. "QuickSell" 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.

"QuickSell" 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 $100,000 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

--
13
<PAGE>

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

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

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

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

Purchase restrictions

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

Tax information

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

Tax identification number

Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a correct 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 correct 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 correct 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

Shareholders should maintain a share balance worth at least $2,500, which amount
may be changed by the Board of Trustees. Scudder retirement plans and certain
other accounts have similar or lower minimum balance requirements. A shareholder
may open an account with at least $1,000, if an automatic investment plan of
$100/month is established.

Shareholders who maintain a non-fiduciary account balance of less than $2,500 in
the Fund, without establishing an automatic investment

- --
14
<PAGE>

plan, will be assessed an annual $10.00 per fund charge with the fee to be paid
to the Fund. The $10.00 charge will not apply to shareholders with a combined
household account balance in any of the Scudder Funds of $25,000 or more. The
Fund reserves the right, following 60 days' written notice to shareholders, to
redeem all shares in accounts below $250, including accounts of new investors,
where a reduction in value has occurred due to a redemption or exchange out of
the account. The Fund will mail the proceeds of the redeemed account to the
shareholder. Reductions in value that result solely from market activity will
not trigger an involuntary redemption. Retirement accounts and certain other
accounts will not be assessed the $10.00 charge or be subject to automatic
liquidation. Please refer to "Exchanges and Redemptions--Other information" in
the Fund's Statement of Additional Information for more information.

Third party transactions

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

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 Kemper Investments, 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 Value Fund is managed by a team of 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 the Adviser's large staff of economists,
research analysts, traders and other investment specialists who work in the
Adviser's offices across the United States and abroad. The Adviser believes its
team approach benefits Fund investors by bringing together many disciplines and
leveraging its 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 15 years of
experience in the value style of investing, joined the Adviser in 1982. William
J. Wallace, Portfolio Manager, has been a member of the Fund's team since 1992
and has 17 years of investment experience.

SAIL(TM)--Scudder Automated Information Line

--
15
<PAGE>

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. (The exchange
privilege may not be available for certain Scudder funds or classes of Scudder
Funds. For more information, please call 1-800-225-5163.) 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.

Personal Counsel(SM) -- A Managed Fund Portfolio Program

If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder Kemper Investments, Inc., combines the benefits of a
customized portfolio of pure no-load Scudder Funds with ongoing portfolio
monitoring and individualized service, for an annual fee of generally 1% or less
of assets (with a $1,000 minimum). In addition, it draws upon the Adviser's more
than 75-year heritage of providing investment counsel to large corporate and
private clients. If you have $100,000 or more to invest initially and would like
more information about Personal Counsel, please call 1-800-700-0183.

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 will receive a detailed statement summarizing account activity, including
dividend and capital gain reinvestment, purchases and redemptions. All of your
statements should be retained to help you keep track of account activity and the
cost of shares for tax purposes.

Shareholder reports

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

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

Newsletters

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

Scudder Investor Centers

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

T.D.D. service for the hearing impaired

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

- --
16
<PAGE>

- ----------------------------------------
Purchases
- ----------------------------------------

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

<S> <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 The Scudder Funds
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291

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

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

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

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

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

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

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

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

--
17
<PAGE>

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

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

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

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

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

The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
- ------------------------------------------------------------------------------------------------------------------------
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.

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

A signature guarantee is required for redemptions over $100,000.
See Transaction information--Redeeming shares.

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

- --
18
<PAGE>

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

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

o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of up to $2,000 per person for anyone with earned income (up
to $2,000 per individual for married couples if only one spouse has 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 you no annual custodial fee.

o Scudder Roth No-Fee IRAs. Similar to the traditional IRA in many respects,
these retirement plans provide a unique opportunity for qualifying
individuals to accumulate investment earnings tax free. Unlike a
traditional IRA, with a Roth IRA, if you meet the distribution
requirements, you can withdraw your money without paying any taxes on the
earnings. The Scudder Roth IRA charges you no annual custodial fee.

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

o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make
annual, tax-deductible contributions of up to $30,000 for each person
covered by the plans. Plans may be adopted individually or paired to
maximize contributions. These are sometimes known as Keogh plans. The
Scudder Keogh charges you no annual custodial fee.

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

o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation. The Scudder SEP-IRA charges
you no annual custodial fee.

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

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

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

Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.

--
19
<PAGE>

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

Daniel Pierce*
President and Trustee

Paul Bancroft III
Trustee; Venture Capitalist and Consultant

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

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

Thomas J. Devine
Trustee; Consultant

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

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

Dr. Wilson Nolen
Trustee, Consultant

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

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 Treasurer

John R. Hebble*
Assistant Treasurer

Caroline Pearson*
Assistant Secretary

*Scudder Kemper Investments, Inc.

- --
20
<PAGE>

- --------------------------------------------------------------------------------
Investment products and services
- --------------------------------------------------------------------------------

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

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

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

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

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

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

U.S. Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund

U.S. Growth

Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund

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

Global Growth

Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund

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

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

Education Accounts
Education IRA
UGMA/UTMA

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

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

--
21
<PAGE>

- --------------------------------------------------------------------------------
How to contact Scudder
- --------------------------------------------------------------------------------

Account Service and Information:

For existing account service and transactions

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

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

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

For personalized information about your Scudder accounts, exchanges and
redemptions

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

Investment Information:

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

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

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

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

Scudder Brokerage Services:

To receive information about this discount brokerage service and to obtain
an application

Scudder Brokerage Services* -- 1-800-700-0820

Personal Counsel(SM) -- A Managed Fund Portfolio Program:

To receive information about this mutual fund portfolio guidance and
management program

Personal Counsel from Scudder -- 1-800-700-0183

Please address all correspondence to:

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

Or Stop by a Scudder Investor Center:

Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Investor Center near you--they can be found
in the following cities:

Boca Raton Chicago San Francisco
Boston New York

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

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

- --
22
<PAGE>

[Image] Scudder Large Company Value Fund Profile [Image]
- ---------------------------------------------------------------------------

Fund Profile
October 1, 1997

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

1. What Is The Fund's Objective?

Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.

2. What Does The Fund Invest In?

The Fund is free to invest in a wide range of marketable securities
which the Fund's investment adviser, Scudder, Stevens & Clark, Inc.
believes offer the potential for long-term appreciation. The Fund will
normally invest at least 65% of its assets in the equity securities of
large U.S. companies, i.e. those with $1 billion or more in total
market capitalization.

The Fund invests principally in common stocks, and consistent with its
objective of long-term capital appreciation, preferred stocks. The
Fund looks for companies whose securities appear to present a
favorable relationship between market price and opportunity. 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. Accordingly, the prices of such
securities can rise either as a result of improved business
fundamentals, particularly when earnings grow faster than general
expectations, or as more investors come to recognize the full extent
of a company's underlying potential. These "undervalued" securities
can provide the opportunity for above-average market performance.

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; companies that own or develop natural
resources; companies that may benefit from changing consumer demands
and lifestyles; foreign companies; companies whose earning's 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 investors.

The Fund may invest up to 20% of its assets in debt securities rated
below investment-grade (i.e., below Baa by Moody's Investors Service,
Inc. or below BBB by Standard & Poors, "junk bonds") or their
equivalents, as determined by the adviser.

3. What Are The Risks Of Investing In The Fund?

The Fund may involve above-average stock market risk. Investment in
common stocks, particularly "undervalued" stocks, carries the risk
that their prices may not rise to a level reflective of Scudder's
valuation. In addition, movements of the stock market will affect the
Fund's share price, which may vary from day to day. Other risk factors
are that the value of your investment may decline as a result of
declines in the overall stock market or in the types of securities
held in the Fund, and that in rising markets the types of stocks
emphasized in the Fund may underperform other sectors of the stock
market. You incur principal risk when you invest because your shares,
when sold, may be worth more or less than what you paid for them.

Furthermore, the Fund's holdings in unrated securities and securities
rated below investment-grade (i.e., "junk bonds") carry a greater risk
of default and more price volatility than securities rated
investment-grade. Securities rated C by Moody's or D by S&P may be in
default with respect to payment of principal and interest.

4. For Whom Is This Fund Appropriate?

You may wish to consider this Fund if you are seeking capital growth
and:

5. What Are The Fund's Expenses And Fees?

There are two kinds of expenses that a shareholder may incur, directly
or indirectly, by investing in a mutual fund. These types of expenses,
as they relate to Scudder Large Company Value Fund are:

Shareholder transaction expenses --
Expenses charged directly to your account for various transactions.
Please note that there is a $5 service fee if you request redemption
proceeds via wire.

Sales Commission None

Commissions to Reinvest Dividends None

Redemption Fee None

Exchange Fee None

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. Figures below are for the fiscal year ended September 30,
1996.

Investment management fee 0.66%

12b-1 fees None

Other expenses 0.26%
------

Total Fund operating expenses 0.92%
====

Example:
Assuming a 5% annual return and redemption at the end of each
period, the total expenses relating to a $1,000 investment would be:

1 Year 3 Years 5 Years 10 Years

$9 $29 $51 $113

6. How Has The Fund Performed Historically?

This chart shows how the Fund has performed over the past 10 years,
assuming reinvestment of all distributions. Performance is historical
and is no guarantee of future results. Total return and principal
value will fluctuate.

THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE.

BAR CHART TITLE: Total returns for years ended December 31:
BAR CHART DATA:

1986 16.58%
1987 -0.73
1988 29.71
1989 33.80
1990 -16.98
1991 42.96
1992 7.09
1993 20.07
1994 -9.87
1995 31.65
1996 19.55

The Fund's Average Annual Total Return
for the period ended September 30, 1997

One Year 43.06%
Five Years 19.95%
Ten Years 14.08%

7. Who Manages The Fund?

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 Roman, Portfolio Manager, joined the Fund in 1995 and Scudder
in 1994 and has nine years of experience as an equity analyst.

8. How Can I Invest?

9. How Can I Redeem Shares?

You may redeem shares at the current share price on any business day
by telephone, fax, or mail.

10. When Are Distributions Made?

The Fund typically makes dividends and capital gains distributions, if
any, in December. You may elect to receive distributions in cash or
have them reinvested in additional shares of the Fund.

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.

11. What Services Does Scudder Provide?

As a shareholder, you'll enjoy:

[Image]

----------------------------------------------------------------------
Contact Scudder
<PAGE>

This prospectus sets forth concisely the information about Scudder Large Company
Value Fund, a diversified 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.

- -------------------------------
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
- -------------------------------

[LOGO] PRINTED WITH [LOGO] Printed on recycled paper
SOY INK

SCUDDER [LOGO]

Scudder
Large Company
Value Fund

Prospectus
February 1, 1998

A pure no-load(TM) (no sales charges) mutual fund which seeks to maximize
long-term capital appreciation through a value-driven investment program.

<PAGE>

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

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

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

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

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

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

Investment management fee 0.64%
12b-1 fees NONE
Other expenses 0.29%
----
Total Fund operating expenses 0.93%
====

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
------ ------- ------- --------
$9 $30 $51 $114

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

- --
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.

<TABLE>
<CAPTION>
Years Ended September 30,
1997(a)* 1996 1995 1994 1993(c) 1992 1991 1990 1989 1988
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of --------------------------------------------------------------------------------------------------
period ..................... $22.64 $22.92 $19.54 $23.06 $19.12 $19.30 $14.77 $22.30 $16.10 $20.41
Income from investment --------------------------------------------------------------------------------------------------
operations:
Net investment income (loss) .. .38 .36 .13 (.02) .06 .12 .20 .30(b) .21 .09
Net realized and unrealized
gain (loss) on investment
transactions ............... 8.60 2.94 3.98 (.88) 5.23 .90 6.05 (6.22) 6.61 (1.82)
Total from investment --------------------------------------------------------------------------------------------------
operations ................. 8.98 3.30 4.11 (.90) 5.29 1.02 6.25 (5.92) 6.82 (1.73)
Less distributions from: --------------------------------------------------------------------------------------------------
Net investment income ......... (.16) (.08) -- -- (.10) (.22) (.37) (.16) (.07) (.20)
Net realized gains on
investment transactions .... (2.48) (3.50) (.73) (2.62) (1.25) (.98) (1.35) (1.45) (.55) (2.38)
--------------------------------------------------------------------------------------------------
Total distributions ........... (2.64) (3.58) (.73) (2.62) (1.35) (1.20) (1.72) (1.61) (.62) (2.58)
--------------------------------------------------------------------------------------------------
Net asset value, end of --------------------------------------------------------------------------------------------------
period ..................... $28.98 $22.64 $22.92 $19.54 $23.06 $19.12 $19.30 $14.77 $22.30 $16.10
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (%) .............. 43.06 15.94 21.96 (4.72) 28.83 5.61 45.85 (28.20) 44.05 (5.61)
Ratios and Supplemental Data
Net assets, end of period
($ millions) ............... 2,213 1,651 1,492 1,338 1,387 1,054 1,058 712 1,013 491
Ratio of operating expenses
to average daily net
assets (%) ................. .93 .92 .98 .97 .96 .98 1.04 .94 .88 .95
Ratio of net investment
income (loss) to
average daily net
assets (%) ................. 1.51 1.62 .62 (.12) .22 .57 1.24 1.56 1.22 .63
Portfolio turnover rate (%) ... 43.02 150.7 153.6 75.8 92.2 92.4 93.2 87.9 55.7 48.5
Average commission rate paid .. $.0562 $.0533 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>

(a) Based on monthly average shares outstanding during the period.
(b) Net investment income per share includes nonrecurring dividend income
amounting to $.14 per share.
(c) Effective October 1, 1992, the Fund discontinued using equalization
accounting.
(d) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years ending on or after September 30, 1996.
* On February 1, 1997, the Fund adopted its current name. Prior to that date,
the Fund was known as the Scudder Capital Growth Fund.

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

--
3
<PAGE>

- ---------------------------------------
A message from the President
- ---------------------------------------

[PHOTO]

Edmond D. Villani, President
and CEO, Scudder Kemper
Investments, Inc.

/s/ Edmond D. Villani

- ---------------------------------------
Scudder Large Company
Value Fund
- ---------------------------------------

Investment objective

o to maximize long-term capital appreciation through a value-driven
investment program

Investment characteristics

o a value-driven investment program
o focus on larger U.S. companies
o a pure no-load(TM) fund

- ---------------------------------------
Contents
- ---------------------------------------

Investment objective and policies ....................................... 7
Why invest in the Fund? ................................................. 7
Additional information about policies
and investments ...................................................... 9
Distribution and performance information ................................ 12
Fund organization ....................................................... 13
Transaction information ................................................. 14
Shareholder benefits .................................................... 19
Purchases ............................................................... 21
Exchanges and redemptions ............................................... 23
Trustees and Officers ................................................... 26
Investment products and services
How to contact Scudder .................................................. 30

- --
4
<PAGE>

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

Scudder Large Company Value Fund (the "Fund"), a diversified series of Scudder
Equity Trust (the "Trust"), seeks to maximize long-term capital appreciation
through a value-driven investment program. The Fund invests in marketable
securities, principally common stocks and, consistent with its objective of
long-term capital appreciation, preferred stocks. Additionally, the Fund may
invest in debt securities, repurchase agreements and reverse repurchase
agreements, convertible securities, rights, warrants, and illiquid and
restricted securities, and may engage in strategic transactions as described
under "Investment restrictions."

Investments

The Fund is free to invest in a wide range of marketable securities which the
Fund's investment adviser, Scudder Kemper Investments, Inc. (the "Adviser"),
believes offer the potential for long-term appreciation. The Fund will normally
invest at least 65% of its assets in the equity securities of large U.S.
companies, i.e. those with $1 billion or more in total market capitalization.
The Fund's investment flexibility enables it to pursue investment value in all
sectors of the stock market, including:

o 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;

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

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

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

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

For temporary defensive purposes, the Fund may invest without limit in debt
securities, short-term indebtedness, cash and cash equivalents when the Adviser
deems such a position advisable in light of economic or market conditions. It is
impossible to predict accurately how long such alternate strategies may be
utilized. More information about these investment techniques is provided under
"Additional information about policies and investments."

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

The Fund uses a value-based investment approach to pursue a range of investment
opportunities, principally among larger, established U.S. companies. Given this
approach, the Fund may be appropriate as a core investment holding for
retirement or other long-term goals.

In seeking capital appreciation, 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.

--
5
<PAGE>

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. Accordingly, the prices of such securities can rise either
as a result of improved business fundamentals, particularly when earnings grow
faster than general expectations, or as more investors come to recognize the
full extent of a company's underlying potential. These "undervalued" securities
can provide the opportunity for above-average market performance.

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

Investment restrictions

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

Common stocks

Under normal circumstances, the Fund invests primarily in common stocks. Common
stock is issued by companies to raise cash for business purposes and represents
a proportionate interest in the issuing companies. Therefore, the Fund
participates in the success or failure of any company in which it holds stock.
The market values of common stock can fluctuate significantly, reflecting the
business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.

Debt securities

Repurchase agreements

Convertible securities

The convertible securities in which the Fund may invest consist of bonds, notes,
debentures

- --
6
<PAGE>

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.

Illiquid securities

Strategic Transactions and derivatives

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").

--
7
<PAGE>

speculative purposes. Please refer to "Risk factors--Strategic Transactions and
derivatives" for more information.

Risk factors

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
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
assets in securities rated B or lower by Moody's or S&P, but may invest 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.

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.

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 the
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.

- --
8
<PAGE>

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's
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

Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable at a
maximum 20% or 28% capital gains rate (depending on the Fund's holding period
for the assets giving rise to the gain), 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.

--
9
<PAGE>

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. Performance will vary based upon, among other things,
changes in market conditions and the level of the Fund's expenses.

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

Scudder Large Company Value Fund is a diversified series of Scudder Equity
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 changed its name from Scudder Capital Growth Fund on February 1, 1997.

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

For the fiscal year ended September 30, 1997, the Adviser received an investment
management fee of 0.64% 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 of the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.

- --
10
<PAGE>

Scudder Kemper Investments, 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

Fund accounting agent

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

Custodian

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

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

Purchasing shares

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.

--
11
<PAGE>

and most other Scudder retirement plan accounts.

By Exchange. The Fund may be exchanged for shares of other funds in the Scudder
Family of Funds unless otherwise determined by the Board of Trustees. 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 by calling
1-800-343-2890.

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.

- --
12
<PAGE>

Automated Clearing House for you to use this service. If you did not elect
"QuickSell," call 1-800-225-5163 for more information.

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

Share price

Processing time

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

--
13
<PAGE>

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

Purchase restrictions

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

Third party transactions

Redemption-in-kind

The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor

- --
14
<PAGE>

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 Kemper Investments, Inc., one of the nation's most experienced
investment management firms, actively manages your 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 Large Company Value Fund is managed by a team of investment
professionals who each plays an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by the Adviser's large
staff of economists, research analysts, traders and other investment specialists
who work in the Adviser's offices across the United States and abroad. The
Adviser believes its team approach benefits Fund investors by bringing together
many disciplines and leveraging its extensive resources.

Lead Portfolio Manager Kathleen T. Millard assumed responsibility for the Fund's
day-to-day management in 1995. Ms. Millard, who joined the Adviser in 1991, has
been involved in the investment industry since 1983 and has worked as a
portfolio manager since 1986. Lois R. Friedman Roman, Portfolio Manager, joined
the Fund in 1995 and the Adviser in 1994 and has ten 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
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. (The exchange
privilege may not be available for certain Scudder funds or classes of Scudder
funds. For more information, please call 1-800-225-5163.) 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.

Personal Counsel(SM) -- A Managed Fund Portfolio Program

--
15
<PAGE>

Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder Kemper Investments, Inc., combines the benefits of a
customized portfolio of pure no-load Scudder Funds with ongoing portfolio
monitoring and individualized service, for an annual fee of generally 1% or less
of assets (with a $1,000 minimum). In addition, it draws upon the Adviser's more
than 75-year heritage of providing investment counsel to large corporate and
private clients. If you have $100,000 or more to invest initially and would like
more information about Personal Counsel, please call 1-800-700-0183.

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

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

Scudder Investor Centers

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

T.D.D. service for the hearing impaired

- --
16
<PAGE>

- ---------------------------------------
Purchases
- ---------------------------------------

<S> <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 The Scudder Funds
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291

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

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

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

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

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

--
17
<PAGE>

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

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;
- 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 Funds 1-800-821-6234
P.O. Box 2291 66 Brooks Drive
Boston, MA 02107-2291 Braintree, MA 02184
- ------------------------------------------------------------------------------------------------------------------------
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.

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;
- your signature(s) as it appears on your account; and
- a daytime telephone number.

A signature guarantee is required for redemptions over $100,000.
See Transaction information--Redeeming shares.

- --
18
<PAGE>

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

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

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

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.

Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.

--
19
<PAGE>

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

Daniel Pierce*
President and Trustee

Paul Bancroft III
Trustee; Venture Capitalist and Consultant

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

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

Thomas J. Devine
Trustee; Consultant

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

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

Dr. Wilson Nolen
Trustee; Consultant

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

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 Treasurer

John R. Hebble*
Assistant Treasurer

Caroline Pearson
Assistant Secretary

*Scudder Kemper Investments, Inc.

- --
20
<PAGE>

- --------------------------------------------------------------------------------
Investment products and services
- --------------------------------------------------------------------------------

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

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

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

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

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

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

U.S. Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund

U.S. Growth

Value
Scudder Large Company Value Fund
Scudder Value Fund
Scudder Small Company Value Fund
Scudder Micro Cap Fund

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

Global Growth

Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund

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

Industry Sector Funds

Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund

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

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

Education Accounts

Education IRA
UGMA/UTMA

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

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

--
21
<PAGE>

- --------------------------------------------------------------------------------
How to contact Scudder
- --------------------------------------------------------------------------------

Account Service and Information:

For existing account service and transactions

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

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

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

For personalized information about your Scudder accounts, exchanges and
redemptions

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

Investment Information:

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

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

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

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

Scudder Brokerage Services:

To receive information about this discount brokerage service and to obtain
an application

Scudder Brokerage Services* -- 1-800-700-0820

Personal Counsel(SM) -- A Managed Fund Portfolio Program:

To receive information about this mutual fund portfolio guidance and
management program

Personal Counsel from Scudder -- 1-800-700-0183

Please address all correspondence to:

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

Or Stop by a Scudder Investor Center:

Many shareholders enjoy the personal, one-on-one service of the Scudder
Investor Centers. Check for an Investor Center near you--they can be found
in the following cities:

Boca Raton Chicago San Francisco
Boston New York

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

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

- --
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<PAGE>

SCUDDER LARGE COMPANY VALUE FUND

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

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, 1998

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

This combined Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectuses of Scudder Large Company
Value Fund and Scudder Value Fund each dated February 1, 1998, 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

THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES..................................1
General Investment Objective and Policies of Scudder Large Company
Value Fund............................................................1
General Investment Objective and Policies of Scudder Value Fund..........2
Master-feeder Fund Structure.............................................3
Investments and Investment Techniques....................................3
Investment Restrictions.................................................13
Other Investment Policies...............................................14

PURCHASES.....................................................................16
Additional Information About Opening An Account.........................16
Additional Information About Making Subsequent Investments..............16
Additional Information About Making Subsequent Investments by QuickBuy..17
Checks..................................................................17
Wire Transfer of Federal Funds..........................................17
Share Price.............................................................18
Share Certificates......................................................18
Other Information.......................................................18

EXCHANGES AND REDEMPTIONS.....................................................19
Exchanges...............................................................19
Redemption by Telephone.................................................19
Redemption By QuickSell.................................................20
Redemption by Mail or Fax...............................................21
Redemption-in-Kind......................................................21
Other Information.......................................................21

FEATURES AND SERVICES OFFERED BY THE FUNDS....................................22
The Pure No-Load(TM) Concept............................................22
Dividends and Capital Gains Distribution Options........................23
Diversification.........................................................24
Scudder Investor Centers................................................24
Reports to Shareholders.................................................24
Transaction Summaries...................................................24

THE SCUDDER FAMILY OF FUNDS...................................................24

SPECIAL PLAN ACCOUNTS.........................................................24
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension
Plans for Corporations and Self-Employed Individuals.................29
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for
Corporations and Self-Employed Individuals...........................29
Scudder IRA: Individual Retirement Account.............................29
Scudder 403(b) Plan.....................................................30
Automatic Withdrawal Plan...............................................31
Group or Salary Deduction Plan..........................................31
Automatic Investment Plan...............................................31
Uniform Transfers/Gifts to Minors Act...................................32

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.....................................32

PERFORMANCE INFORMATION.......................................................32
Average Annual Total Return.............................................32
Cumulative Total Return.................................................33
Total Return............................................................34
Comparison of Fund Performance..........................................35

<PAGE>

TABLE OF CONTENTS (continued)

Page

ORGANIZATION OF THE FUNDS.....................................................38

INVESTMENT ADVISER............................................................39
Personal Investments by Employees of the Adviser........................43

TRUSTEES AND OFFICERS.........................................................43

REMUNERATION..................................................................45

DISTRIBUTOR...................................................................46

TAXES.........................................................................47

PORTFOLIO TRANSACTIONS........................................................50
Brokerage Commissions...................................................50
Portfolio Turnover......................................................51

NET ASSET VALUE...............................................................52

ADDITIONAL INFORMATION........................................................53
Experts.................................................................53
Shareholder Indemnification.............................................53
Other Information.......................................................53

FINANCIAL STATEMENTS..........................................................54

APPENDIX

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THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES

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

Scudder Large Company Value 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 Large Company Value Fund

Scudder Large Company Value Fund ("Large Company Value Fund") seeks to
maximize long-term capital appreciation 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 capital
appreciation 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.")

The Fund may borrow money for temporary, emergency or other purposes,
including investment leverage purposes, as determined by the Trustees. The Fund
may also borrow under reverse repurchase agreements. The Investment Company Act
of 1940 (the "1940 Act") requires borrowings to have 300% asset coverage.

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.
<PAGE>

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
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.

[TO BE UPDATED]

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 14.27% for the ten-year period ended September 30, 1996. This
compares to a 14.99% return for the S&P 500, 13.28% for the Lipper Growth Fund
Average, and 12.69% 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.")

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<PAGE>

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.

Master/feeder structure

The Board of Trustees has the discretion to retain the current
distribution arrangement for the Fund while investing in a master fund in a
master/feeder structure as described below.

A master/feeder fund structure is one in which a fund (a "feeder fund"),
instead of investing directly in a portfolio of securities, invests most or all
of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.

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

3
<PAGE>

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,
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.

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<PAGE>

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 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

5
<PAGE>

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
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.

Borrowing. As a matter of fundamental policy, the Funds will not borrow money,
except as permitted under the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. While
the Trustees do not currently intend to borrow for investment leverage purposes,
if such a strategy were implemented in the future it would increase the Funds'
volatility and the risk of loss in a declining market. Borrowing by the Funds
will involve special risk considerations. Although the principal of the Funds'
borrowings will be fixed, the Funds' assets may change in value during the time
a borrowing is outstanding, thus increasing exposure to capital risk.

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

6
<PAGE>

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
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

7
<PAGE>

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.

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.

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<PAGE>

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
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

9
<PAGE>

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
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.

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<PAGE>

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
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

11
<PAGE>

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
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 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 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
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 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 assets equal to the exercise price.

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<PAGE>

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 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
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) borrow money, except as permitted under the 1940 Act, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;

13
<PAGE>

(2) issue senior securities, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time;

(3) concentrate its investments in a particular industry, as that term
is used in the 1940 Act, as amended, and as interpreted or modified
by regulatory authority having jurisdiction, from time to time;

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

(5) purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except 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;

(6) purchase physical commodities or contracts relating to physical
commodities; or

(7) make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's objective and policies
may be deemed to be loans.

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 currently does not intend
to:

(a) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by engaging
in reverse repurchase agreements, dollar rolls, or other investments
or transactions described in the Fund's registration statement which
may be deemed to be borrowings;

(b) enter into either of reverse repurchase agreements or dollar rolls
in an amount greater than 5% of its total assets;

(c) purchase securities on margin or make short sales, except (i) short
sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with futures
contracts, options or other permitted investments, (iv) that
transactions in futures contracts and options shall not be deemed to
constitute selling securities short, and (v) that the Fund may
obtain such short-term credits as may be necessary for the clearance
of securities transactions;

(d) purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its total
assets; or sell put options, if as a result, the aggregate value of
the obligations underlying such put options would exceed 50% of its
total assets;

(e) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect to such futures contracts entered into on behalf
of the Fund and the premiums paid for such 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;

(f) purchase warrants if as a result, such securities, taken at the
lower of cost or market value, would represent more than 5% of the
value of the Fund's total assets (for this purpose, warrants
acquired in units or attached to securities will be deemed to have
no value); and

14
<PAGE>

(g) lend portfolio securities in an amount greater than 5% of its total
assets.

15
<PAGE>

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 $2,500 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, or telephone.

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 ($2,500 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 $2,500 under certain
special plan accounts.

Additional Information About Making Subsequent Investments

Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder

16
<PAGE>

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 cancellation. In the event of such
cancellation or cancellation at the purchaser's request, the purchaser will be
responsible for any loss incurred by a Fund or the principal underwriter by
reason of such cancellation. If the purchaser is a shareholder, the Trust shall
have the authority, as agent of the shareholder, to redeem shares in the account
in order to reimburse the 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 QuickBuy

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 QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, 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.
QuickBuy 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 QuickBuy 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. QuickBuy
transactions are not available for most retirement plan accounts. However,
QuickBuy transactions are available for Scudder IRA accounts.

In order to request purchases by QuickBuy, 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 QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing an QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.

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

Checks

A certified check is not necessary, but checks are 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.

17
<PAGE>

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 Large Company Value Fund, formerly known as 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 Large
Company Value Fund's prospectus.

Other Information

The Funds have authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Funds' shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on each Fund's behalf. Orders for purchase or redemption will be deemed
to have been received by a Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between a Fund and the
broker, ordinarily orders will be priced at that Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of a Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Trustees and the Distributor, also the Funds' 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 may suspend or terminate the
offering of shares of a Fund at any time for any reason.

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

18
<PAGE>

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 $2,500. 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. The exchange privilege may not be
available for certain Scudder funds. For more information, please call
1-800-225-5163.

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

Redemption by Telephone

Shareholders currently receive the right, automatically without having to
elect it, to redeem by telephone up to $100,000 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.

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<PAGE>

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

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

Telephone redemption is not available with respect to shares represented
by share certificates for Large Company Value Fund, formerly known as 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 QuickSell

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 QuickSell program may sell shares of the Fund by telephone. To sell
shares by QuickSell, 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. QuickSell 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. QuickSell transactions are not available for Scudder IRA accounts
and most other retirement plan accounts.

In order to request redemptions by QuickSell, 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 QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing an QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.

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<PAGE>

Redemption by Mail or Fax

Any existing share certificates for Large Company Value Fund, formerly
known as 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
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.

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<PAGE>

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.

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
Conduct Rules, 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.

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<PAGE>

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) 8.50% Load Load Fund with with 0.25%
YEARS Fund Fund 0.75% 12b-1 Fee 12b-1 Fee
- --------------------------------------------------------------------------------

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
===============================================================================

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.

23
<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 Investor Centers

Investors may visit any of the Investor 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 Funds' prospectuses.)

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.

MONEY MARKET

Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and, consistent therewith, to provide current income.
The Fund seeks to maintain a constant net asset value of $1.00 per share,
although in certain circumstances this may not be possible, and declares
dividends daily.

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. SCIT seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may not
be possible, and declares dividends daily.

Scudder Money Market Series seeks to provide investors with as high a
level of current income as is consistent with its investment polices and
with preservation of capital and liquidity. The Fund seeks to maintain a
constant net asset value of $1.00 per share, but there is no assurance
that it will be able to do so. The institutional class of shares of this
Fund is not within the Scudder Family of Funds.

Scudder Government Money Market Series seeks to provide investors with as
high a level of current income as is consistent with its investment
polices and with preservation of capital and liquidity. The Fund seeks to
maintain a constant net asset value of $1.00 per share, but there is no
assurance that it will be able to do so. The institutional class of shares
of this Fund is not within the Scudder Family of Funds.

24
<PAGE>

TAX FREE MONEY MARKET

Scudder Tax Free Money Fund ("STFMF") seeks to provide income exempt from
regular federal income tax and stability of principal through investments
primarily in municipal securities. STFMF seeks to maintain a constant net
asset value of $1.00 per share, although in extreme circumstances this may
not be possible.

Scudder Tax Free Money Market Series seeks to provide investors with as
high a level of current income that cannot be subjected to federal income
tax by reason of federal law as is consistent with its investment policies
and with preservation of capital and liquidity. The Fund seeks to maintain
a constant net asset value of $1.00 per share, but there is no assurance
that it will be able to do so. The institutional class of shares of this
Fund is not within the Scudder Family of Funds.

Scudder California Tax Free Money Fund* seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share while
providing California taxpayers income exempt from both California State
personal and regular federal income taxes. The Fund is a professionally
managed portfolio of high quality, short-term California municipal
securities. There can be no assurance that the stable net asset value will
be maintained.

Scudder New York Tax Free Money Fund* seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, while
providing New York taxpayers income exempt from New York State and New
York City personal income taxes and regular federal income tax. There can
be no assurance that the stable net asset value will be maintained.

TAX FREE

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 Medium Term Tax Free Fund seeks to provide a high level of income
free from regular federal income taxes and to limit principal fluctuation.
The Fund will invest primarily in high-grade, intermediate-term bonds.

Scudder Managed Municipal Bonds seeks to provide income exempt from
regular federal income tax primarily through investments in high-grade,
long-term municipal securities.

Scudder High Yield Tax Free Fund seeks to provide a high level of interest
income, exempt from regular federal income tax, from an actively managed
portfolio consisting primarily of investment-grade municipal securities.

Scudder California Tax Free Fund* seeks to provide California taxpayers
with income exempt from both California State personal income and regular
federal income tax. The Fund is a professionally managed portfolio
consisting primarily of California municipal securities.

Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide
Massachusetts taxpayers with as high a level of income exempt from
Massachusetts personal income tax and regular federal income tax, as is
consistent with a high degree of price stability, through a professionally
managed portfolio consisting primarily of investment-grade municipal
securities.

Scudder Massachusetts Tax Free Fund* seeks to provide Massachusetts
taxpayers with income exempt from both Massachusetts personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal securities.

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

25
<PAGE>

Scudder New York Tax Free Fund* seeks to provide New York taxpayers with
income exempt from New York State and New York City personal income taxes
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of New York municipal securities.

Scudder Ohio Tax Free Fund* seeks to provide Ohio taxpayers with income
exempt from both Ohio personal income tax and regular federal income tax.
The Fund is a professionally managed portfolio consisting primarily of
investment-grade municipal securities.

Scudder Pennsylvania Tax Free Fund* seeks to provide Pennsylvania
taxpayers with income exempt from both Pennsylvania personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal securities.

U.S. INCOME

Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing
primarily in high quality short-term bonds.

Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with investment in U.S.
Government securities and the minimization of reinvestment risk.

Scudder GNMA Fund seeks to provide high current income primarily from U.S.
Government guaranteed mortgage-backed (Ginnie Mae) securities.

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

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

GLOBAL INCOME

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 International Bond Fund seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. 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 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 by governments and
corporations in emerging markets.

ASSET ALLOCATION

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

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

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

26
<PAGE>

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

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

U.S. GROWTH AND INCOME

Scudder Balanced Fund seeks a balance of growth and income from a
diversified portfolio of equity and fixed-income securities. The Fund also
seeks long-term preservation of capital through a quality-oriented
approach that is designed to reduce risk.

Scudder Growth and Income Fund seeks long-term growth of capital, current
income, and growth of income.

Scudder S&P 500 Index Fund seeks to provide investment results that,
before expenses, correspond to the total return of common stocks publicly
traded in the United States, as represented by the Standard & Poor's 500
Composite Stock Price Index.

U.S. GROWTH

Value

Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.

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

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

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

Growth

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

Scudder Large Company 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 Development Fund seeks long-term growth of capital by investing
primarily in securities of small and medium-size growth companies.

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

GLOBAL GROWTH

Worldwide

Scudder Global Fund seeks long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt securities
convertible into common stocks.

27
<PAGE>

Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.

Scudder International Fund seeks long-term growth of capital primarily
through a diversified portfolio of marketable foreign equity securities.

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

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

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

Regional

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

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

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

The Japan Fund, Inc. seeks long-term capital appreciation by investing
primarily in equity securities (including American Depository Receipts) 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; and easy telephone
exchanges into other Scudder funds. Certain Scudder funds may not be available
for purchase or exchange. For more information, please call 1-800-225-5163.

SPECIAL PLAN ACCOUNTS

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

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

28
<PAGE>

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

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

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

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

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

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

Scudder IRA: Individual Retirement Account

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

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

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

29
<PAGE>

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

- -------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------
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

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.)

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

- -------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------
Contributions 5% 10% 15%
- -------------------------------------------------------------------------
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

Scudder Roth IRA: Individual Retirement Account

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

A single individual earning below $95,000 can contribute up to $2,000 per
year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.

An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.

All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions from a Roth IRA are taxable
and subject to a 10% tax penalty unless an exception applies. Exceptions to the
10% penalty include: disability, excess medical expenses, the purchase of health
insurance for an unemployed individual and education expenses.

An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.

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<PAGE>

Scudder 403(b) Plan

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

Automatic Withdrawal Plan

Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. 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 and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information--Redeeming shares--Signature
guarantees" in the Fund's prospectus. Any such requests must be received by the
Fund's transfer agent ten days prior to the date of the first automatic
withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the
shareholder, the [Trust, Corporation] or its agent on written notice, and will
be terminated when all shares of the Fund under the Plan have been liquidated or
upon receipt by the [Trust, Corporation] 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,
Corporation] and its agents reserve the right to establish a maintenance charge
in the future depending on the services required by the investor.

The [Trust, Corporation] 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

31
<PAGE>

regular investment program may be suitable for various investment goals such as,
but not limited to, college planning or saving for a home.

Uniform Transfers/Gifts to Minors Act

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

The [Trust, Corporation] 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.

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):

32
<PAGE>

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.

Average Annual Total Return for the periods ended September 30, 1997

[TO BE UPDATED]
One year Five years Ten years
-------- ---------- ---------

Large Company
Value Fund

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

Value Fund

(1) For the period beginning December 31, 1992 (commencement of
operations).
[TO BE UPDATED]
* The Adviser maintained Fund expenses for the period December 31, 1992
through September 30, 1993 and for the three fiscal years ended September
30, 1997. 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, 1997

[TO BE UPDATED]
One year Five years Ten years
-------- ---------- ---------

Large Company
Value Fund

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

Value Fund

(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 three fiscal years ended
September 30, 1996. 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.

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.

[TO BE UPDATED]
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, 1996, to September 30, 1997, Large
Company Value Fund went from ___ accounts to ___ accounts and Value Fund went
from ___ accounts to ___ accounts. During the same period, net assets for Large
Company Value Fund went from $__ billion to $__ billion and from $__ million to
$__ million for Value Fund. In this period, gross subscriptions for the Large
Company Value Fund and Value Fund were $__ million and $__ 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

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

34
<PAGE>

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 Fund Performance

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

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

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

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

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

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

Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will

35
<PAGE>

fluctuate. The description may also compare the Fund to bank products, such as
certificates of deposit. Unlike mutual funds, certificates of deposit are
insured up to $100,000 by the U.S. government and offer a fixed rate of return.

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

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

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

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

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

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

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

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

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

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

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

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

36
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SmartMoney, 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.

37
<PAGE>

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

USA Today, a leading national daily newspaper.

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

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

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

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

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

Worth, a national publication issued 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 Large Company Value 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
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.

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<PAGE>

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. Nothing in the
Declaration of Trust, however, protects or indemnifies a Trustee or officer
against any liability to which that person would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of that person's office.

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

INVESTMENT ADVISER

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

Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Fund. This organization, the predecessor
of which is Scudder, Stevens & Clark, Inc., is one of the most experienced
investment counsel firms in the U. S. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. In 1928 it introduced the first no-load mutual fund to
the public. In 1953 the Adviser introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On June 26, 1997, Scudder,
Stevens & Clark, Inc. ("Scudder") entered into an agreement with Zurich
Insurance Company ("Zurich") pursuant to which Scudder and Zurich agreed to form
an alliance. On December 31, 1997, Zurich acquired a majority interest in
Scudder, and Zurich Kemper Investments, Inc., a Zurich subsidiary, became part
of Scudder. Scudder's name has been changed to Scudder Kemper Investments, Inc.

Founded in 1872, Zurich is a multinational, public corporation organized
under the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.

39
<PAGE>

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
Pathway Series, Scudder Securities Trust, Scudder State Tax Free Trust, Scudder
Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund,
Scudder Variable Life Investment Fund, Scudder World Income Opportunities Fund,
Inc., The Argentina Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc., The
Japan Fund, Inc., The Latin America Dollar Income Fund, Inc. and Scudder Spain
and Portugal 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 $13 billion and includes the AARP Growth
Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed Investment
Portfolios Trust and AARP Cash Investment Funds.

Pursuant to an Agreement between Scudder, Stevens & Clark, Inc. and AMA
Solutions, Inc., a subsidiary of the American Medical Association (the "AMA"),
dated May 9, 1997, Scudder has agreed, subject to applicable state regulations,
to pay AMA Solutions, Inc. royalties in an amount equal to 5% of the management
fee received by Scudder with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLinkSM Program. Scudder will
also pay AMA Solutions, Inc. a general monthly fee, currently in the amount of
$833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLinkSM Program will be a customer of Scudder (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA InvestmentLinkSM
is a service mark of AMA Solutions, Inc.

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

40
<PAGE>

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.

[TO BE UPDATED]

An investment management agreement between the Trust, on behalf of Capital
Growth Fund, and the Adviser was last approved by the Trustees on September 4,
1996 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 4, 1996 and by the initial
shareholders of the Fund on December 30, 1992. Because the transaction between
Scudder and Zurich resulted in the assignment of the Fund's investment
management agreement with Scudder, that agreement was deemed to be automatically
terminated at the consummation of the transaction. In anticipation of the
transaction, however, a new investment management agreement between the Fund and
the Adviser was approved by the Fund's Trustees. At the special meeting of the
Fund's stockholders held on October 27, 1997, the stockholders also approved a
proposed new investment management agreement. The new investment management
agreement (the "Agreement") became effective as of November __, 1997 and will be
in effect for an initial term ending on September 30, 1998. The Agreement is in
all material respects on the same terms as the previous investment management
agreement which it supersedes. The Agreement incorporates conforming changes
which promote consistency among all of the funds advised by the Adviser and
which permit ease of administration. The Capital Growth Fund Agreement and the
Value Fund Agreement (collectively, the "Agreements") will continue in effect
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 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.

[TO BE UPDATED]
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, 1995, 1996 and 1997, Large
Company Value Fund incurred aggregate fees pursuant to its then effective
investment advisory agreement of $___, $ and $___, 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 years ended September 30, 1995, 1996 and 1997, the
Adviser did not impose a portion of its management fees amounting to $___, $___
and $___ , respectively and the amounts imposed amounted to $___, $___ and $___,
respectively. The Adviser has voluntarily

41
<PAGE>

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 ___________. 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.

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
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, 1995, 1996 and 1997, such expenses for Large Company Value Fund equaled
_____, ____ and _____, respectively, of the Fund's average net assets. For the
fiscal years ended September 30, 1995, 1996 and 1997 such expenses for Value
Fund equaled _____% 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.

The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Trust's investment products and services.

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

42
<PAGE>

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.

The Adviser may serve as adviser to other funds with investment objectives
and policies similar to those of the Funds that may have different distribution
arrangements or expenses, which may affect performance.

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.

TRUSTEES AND OFFICERS

<TABLE>
<CAPTION>
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 Assistant Treasurer
Scudder Kemper and Director
Investments, Inc.

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

Sheryle J. Bolton Trustee Chief Executive Officer, --
20 Hilltop Road Scientific Learning
Waccabue, NY 10597 Corporation

Thomas J. Devine Trustee President, Exeter Capital --
641 Lexington Avenue Management Corporation
New York, NY

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

43
<PAGE>

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

<S> <C> <C> <C>
William T. Burgin Trustee General Partner, Bessemer
Venture Partners

William H. Luers Trustee President, The
Metropolitan Museum of Art

Dr. 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

Kathryn L. Quirk*++ Trustee, Vice Managing Director of Vice President
President and Scudder Kemper
Assistant Investments, Inc.
Secretary

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

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

Donald E. Hall@ Vice President Managing Director of --
Scudder Kemper
Investments, Inc.

Jerard K. Hartman++ Vice President Managing Director of --
Scudder Kemper
Investments, Inc.

Thomas W. Joseph+ Vice President Principal of Scudder Vice President,
Kemper Investments, Inc. Director,
Treasurer, and
Assistant Clerk

Kathleen T. Millard++ Vice President Principal of Scudder --
Kemper Investments, Inc.

Thomas F. McDonough+ Vice President, Principal of Scudder Clerk
Secretary and Kemper Investments, Inc.
Assistant
Treasurer

Caroline Pearson (35)+ Assistant Directorof Mutual Fund
Secretary Administration, Scudder
Kemper Investments, Inc.

</TABLE>

44
<PAGE>

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

</TABLE>

* Mr. Pierce and Ms. Quirk 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.
# Mr. Pierce and Ms. Quirk are members of the Executive Committee, which may
exercise all of the powers of the Trustees when they are not in session.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
@ Address: 333 South Hope Street, Los Angeles, California

[TO BE UPDATED]
As of December 31, 1997 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) ________ shares, or ____% of the shares of
Large Company Value Fund.

As of December 31, 1997 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) ________ shares, or ____% of the shares of
Value Fund. Certain accounts for which the Adviser acts as investment adviser
owned _______ shares in the aggregate of Value Fund, or ____% of the outstanding
shares on December 31, 1997. 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, 1996 no person
owned beneficially more than 5% of a Fund's outstanding shares.

Scudder Large Company Value Fund changed its name from Scudder Capital
Growth Fund on February 1, 1997.

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

REMUNERATION
[TO BE UPDATED]
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 $______ plus $___ 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, 1997, Large Company Value
Fund paid such Trustees $______ and Value Fund paid such Trustees $______.

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.

45
<PAGE>

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, 1997
[TO BE UPDATED]

<TABLE>
<CAPTION>
====================================================================================================================
(1) (2) (3) (4) (5)
Aggregate Compensation from Pension or
Scudder Equity Trust Retirement Total Compensation
(consisting of two Funds: Benefits From
Scudder Large Company Accrued As Estimated Scudder Equity Trust
Name of Person, Value Fund Part of Fund Annual Benefits and Fund Complex
Position and Scudder Value Fund) Expenses Upon Retirement Paid to Trustee
====================================================================================================================
<S> <C> <C> <C> <C>
Paul Bancroft III,
Trustee

Sheryle J. Bolton,
Trustee

Thomas J. Devine,
Trustee

Keith R. Fox,
Trustee

Wilson Nolen,
Trustee

Gordon Shillinglaw,
Trustee

Robert G. Stone, Jr.,
Honorary Trustee
</TABLE>

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, 199__ 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 4, 1996.

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.

46
<PAGE>

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
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

47
<PAGE>

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
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

48
<PAGE>

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
(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

49
<PAGE>

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.

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

50
<PAGE>

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.

[TO BE UPDATED]

In the fiscal years ended September 30, 1995, 1996 and 1997, Large Company
Value Fund paid brokerage commissions of $5,222,945, $5,768,334 and $_________,
respectively. In the fiscal year ended September 30, 1997, the Fund paid
brokerage commissions of $________ (___% 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 $____________ (___%
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, 1995, 1996 and 1997, Value Fund
paid brokerage commissions of $_______, $165,577, $181,652 and $_________,
respectively. For the fiscal year ended September 30, 1996, the Fund paid
brokerage commissions of $157,582 (87% 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 $__________ (___% 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.

[TO BE UPDATED]

Portfolio Turnover

Large Company Value 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

51
<PAGE>

securities with maturities at the time of acquisition of one year or less), for
the fiscal years ended September 30, 1995, 1996 and 1997 was 153.6%, 150.7% and
______%, respectively. For the fiscal years ended September 30, 1995, 1996 and
1997, Value Fund had an annualized portfolio turnover rate of 98.2%, 90.8% and
_____%, 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, Dr. Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas. Net asset value
per share is determined by dividing the value of the total assets of the Fund,
less all liabilities, by the total number of shares outstanding.

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

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

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

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

If, in the opinion of the 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.

52
<PAGE>

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.

The CUSIP number of Large Company Value 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.

[TO BE UPDATED]
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. For the
fiscal year ended September 30, 1996, Large Company Value Fund and Value Fund
incurred annual fees of $158,045 and $38,190, respectively, of which $12,860 and
$1,640, respectively, are unpaid at September 30, 1996.

53
<PAGE>

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, 1996, Large Company Value Fund and Value Fund incurred annual fees
of $1,715,004 and $174,570, respectively, of which $142,526 and $15,126,
respectively, are unpaid at September 30, 1996.

The Funds, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.

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

Large Company Value Fund

The financial statements, including the investment portfolio of Large
Company 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, 1996, 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, 1996, and
are hereby deemed to be part of this Statement of Additional Information.

54
<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
<PAGE>

principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.

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>
Scudder
Value
Fund

Annual Report
September 30, 1997

Pure No-Load(TM) Funds

For investors seeking long-term growth of capital through investment in
undervalued equity securities.

A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.

SCUDDER (logo)

<PAGE>

In Brief

o For the trailing twelve-month period ended September 30, 1997, Scudder Value
Fund returned 45.80%, exceeding the 40.46% total return of the unmanaged S&P 500
Index and the average growth fund return of 33.52% according to Lipper
Analytical Services. The Fund's performance earned it a position among the top
8% (61st) of 784 growth funds for the period.

o Morningstar assigned the Fund an overall 5-star rating (out of five stars) for
its risk-adjusted performance among 2,143 domestic equity funds as of September
30, 1997.^1

o The Fund's strong performance is not attributed to emphasizing any particular
industry sector, but to adhering to a disciplined approach of selecting
individual stocks that meet specific value criteria.

1 Source: Morningstar. Ratings are subject to change monthly and are calculated
from the Fund's three-, five-, and ten-year average annual returns in excess
of 90-day Treasury bill returns with appropriate fee adjustments, and a risk
factor that reflects Fund performance below 90-day T-bill returns. The Fund
received a 5-star rating for the three-year period among 2,143 domestic equity
funds. The Fund did not receive a rating for the five- or ten-year periods
because the Fund commenced operations on December 31, 1992. In an investment
category, the top 10% of funds receive 5 stars. Past performance is no
guarantee of future results.

Table of Contents

3 Letter from the Fund's President 21 Financial Highlights
4 Performance Update 22 Notes to Financial Statements
5 Portfolio Summary 25 Report of Independent Accountants
6 Portfolio Management Discussion 26 Tax Information
10 Glossary of Investment Terms 28 Officers and Trustees
11 Investment Portfolio 29 Investment Products and Services
18 Financial Statements 30 Scudder Solutions

2 - Scudder Value Fund
<PAGE>

Letter from the Fund's President

Dear Shareholders,

We are pleased to present the annual report for Scudder Value Fund for the
trailing twelve-month period ended September 30, 1997.

The Fund's performance has been gratifying in a strong market. While news
of excellent performance is always something we enjoy sharing with investors, we
think the objective observations of independent mutual fund rating organization
Morningstar say it best:

"...(Scudder Value Fund's) asset base remains nimble, despite a
tremendous long-term record. It's also worth noting that good
stock-picking, more than large shifts among various pockets of the
market has long made the difference here. Despite the S&P 500's
strength in recent years, the fund has bested that bogy during its
life, with lower risk scores."

Morningstar Mutual Funds, September 26, 1997

We are heartened by these words and will do our best to continue to live up
to your expectations for superior investment performance and distinctive
service.

For those of you who are interested in new Scudder products, we recently
introduced Scudder International Growth and Income Fund, which pursues a
yield-oriented approach to investing in international equities. The Fund seeks
to provide long-term growth of capital plus current income. Investors who desire
international exposure but wish to take a more conservative approach may
appreciate the Fund's emphasis on dividend paying stocks of established
companies listed on foreign exchanges. For further information on this new fund,
please turn to page 31.

Thank you for your investment in Scudder Value Fund. If you have any
questions about your Fund, please call Scudder Investor Relations at
1-800-225-2470, or visit our Internet Web site at http://funds.scudder.com.

Sincerely,

/s/Daniel Pierce

Daniel Pierce
President,
Scudder Value Fund

3 - Scudder Value Fund
<PAGE>

PERFORMANCE UPDATE as of September 30, 1997
- ----------------------------------------------------------------
Fund Index Comparisons
- ----------------------------------------------------------------

Total Return
Period Growth --------------
Ended of Average
9/30/97 $10,000 Cumulative Annual
- --------------------------------------------
Scudder Value Fund
Ticker Symbol: SCVAX
- --------------------------------------------
1 Year $ 14,580 45.80% 45.80%
Life of Fund* $ 23,993 139.93% 20.23%
- --------------------------------------------
S&P 500 Index
- -------------------------------------------
1 Year $ 14,046 40.46% 40.46%
Life of Fund* $ 24,457 144.57% 20.71%
- --------------------------------------------
*The Fund commenced operations on December 31, 1992.
- -----------------------------------------------------------------
Growth Of A $10,000 Investment
- -----------------------------------------------------------------

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

SCUDDER 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
3/96 $15,470
9/96 $16,456
3/97 $19,007
9/97 $23,993

S&P 500 INDEX
Year Amount
- ----------------------
12/92* $10,000
3/93 $10,437
9/93 $10,757
3/94 $10,590
9/94 $11,153
3/95 $12,237
9/95 $14,471
3/96 $16,165
9/96 $17,412
3/97 $19,369
9/97 $24,457

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

1993* 1994 1995 1996 1997
-----------------------------------------------
NET ASSET VALUE... $ 13.38 $ 13.08 $ 15.87 $ 17.52 $ 23.53
INCOME DIVIDENDS.. $ -- $ .11 $ .12 $ .04 $ .07
CAPITAL GAINS
DIVIDENDS......... $ -- $ .43 $ .13 $ .92 $ 1.48
FUND TOTAL
RETURN (%)........ 11.50 1.88 23.62 17.18 45.80
INDEX TOTAL
RETURN (%)........ 7.56 3.68 29.75 20.34 40.46

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 Fund for the one year
and life of Fund periods would have been lower.

4 - Scudder Value Fund
<PAGE>

PORTFOLIO SUMMARY as of September 30, 1997
- ---------------------------------------------------------------------------
ASSET ALLOCATION
- ---------------------------------------------------------------------------
Equity Securities 83%
Cash Equivalents 17%
- --------------------------------------
100%
- --------------------------------------

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

The Fund's effective cash position
was actually lower at 4% of assets
(see last Q&A on page7).
- --------------------------------------------------------------------------
Sectors
(Excludes 17% Cash Equivalents
- --------------------------------------------------------------------------
Financial 24%
Manufacturing 11%
Utilities 8%
Technology 7%
Transportation 7%
Consumer Staples 6%
Energy 6%
Durables 6%
Health 6%
Other 19%
- --------------------------------------
100%
- --------------------------------------

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

The financial sector's significant
weighting in the portfolio is indicative
of the many attractive values, especially
among insurance stocks.

- --------------------------------------------------------------------------
Ten Largest Equity Holdings
(15% of Portfolio)
- --------------------------------------------------------------------------

1. FORD MOTOR CO.
Leading automobile manufacturer
2. TEXTRON, INC.
Manufacturer of products for aerospace and
commercial use
3. FIRST UNION CORP.
Commercial banking in the southeast
4. BANKAMERICA CORP.
Commercial banking in California
5. NORTHERN STATES POWER CO.
Electric and gas utility
6. AMERICAN HOME PRODUCTS CORP.
Major diversified pharmaceutical company
7. GENERAL RE CORP.
Property and casualty reinsurance
8. HARRIS CORP.
Maker of electronics and office equipment
9. AMR CORP.
leading airline
10. TENET HEALTHCARE CORP.
Operator of specialty and general hospitals

The Fund pursues a disciplined approach
to individual stock selection.

- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 11. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.

5 - Scudder Value Fund

<PAGE>

Portfolio Management Discussion

We asked Donald E. Hall, lead portfolio manager of Scudder Value Fund, to
discuss the market environment and Scudder's investment strategy.

Q: How would you characterize the Fund's performance over the trailing
twelve-month period ended September 30, 1997?

A: In a word: extraordinary. The Fund returned 45.80% for the period, which
exceeded the 40.46% total return of the unmanaged S&P 500 Index and earned the
Fund a position in the top 8% (61st) of 784 growth funds as tracked by Lipper
Analytical Services. The average growth fund returned 33.52% for the same
period.

Q: What sectors or themes contributed most to the above average performance?

A: No single theme dominated. Certainly our ample investment in the relatively
strong financial sector helped, at 24% of equity securities, but this explained
only a part of the result. Performance was provided by a diverse list. Among the
top performers were: Philips Electronics, Dana (auto parts), Student Loan
Marketing Association (student loans), Applied Materials (semiconductor capital
equipment), Timken (steel bearings), American States Financial (property and
casualty insurance), Donaldson Lufkin Jenrette (securities brokerage),
BankAmerica, Nokia (telecommunications equipment), Royal Caribbean (vacation
cruises), Bergen Brunswig (drug distributor), and Parker Hannifin (machinery
components).

Q: In last year's annual report you noted that paper, semiconductor capital
equipment, and utility stocks were disappointing groups. How did these stocks
fare over the twelve-months?

A: Paper stocks such as Boise Cascade were sold at a loss, as it was unclear how
much margins could recover for these commodity-based producers. Semiconductor
capital equipment stocks, such as Applied Materials and Silicon Valley Group,
are anything but commodity manufacturers and typically have positive margins
even during a cyclical downturn. Yet, their stock prices are highly cyclical.
Last year Applied Materials' stock declined to only 7x earnings. The Fund
benefited over the fiscal period as these semiconductor equipment stocks shot up
on a sharp cyclical recovery in orders. After Applied Materials more than
tripled from its low, we sold our last shares in July. The utility sector
continued to lag, although our original investment in Destec was made whole with
the sale of the company to a private group. We believe there is more value in
electric utilities now and we have recently added Northern States Power, a
Midwestern electric utility.

Q: How has the currency crisis in Southeast Asia affected the Fund?

A: The Fund, so far, has felt little from economic problems of Southeast Asia.
The Fund has no direct holdings in the region and we estimate that the average
company held in the Fund garners less than 3% of sales from Southeast Asia. On
the other hand, we appreciate the growing interdependence of economies around
the world. The currency crisis that started in Thailand is more serious since
spreading to Hong Kong, the gateway to China, and may create nervousness among

6 - Scudder Value Fund
<PAGE>

U.S. stock investors. Given the relatively high p/e multiples of U.S. stocks
generally, the U.S. market as a whole could certainly pull back, which would
affect the Fund. Meanwhile, our job is to place each development in its proper
perspective. Frequently investors overreact to headline news, which may have
only a minor long-term impact on individual stocks.

Q: What is the Fund's position in technology?

A: Technology was the best performing sector over the period, with S&P tech
stocks up a phenomenal 68.73%. The Fund's current position in technology is 7%
of equity securities, which is low in relation to the S&P weighting of 12% and
compared to most growth funds. Our position is likely to go higher over the
long-term due to the growing size and importance of the technology sector and
because short-term volatility in the group frequently presents attractive
long-term investment opportunities. The Fund participated indirectly in the
technology sector through its significant holdings of financial companies, many
of which have been able to leverage the benefits of technology. The nature of
the financial services industry, including the management of this Fund, lends
itself to the aggressive exploitation of technology.

Q: In the March 31 semiannual report you described BankAmerica, Allstate, MBIA,
Ford and Philips Electronics as attractive stocks. Can you give us a follow-up?

A: These companies are enjoying improving fundamentals, with earnings
progression generally on track. These stocks are currently selling at 15x (or
less) our 1998 estimates. Philips, on the heels of improving sales and cost
cutting, appreciated 138% over the twelve-months. The Fund still owns Philips,
but has scaled back its position. BankAmerica -- benefiting from an overall
favorable banking environment and better capital management -- was up 82% for
the period and is one of the Fund's top ten holdings. Allstate advanced 65%, as
the company enjoyed the effects of good weather and has been able to exploit its
considerable franchise and cost advantages. MBIA became more fully valued, with
the stock increasing 49% on solid, but not spectacular earnings gains. We
actually increased the Fund's weighting of Ford, which was up 51%, as profits
from trucks remained strong and announcements of subsidiary spinouts highlighted
the value of the parent.

Q: What is an ideal stock for the Fund?

A: The ideal stock, given our investment criteria, is an established company
(intellectual capital in place), average to below-average risk, a sustainable
long-term competitive position, and selling at a discount to the market.
Qualifying stocks suffering from a deterioration in key fundamentals are avoided
unless we can determine when and how the fundamental problem will be resolved.
Stocks which decline to low p/e multiples because of temporary earnings
disturbances are considered buying opportunities.

Q: The Fund has more than tripled in size over the trailing twelve months
largely due to positive flows into the Fund. Has this been a concern?

A: Investing large daily flows has not been a problem, as we have used futures
to immediately gain market exposure. We then, in time, reduce the futures

7 - Scudder Value Fund
<PAGE>

position in favor of stocks that meet our valuation criteria, either by adding
to current holdings or starting a new position. Until new positions are added,
the Fund's cash position can appear higher than its effective level, which was
4% at the end of the period. Despite a significant growth in assets, we believe
the Fund remains nimble.

Q: With many stocks reaching historically high valuations during the period,
how is the Fund positioned to benefit shareholders in this environment?

A: The historical average of the p/e multiple of the S&P 500 is about 14x
(average price divided by average earnings per share = p/e multiple). Based on
our consensus estimates for next year, the S&P 500 is currently selling near 18x
1998 estimated earnings. By contrast, the Fund's p/e is only 13x our 1998
estimates and we are continuing to find good quality stocks that we believe are
relatively undervalued. Important additions included Harris Corp., the leader in
transmitters for digital TV, which sells at only 14x earnings; and WPP Group, at
16x, a leading advertising firm which is benefiting from expanding budgets of
global consumer companies.

By focusing on lower multiple stocks, the Fund naturally is less exposed to more
richly valued segments, which we believe are more vulnerable in a market
downturn.

Over the year there were 24 days in which the S&P 500 was down more than one
percent. Scudder Value Fund outperformed the S&P 500 on each of those 24 days.
There were 39 days in which the market advanced more than 1%. The Fund lagged on

8 - Scudder Value Fund
<PAGE>

virtually all of those days (37 of 39 days). Yet, the Fund still outperformed
the S&P for the trailing twelve months. The reason is that the Fund outperformed
on average on days when the market did not have large price changes.

As demonstrated this year, a conservatively valued portfolio does not
necessarily preclude excellent relative returns, even in an extraordinarily
strong market. The Fund would have a challenge in keeping up if the market
narrows again to favor only a few stocks that dominate the S&P 500, or is
gripped by rank speculation. The door remains open to opportunity, but the
Fund's natural advantage is likely to shine through in the more ordinary
choppier environment we expect.

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 14 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 16 years of investment experience.

9 - Scudder Value Fund
<PAGE>

Glossary of Investment Terms

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

GROWTH STOCK Stock of a company that has displayed above
average earnings growth and is expected to
continue to increase profits rapidly going
forward. Stocks of such companies usually trade
at a higher price relative to earnings and
exhibit greater price volatility.

LIQUIDITY A stock that is liquid has enough shares
outstanding and a substantial enough market
capitalization to allow large purchases and
sales to occur without causing a significant
change in its market price.

MARKET CAPITALIZATION The value of a company's outstanding shares of
common stock, determined by the number of shares
outstanding multiplied by the share price
(Shares x Price = Market Capitalization). The
universe of publicly traded companies is
frequently divided into large-, mid-, and
small-capitalizations. In general, "large-cap"
stocks tend to be more liquid than "small-cap"
stocks.

OVER/UNDER WEIGHTING Refers to the allocation of assets -- usually by
sector, industry, or country -- within a
portfolio relative to a benchmark index, (i.e.
the S&P 500 Index) or an investment universe.

PRICE-EARNINGS RATIO (P-E) A widely used gauge of a stock's valuation that
(also "earnings multiple") indicates what investors are paying for a
company's earnings on a per share basis.
Typically based on a company's projected
earnings for the next 12 months, a higher
"earnings multiple" indicates a higher expected
growth rate and the potential for greater price
fluctuations.

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

(Sources: Scudder; Barron's Dictionary of Finance and Investment Terms)

10 - Scudder Value Fund
<PAGE>

Investment Portfolio as of September 30, 1997
<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 1.7%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 9/30/97 at 6.02%,
to be repurchased at $5,168,864 on 10/1/97, collateralized by a $5,095,000 ------------
U.S. Treasury Note, 6.875%, 8/31/99 (Cost $5,168,000) ................................... 5,168,000 5,168,000
------------
Commercial Paper 12.6%
- ------------------------------------------------------------------------------------------------------------------------------
Financial
Ciesco L.P. Discount Note, 10/07/97 ...................................................... 12,000,000 11,988,980
Dresdner US Finance, Inc. Discount Note, 10/06/97 ........................................ 13,000,000 12,997,996
General Electric Capital Corp. Discount Note, 10/07/97 ................................... 14,000,000 13,987,143
- ------------------------------------------------------------------------------------------------------------------------------
Total Commercial Paper (Cost $38,974,119) 38,974,119
- ------------------------------------------------------------------------------------------------------------------------------

Certificates Of Deposit 3.2%
- ------------------------------------------------------------------------------------------------------------------------------
Financial ------------
Harris Trust and Savings Bank, 5.530%, 10/20/97 (Cost $10,000,000) ....................... 10,000,000 10,000,000
------------

Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 82.5%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 4.6%
Apparel & Shoes 0.7%
Tommy Hilfiger Corp.* ..................................................................... 42,300 2,112,356
Department & Chain Stores 3.1% ------------
Federated Department Stores, Inc.* ........................................................ 60,200 2,596,125
J.C. Penney Co., Inc. ..................................................................... 35,700 2,079,525
May Department Stores ..................................................................... 16,800 915,600
Mercantile Stores, Inc. ................................................................... 28,900 1,818,894
Wal-Mart Stores, Inc. ..................................................................... 60,000 2,197,500
------------
9,607,644
Hotels & Casinos 0.8% ------------
Circus Circus Enterprises, Inc.* .......................................................... 37,600 947,050
Royal Caribbean Cruises Ltd. .............................................................. 36,300 1,588,125
------------
2,535,175
Consumer Staples 5.3% ------------
Alcohol & Tobacco 1.8%
Anheuser-Busch Companies, Inc. ............................................................ 49,900 2,251,738
Philip Morris Companies, Inc. (b) ......................................................... 77,900 3,237,719
------------
5,489,457
------------
</TABLE>

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

11 - Scudder Value Fund
<PAGE>

Health 4.7%
Health Industry Services 1.0%
Bergen Brunswig Corp. "A" ................................................................. 79,500 3,209,813
Hospital Management 1.3% ------------
Tenet Healthcare Corp.* ................................................................... 141,300 4,115,363
Medical Supply & Specialty 0.9% ------------
Becton, Dickinson & Co. ................................................................... 56,700 2,714,513
Pharmaceuticals 1.5% ------------
American Home Products Corp. .............................................................. 57,500 4,197,500
Schering-Plough Corp. ..................................................................... 9,800 504,700
------------
4,702,200
------------
Communications 4.2%
Telephone / Communications
Ameritech Corp. ........................................................................... 47,200 3,138,800
Century Telephone Enterprises ............................................................. 44,200 1,944,800
Compania Telefonica Nacional de Espana SA (ADR) ........................................... 12,500 1,176,563
Sprint Corp. .............................................................................. 40,400 2,020,000
Tele Danmark A/S (ADR) .................................................................... 100,200 2,674,088
Tele-Communications International, Inc. "A"* .............................................. 71,200 1,165,900
Tele-Communications TCI Ventures Group "A"* ............................................... 38,053 784,843
------------
12,904,994
------------
Financial 20.1%
Banks 8.2%
Banc One Corp. ............................................................................ 61,900 3,454,794
BankAmerica Corp. ......................................................................... 64,900 4,757,981
Bankers Trust New York Corp. .............................................................. 27,700 3,393,250
Chase Manhattan Corp. ..................................................................... 14,200 1,675,600
</TABLE>

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

12 - Scudder Value Fund
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Chicago NBD Corp. ................................................................... 9,200 692,300
First Union Corp. ......................................................................... 97,000 4,856,063
J.P. Morgan & Co., Inc. ................................................................... 15,800 1,795,275
Mellon Bank Corp. ......................................................................... 14,400 788,400
NationsBank Corp. ......................................................................... 35,800 2,215,125
Northern Trust Corp. ...................................................................... 14,200 839,575
Norwest Corp. ............................................................................. 13,700 839,125
------------
25,307,488
------------
Insurance 10.3%
AFLAC, Inc. ............................................................................... 14,700 797,475
Allstate Corp. ............................................................................ 34,200 2,748,825
American States Financial Corp. ........................................................... 17,200 808,400
Cigna Corp. ............................................................................... 16,200 3,017,250
EXEL Ltd. (ADR) ........................................................................... 41,400 2,465,888
General Re Corp. .......................................................................... 21,100 4,188,350
Hartford Life, Inc. "A" ................................................................... 24,000 922,500
MBIA, Inc. ................................................................................ 27,900 3,499,706
Mid Ocean Ltd. ............................................................................ 39,100 2,477,963
Nationwide Financial Services, Inc. "A" ................................................... 33,100 922,663
PartnerRe Holdings Ltd. ................................................................... 86,000 3,703,375
Safeco Corp. .............................................................................. 62,200 3,296,600
Transamerica Corp. ........................................................................ 7,200 716,400
UNUM Corp. ................................................................................ 50,000 2,281,250
------------
31,846,645
------------
Consumer Finance 0.2%
SLM Holding Corp. ......................................................................... 3,000 463,500
Other Financial Companies 1.4% ------------
American Express Credit Corp. ............................................................. 20,200 1,653,875
Federal National Mortgage Association ..................................................... 59,300 2,787,100
------------
4,440,975
------------
Media 2.8%
Advertising 2.4%
Interpublic Group of Companies, Inc. ...................................................... 67,650 3,471,291
WPP Group PLC (ADR) ....................................................................... 85,600 3,926,900
------------
7,398,191
------------
</TABLE>

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

13 - Scudder Value Fund
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cable Television 0.4%
Tele-Communications, Inc. "A"* ............................................................ 66,547 1,364,214
Service Industries 2.7% ------------
EDP Services 0.7%
Electronic Data Systems Corp. ............................................................. 59,000 2,094,500
Investment 0.8% ------------
Donaldson, Lufkin & Jenrette Securities Corp. ............................................. 8,300 593,969
Franklin Resources, Inc. .................................................................. 20,600 1,918,375
------------
2,512,344
------------
Miscellaneous Commercial Services 1.2%
Galileo International, Inc.* .............................................................. 130,100 3,634,669
Durables 4.9% ------------
Aerospace 0.5%
Lockheed Martin Corp. ..................................................................... 13,782 1,469,506
Automobiles 2.9% ------------
Dana Corp. ................................................................................ 28,000 1,382,500
Ford Motor Co. ............................................................................ 126,200 5,710,550
Genuine Parts Co. ......................................................................... 12,900 397,481
Magna International, Inc. "A" ............................................................. 21,500 1,486,188
------------
8,976,719
------------
Telecommunications Equipment 0.9%
Nokia AB Oy "A" (ADR) ..................................................................... 30,000 2,814,375
Tires 0.6% ------------
Goodyear Tire & Rubber Co. ................................................................ 26,400 1,815,000
Manufacturing 9.4% ------------
Chemicals 2.0%
Praxair, Inc. ............................................................................. 49,600 2,538,900
Sigma-Aldrich Corp. ....................................................................... 105,800 3,484,788
------------
6,023,688
------------
Containers & Paper 0.4%
Crown Cork & Seal Co., Inc. ............................................................... 27,000 1,245,375
Diversified Manufacturing 4.1% ------------
Canadian Pacific Ltd. (Ord.) .............................................................. 27,000 799,863
Olin Corp. ................................................................................ 69,000 3,230,063
TRW, Inc. ................................................................................. 66,200 3,632,725
</TABLE>

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

14 - Scudder Value Fund
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Textron, Inc. ............................................................................. 75,900 4,933,500
------------
12,596,151
------------
Electrical Products 1.0%
Philips Electronics NV (New York shares) .................................................. 37,300 3,133,200
Machinery / Components / Controls 1.4% ------------
Parker-Hannifin Group ..................................................................... 73,950 3,327,750
Timken Co. ................................................................................ 23,800 953,488
------------
4,281,238
------------
Office Equipment / Supplies 0.5%
Xerox Corp. ............................................................................... 19,600 1,650,075
Technology 5.9% ------------
Diverse Electronic Products 2.1%
General Motors Corp. "H" .................................................................. 36,100 2,387,113
Harris Corp. .............................................................................. 90,800 4,154,100
------------
6,541,213
------------
EDP Peripherals 1.3%
Western Digital Corp.* .................................................................... 98,400 3,942,150
Electronic Components / Distributors 1.0% ------------
Avnet, Inc. ............................................................................... 47,400 3,012,863
Electronic Data Processing 0.9% ------------
Ceridian Corp.* ........................................................................... 74,900 2,771,300
Semiconductors 0.6% ------------
Advanced Micro Devices, Inc.* ............................................................. 26,200 853,138
Tower Semiconductor Ltd. .................................................................. 54,100 1,075,238
------------
1,928,376
------------
Energy 5.1%
Oil & Gas Production 1.1%
Imperial Oil Ltd. ......................................................................... 32,000 1,840,000
Union Texas Petroleum Holdings, Inc. ...................................................... 62,300 1,464,050
------------
3,304,050
------------
Oil Companies 4.0%
Amoco Corp. ............................................................................... 16,400 1,580,550
Chevron Corp. ............................................................................. 19,000 1,580,563
Lyondell Petrochemical Co. ................................................................ 40,400 1,057,975
Mobil Corp. ............................................................................... 16,000 1,184,000
</TABLE>

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

15 - Scudder Value Fund
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repsol SA (ADR) ........................................................................... 32,200 1,396,675
Total SA (ADR) ............................................................................ 71,084 4,074,002
YPF S.A. "D" (ADR) ....................................................................... 37,000 1,364,375
------------
12,238,140
------------
Metals & Minerals 0.7%
Coal Mining
Zeigler Coal Holding Co. .................................................................. 86,700 2,026,613
Construction 0.5% ------------
Building Products
American Standard Companies, Inc.* ........................................................ 34,700 1,392,338
Transportation 5.3% ------------
Airlines 1.3%
AMR Corp.* ................................................................................ 37,400 4,139,713
Marine Transportation 2.2% ------------
Knightsbridge Tankers Ltd. ................................................................ 64,200 1,817,663
London & Overseas Freighters (ADR)* ....................................................... 96,000 1,476,000
NedLloyd Groep NV (Sponsored ADR) ......................................................... 203,200 3,416,300
Teekay Shipping Corp. ..................................................................... 5,800 195,009
------------
6,904,972
------------
Railroads 1.1%
CSX Corp. ................................................................................. 41,800 2,445,300
Canadian National Railway ................................................................. 19,300 1,003,187
------------
3,448,487
------------
Trucking 0.7%
CNF Transportation, Inc. .................................................................. 20,600 897,388
Consolidated Freightways Corp.* ........................................................... 70,200 1,237,275
------------
2,134,663
------------
Utilities 6.3%
Electric Utilities
Energy Group PLC (ADR) .................................................................... 75,600 3,146,850
Entergy Corp. ............................................................................. 140,400 3,659,175
Northern States Power Co. ................................................................. 85,400 4,248,650
PacifiCorp ................................................................................ 72,200 1,615,475
PowerGen PLC (ADR) ........................................................................ 46,400 2,285,200
</TABLE>

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

16 - Scudder Value Fund
<PAGE>

* Non-income producing security.

(a) The cost for federal income tax purposes was $260,401,690. At September
30, 1997, net unrealized appreciation for all securities based on tax cost
was $48,278,483. This consisted of aggregate gross unrealized appreciation
for all securities in which there was an excess of market value over tax
cost of $49,530,991 and aggregate gross unrealized depreciation for all
securities in which there was an excess of tax cost over market value of
$1,252,508.

(b) At September 30, 1997, these securities, in part, have been pledged to
cover initial margin requirements for open futures contracts. At September
30, 1997, open futures contracts purchased long were as follows (Note A):

Aggregate
Futures Expiration Contracts Face Value ($) Market Value ($)
------- ---------- --------- -------------- ----------------
S&P 500 Index December 1997 81 37,415,367 38,673,450
---------- ----------
Total unrealized appreciation on open futures contracts
purchased long ............................................. 1,258,083
==========

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

17 - Scudder Value Fund
<PAGE>

Financial Statements

Statement of Assets and Liabilities
as of September 30, 1997

<TABLE>
<S> <C>
Assets
- ------------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $260,401,690) ................... $ 308,680,173
Cash .................................................................... 204
Dividends and interest receivable ....................................... 400,016
Receivable for Fund shares sold ......................................... 1,423,173
Receivable for investments sold ......................................... 697,861
Receivable for foreign taxes recoverable ................................ 28,669
Deferred organization expense ........................................... 6,965
Other assets ............................................................ 1,573
----------------
Total assets ............................................................ 311,238,634
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------
Payable for investments purchased ....................................... 12,153,104
Payable for Fund shares redeemed ........................................ 477,743
Accrued management fee .................................................. 164,234
Other payables and accrued expenses ..................................... 186,339
Daily variation margin on futures contracts ............................. 277,435
----------------
Total liabilities ....................................................... 13,258,855
---------------------------------------------------------------------------------------------
Net assets, at market value $ 297,979,779
---------------------------------------------------------------------------------------------
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income 2,399,604 Unrealized
appreciation (depreciation) on:
Investments .......................................................... 48,278,483
Futures .............................................................. 1,258,083
Foreign currency related transactions ................................ 57
Accumulated net realized gain ........................................... 16,989,838
Paid-in capital ......................................................... 229,053,714
---------------------------------------------------------------------------------------------
Net assets, at market value $ 297,979,779
---------------------------------------------------------------------------------------------
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($297,979,779 / 12,664,615 outstanding shares of beneficial
interest, $.01 par value, unlimited number of shares ----------------
authorized) .......................................................... $23.53
----------------
</TABLE>

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

18 - Scudder Value Fund
<PAGE>

Statement of Operations
year ended September 30, 1997

<TABLE>
<S> <C>
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Income:
Dividends (net of foreign taxes withheld of $95,557) ..................... $ 2,912,147
Interest ................................................................. 1,811,635
----------------
4,723,782
Expenses:
Management fee ........................................................... 1,133,164
Services to shareholders ................................................. 603,968
Custodian and accounting fees ............................................ 76,931
Trustees' fees and expenses .............................................. 57,403
Reports to shareholders .................................................. 61,711
Auditing ................................................................. 35,100
Registration fees ........................................................ 78,291
Legal .................................................................... 11,723
Amortization of organization expenses .................................... 8,932
Other .................................................................... 6,518
----------------
Total expenses before reductions ......................................... 2,073,741
Expense reductions ....................................................... (59,309)
----------------
Expenses, net ............................................................ 2,014,432
---------------------------------------------------------------------------------------------
Net investment income 2,709,350
---------------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .............................................................. 12,809,734
Futures .................................................................. 4,777,668
Foreign currency related transactions .................................... (93)
----------------
17,587,309
Net unrealized appreciation (depreciation) during the period on:
Investments .............................................................. 38,199,705
Futures .................................................................. 1,272,563
Foreign currency related transactions .................................... 13
----------------
39,472,281
---------------------------------------------------------------------------------------------
Net gain (loss) on investment transactions 57,059,590
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from operations $ 59,768,940
---------------------------------------------------------------------------------------------
</TABLE>

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

19 - Scudder Value Fund
<PAGE>

Statements of Changes in Net Assets

<TABLE>
<CAPTION>
Years Ended September 30,
Increase (Decrease) in Net Assets 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ...................................... $ 2,709,350 $ 1,057,206
Net realized gain (loss) from investment transactions ...... 17,587,309 8,670,285
Net unrealized appreciation (depreciation) on investment
transactions during the period .......................... 39,472,281 2,372,894
Net increase (decrease) in net assets resulting from ---------------- ----------------
operations .............................................. 59,768,940 12,100,385
Distributions to shareholders from: ---------------- ----------------
Net investment income ...................................... (370,246) (175,992)
---------------- ----------------
Net realized gains from investment transactions ............ (7,822,998) (4,025,296)
Fund share transactions: ---------------- ----------------
Proceeds from shares sold .................................. 219,411,450 34,987,688
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................... 8,028,455 4,132,230
Cost of shares redeemed .................................... (69,910,114) (26,219,135)
Net increase (decrease) in net assets from Fund share ---------------- ----------------
transactions ............................................ 157,529,791 12,900,783
---------------- ----------------
Increase in net assets ..................................... 209,105,487 20,799,880
Net assets at beginning of period .......................... 88,874,292 68,074,412
Net assets at end of period (including undistributed net ---------------- ----------------
investment income of $2,399,604 and $960,593,
respectively) .......................................... 297,979,779 $ 88,874,292
---------------- ----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period .................. 5,071,691 4,288,446
---------------- ----------------
Shares sold ................................................ 10,534,988 2,121,557
Shares issued to shareholders in reinvestment of
distributions ........................................... 446,770 263,367
Shares redeemed ............................................ (3,388,834) (1,601,679)
---------------- ----------------
Net increase (decrease) in Fund shares ..................... 7,592,924 783,245
---------------- ----------------
Shares outstanding at end of period ........................ 12,664,615 5,071,691
---------------- ----------------
</TABLE>

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

20 - Scudder Value Fund
<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>
For the Period
December 31, 1992
(commencement of
operations) to
Years Ended September 30, September 30,
1997(a) 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Net asset value, beginning of period ....... $17.52 $15.87 $13.08 $13.38 $12.00
Income from investment operations: --------------------------------------------------------------------------------
Net investment income ...................... .34 .21 .18 .13 .10
Net realized and unrealized gain on
investments ............................. 7.22 2.40 2.86 .11 1.28
--------------------------------------------------------------------------------
Total from investment operations ........... 7.56 2.61 3.04 .24 1.38
Less distributions from: --------------------------------------------------------------------------------
Net investment income ...................... (.07) (.04) (.12) (.11) --
Net realized gains on investment
transactions (1.48) (.92) (.13) (.43) --
--------------------------------------------------------------------------------
Total distributions ........................ (1.55) (.96) (.25) (.54) --
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net asset value, end of period ............. $23.53 $17.52 $15.87 $13.08 $13.38
--------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) ....................... 45.80 17.18 23.62 1.88 11.50**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..... 298 89 68 35 29
Ratio of operating expenses, net to
average daily net assets (%) ............ 1.24 1.25 1.25 1.25 1.25*
Ratio of operating expenses before expense
reductions, to average daily net
assets (%) .............................. 1.28 1.31 1.44 1.61 2.16*
Ratio of net investment income to average
daily net assets (%) .................... 1.67 1.34 1.57 1.16 1.56*
Portfolio turnover rate (%) ................ 47.40 90.8 98.2 74.6 60.8*
Average commission rate paid (c) ........... $.0577 $.0577 $ -- $ -- $ --
</TABLE>

(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years beginning on or after October 1, 1995.
* Annualized
** Not annualized

21 - Scudder Value Fund
<PAGE>

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

Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the Nasdaq 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 most recent 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 other than money market securities 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. Money market
instruments purchased with an original maturity of sixty days or less are valued
at amortized cost. All other securities are valued at their fair value as
determined in good faith by the Valuation Committee of the Board of Trustees.

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:

(i) market value of investment securities, other assets and 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.

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.

22 - Scudder Value Fund
<PAGE>

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, is equal to at least 100.5% of the repurchase price.

Federal Income Taxes. The Fund's policy is to comply with the requirements of
the Internal Revenue Code of 1986, as amended, which are applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Accordingly, the Fund paid no federal income taxes and no federal
income tax provision was required.

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 income 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 tax equalization. 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.

23 - Scudder Value Fund
<PAGE>

B. Purchases and Sales of Securities

During the year ended September 30, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $184,796,967 and
$63,442,619, respectively.

The aggregate face value of futures contracts opened and closed during the year
ended September 30, 1997 was $180,288,540 and $145,653,253, respectively.

C. Related Parties

Under the Fund's Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund pays the Adviser a fee equal to
an annual rate of 0.70% 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 Adviser agreed not to impose all or a portion of its management
fee until July 31, 1997 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, 1997, the Adviser did not impose a portion of its management fee amounting
to $59,309 and the amount imposed amounted to $1,073,855, of which $164,234 is
unpaid at September 30, 1997.

On June 26, 1997, the Adviser entered into an agreement with The Zurich
Insurance Company ("Zurich"), an international insurance and financial services
organization, pursuant to which Zurich will acquire a majority interest in the
Adviser, and the Adviser will form a new global investment organization by
combining with Zurich's subsidiary, Zurich Kemper Investments, Inc. and change
its name to Scudder Kemper Investments, Inc. Subject to the receipt of the
required regulatory and shareholder approvals, the transaction is expected to
close in the fourth quarter of 1997.

Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. For the
year ended September 30, 1997, the amount charged to the Fund by SSC aggregated
$445,397, of which $56,017 is unpaid at September 30, 1997.

Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended September 30,
1997, the amount charged to the Fund by STC aggregated $80,120, of which $12,885
is unpaid at September 30, 1997.

Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
September 30, 1997, the amount charged to the Fund by SFAC aggregated $50,128,
of which $5,562 is unpaid at September 30, 1997.

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, 1997, Trustees' fees and expenses aggregated
$57,403.

24 - Scudder Value Fund
<PAGE>

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, 1997, 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 four 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, 1997 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, 1997, 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 four 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 5, 1997

25 - Scudder Value Fund
<PAGE>

Tax Information

The Fund paid distributions of $0.915 per share from net long-term capital gains
during the year ended September 30, 1997.

Pursuant to Section 852 of the Internal Revenue Code of 1986, as amended, the
Fund designates $11,946,047 as a long-term capital gain dividend for the year
ended September 30, 1997.

Pursuant to section 854 of the Internal Revenue Code of 1986 as amended, the
Fund designates $2,149,260 as dividends eligible for the dividends received
deduction for corporations for the year ended September 30, 1997.

26 - Scudder Value Fund

<PAGE>
This Page
intentionally
left blank.

27 - Scudder Value Fund

<PAGE>

Officers and Trustees

Daniel Pierce*
President and Trustee

Paul Bancroft III
Trustee; Venture Capitalist and
Consultant

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

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

Thomas J. Devine
Trustee; Consultant

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

David S. Lee*
Trustee and Vice President

Wilson Nolen
Trustee; Consultant

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

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

Robert G. Stone, Jr.
Honorary Trustee; Chairman
Emeritus 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

Thomas F. McDonough*
Vice President, Secretary and
Assistant Treasurer

Pamela A. McGrath*
Vice President and Treasurer

Kathleen T. Millard*
Vice President

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

*Scudder, Stevens & Clark, Inc.

28 - Scudder Value Fund
<PAGE>
Investment Products and Services

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

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

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

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

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

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

U.S. Growth and Income
- ----------------------
Scudder Balanced Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund

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

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

Global Growth
- -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International Fund
Scudder Global Discovery Fund
Scudder Emerging Markets Growth Fund
Scudder Gold Fund

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

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

Closed-End Funds#
- --------------------------------------------------------------------------------
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
Scudder World Income Opportunities
Fund, Inc.

For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +++Funds within categories are listed
in order from expected least risk to most risk. Certain Scudder funds may not be
available for purchase or exchange. +A portion of the income from the tax-free
funds may be subject to federal, state, and local taxes. *A class of shares of
the Fund. **Not available in all states. +++ +++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.

29 - Scudder Value Fund

<PAGE>

Scudder Solutions
<TABLE>
<CAPTION>

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

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

Automatic Dividend Transfer Payroll Deduction and Direct Deposit

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

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

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

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

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

DistributionsDirect

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

30 - Scudder Value Fund
<PAGE>

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

Offers you access to a world of investments, A free service designed to help suggest ways investors like
including stocks, corporate bonds, Treasuries, plus you can diversify your portfolio among domestic and global,
over 6,000 mutual funds from at least 150 mutual as well as equity, fixed-income, and money market funds,
fund companies. And Scudder Fund Folio(SM) provides using Scudder funds.
investors with access to a marketplace of more than
500 no-load funds from well-known companies--with no Personal Counsel from Scudder(SM)
transaction fees or commissions. Scudder
shareholders can take advantage of a Scudder Developed for investors who prefer the benefits of no-load
Brokerage account already reserved for them, with Scudder funds but want ongoing professional assistance in
no minimum investment. For information about managing a portfolio. Personal Counsel(SM) is a highly
Scudder Brokerage Services, call 1-800-700-0820. customized, fee-based asset management service for
individuals investing $100,000 or more.

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

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

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

For information about The Scudder Funds, including Many shareholders enjoy the personal, one-on-one service of
additional applications and prospectuses, or for the Scudder Investor Centers. Check for an Investor Center near
answers to investment questions you -- they can be found in the following cities:

Scudder Investor Relations -- 1-800-225-2470 Boca Raton Chicago San Francisco
[email protected] Boston New York

- ------------------------------------------------------------------------------------------------------------------------------
New From Scudder: Scudder International Growth and Income Fund

Scudder International Growth and Income Fund takes a yield-oriented approach to investing in international equities. The
Fund seeks to provide long-term growth of capital plus current income. Investors who desire international exposure but
who wish to take a more conservative approach may appreciate the Fund's emphasis on the dividend paying stocks of
well-established companies outside the United States.
- ------------------------------------------------------------------------------------------------------------------------------
The share price of Scudder International Growth and Income Fund will fluctuate. International investing involves special
risks including currency fluctuation and political instability. Contact Scudder Investor Services, Inc., Distributor,
for a prospectus which contains more complete information, including management fees and other expenses. Please read it
carefully before you invest or send money.

</TABLE>

31 - Scudder Value Fund
<PAGE>
Celebrating Over 75 Years of Serving Investors

Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven Clark,
Scudder, Stevens & Clark was the first independent investment counsel firm in
the United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the investment
industry. In 1928, we introduced the nation's first no-load mutual fund. Today
we offer over 40 pure no load(TM) funds, including the first international
mutual fund offered to U.S. investors.

Over the years, Scudder's global investment perspective and dedication to
research and fundamental investment disciplines have helped us become one of the
largest and most respected investment managers in the world. Though times have
changed since our beginnings, we remain committed to our long-standing
principles: managing money with integrity and distinction; keeping the interests
of our clients first; providing access to investments and markets that may not
be easily available to individuals; and making investing as simple and
convenient as possible through friendly, comprehensive service.

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

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

SCUDDER

[LOGO]
<PAGE>

Scudder
Large Company
Value Fund

Annual Report
September 30, 1997

Pure No-Load(TM) Funds

A fund which seeks to maximize long-term capital appreciation through a
value-driven investment program.

A pure no-load(TM) fund with no commissions to buy, sell, or exchange shares.

SCUDDER [logo]

<PAGE>
In Brief

o For the trailing twelve-month period ended September 30, 1997, Scudder Large
Company Value Fund returned 43.06%, exceeding the 42.31% return of the unmanaged
Russell l000 Value Index and the 40.46% return of the unmanaged S&P 500 Index.
The Fund's performance earned it a place among the top 11% of 325 large value
funds, according to Morningstar.

o Value stocks outperformed growth stocks over the twelve months, as
expectations concerning the sustainability of earnings at some large
multinational growth companies have recently moderated.

o Large company stocks delivered strong performance for the twelve months, as
healthy corporate earnings, relatively low interest rates, and benign inflation
provided a favorable environment for the Fund's investments.

Table of Contents

3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Glossary of Investment Terms
10 Investment Portfolio
15 Financial Statements
18 Financial Highlights
19 Notes to Financial Statements
22 Report of Independent Accountants
23 Tax Information
24 Officers and Trustees
25 Investment Products and Services
26 Scudder Solutions

2 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

Letter from the Fund's President
Dear Shareholders,

We are pleased to present the annual report for Scudder Large Company Value
Fund, formerly Scudder Capital Growth Fund, for the twelve-month period ended
September 30, 1997.

The Fund's disciplined approach continued to reward shareholders, despite
an increased level of market volatility towards the end of the period. After the
close of the fiscal period, volatility accelerated, as the ripple effects from
the currency crisis in Southeast Asia were felt across the globe. For the U.S.
stock market, which had been viewed by some as amply priced, these events helped
to trigger a 554-point decline in the Dow Jones Industrial Average on October
27. While the Dow recovered, rising more than 330 points the next day, these
events serve as reminders to investors of the truly global nature of the
investment markets and the price volatility which can occur.

The good news, we believe, is that U.S. businesses and the economy are
still healthy. In this context, volatility provides many opportunities. In this
environment, we believe a sound approach to building an investment portfolio
designed to weather a range of market conditions is based on careful
diversification with exposure to small-cap, foreign, emerging market, and fixed
income securities in addition to large-cap U.S. stocks. Scudder Large Company
Value Fund can serve as an important core holding in this type of diversified
portfolio, which, when combined with the habit of investing regularly and a
long-term perspective, can help many investors meet their investing goals.

Thank you for your investment in Scudder Large Company Value Fund. If you
have any questions about your Fund, please call Scudder Investor Relations at
1-800-225-2470, or visit our Internet Web site at http://funds.scudder.com.

Sincerely,

/s/Daniel Pierce

Daniel Pierce
President,
Scudder Large Company Value Fund

3 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

Total Return
Period Growth --------------
Ended of Average
9/30/97 $10,000 Cumulative Annual
- --------------------------------------------
Scudder Capital Growth Fund
- --------------------------------------------
1 Year $ 14,306 43.06% 43.06%
5 year $ 24,831 148.31% 19.95%
10 Year $ 37,339 273.39% 14.08%
- ---------------------------------------------
S&P 500 Index
- ---------------------------------------------
1 Year $ 14,046 40.46% 40.46%
5 Year $ 25,692 156.92% 20.76%
10 Year $ 39,587 295.87% 14.74%
- ---------------------------------------------

- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------

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

SCUDDER LARGE COMPANY VALUE FUND
Year Amount
- ----------------------
87 $10,000
88 $ 9,439
89 $13,597
90 $ 9,762
91 $14,238
92 $15,037
93 $19,373
94 $18,459
95 $22,512
96 $26,101
97 $37,339

S&P 500 INDEX
Year Amount
- ----------------------
87 $10,000
88 $ 8,763
89 $11,653
90 $10,577
91 $13,873
92 $15,408
93 $17,411
94 $18,053
95 $23,423
96 $28,183
97 $39,587

Yearly periods ended September 30

- -----------------------------------------------------------------
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>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
------------------------------------------------------------------------------------------------
NET ASSET VALUE... $ 16.10 $ 22.30 $ 14.77 $ 19.30 $ 19.12 $ 23.06 $ 19.54 $ 22.92 $ 22.64 $ 28.98
INCOME DIVIDENDS.. $ .20 $ .07 $ .16 $ .37 $ .22 $ .10 $ - $ - $ .08 $ .16
CAPITAL GAINS
DISTRIBUTIONS..... $ 2.38 $ .55 $ 1.45 $ 1.35 $ .98 $ 1.25 $ 2.62 $ .73 $ 3.50 $ 2.48
FUND TOTAL
RETURN (%)........ -5.61 44.05 -28.20 45.85 5.61 28.83 -4.72 21.96 15.94 43.06
INDEX TOTAL
RETURN (%)........ -12.39 32.95 -9.24 31.09 11.04 12.97 3.68 29.75 20.34 40.46
</TABLE>

On February 1, 1997, the Fund adopted its current name. Prior to that date,
the Fund was known as the Scudder Capital Growth Fund. All performance is
historical, assumes reinvestment of all dividends and capital gains, and is not
indicative of future results. Investment return and principal value will
fluctuate, so an investor's shares, when redeemed, may be worth more or less
than when purchased.

4 -- SCUDDER LARGE COMPANY VALUE FUND

<PAGE>

PORTFOLIO SUMMARY as of September 30, 1997

- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------
Equity Securities 98%
Cash Equivalents 2%
- --------------------------------------
100%
- --------------------------------------

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

The Fund pursues a value-driven
investment program that includes
investing nearly 100% in equity
securities of large companies.

- --------------------------------------------------------------------------
Sectors
(Excludes 2% Cash Equivalents)
- --------------------------------------------------------------------------

Financial 26%
Energy 10%
Consumer Staples 10%
Technology 8%
Manufacturing 7%
Health 6%
Consumer Discretionary 6%
Communications 5%
Durables 5%
Other 17%
- --------------------------------------
100%
- --------------------------------------

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

The Fund's individual selection
approach resulted in significant
emphasis in the financial and
consumer staples, and energy sectors.

- --------------------------------------------------------------------------
Ten Largest Equity Holdings
(22% of Portfolio)
- --------------------------------------------------------------------------

1. INTERNATIONAL BUSINESS MACHINES CORP.
Principal manufacturer and servicer of business
and computing machines
2. BELL ATLANTIC CORP.
Telecommunication services
3. CHASE MANHATTAN CORP.
Commercial banking
4. EXXON CORP.
International oil & gas company
5. WHIRLPOOL CORP.
Manufacturer of major household appliances
6. TRAVELERS GROUPS, INC.
Provider of diversified financial services
7. BANKAMERICA CORP.
Commercial banking in California
8. PHILIP MORRIS COMPANIES INC.
Tobacco, food products and brewing
9. GOODYEAR TIRE AND RUBBER CO.
Maker of tires & rubber products
10. WEYERHAEUSER CO.
Diversified forest products company

The best returns came from a diverse
group of individual names, not from
emphasizing specific industry sectors.
- -----------------------------------------------------------------------------
For more complete details about the Fund's investment portfolio,
see page 10. A monthly Investment Portfolio Summary and quarterly Portfolio
Holdings are available upon request.

5 -- SCUDDER LARGE COMPANY VALUE FUND

<PAGE>

Portfolio Management Discussion

We asked Kathleen T. Millard and Lois Friedman Roman, portfolio managers of
Scudder Large Company Value Fund, to discuss the market environment and their
current investment strategy for the Fund.

Q: How did the Fund perform for the trailing twelve-month period ended September
30, 1997?

A: The Fund provided outstanding returns, reflecting the strong performance of
value stocks and our disciplined approach to seeking superior risk-adjusted
returns. For the period, the Fund returned 43.06%, exceeding the 42.31% return
of the unmanaged Russell 1000 Value Index and the 40.46% return of the unmanaged
S&P 500 Index. In addition, the Fund ranked in the top 11% of 325 large value
funds, surpassing the category's 35.79% average return according to Morningstar.

Q: How would you characterize the market over this period?

A: Overall, it has been an ideal environment for stocks, despite several ups and
downs. Growth stocks have done well until recently, but value stocks performed
better during the third quarter of 1997. Large-caps outperformed small-caps,
although small-caps also had better performance in the third quarter.

Q: It sounds as though something changed during the third quarter.

A: We think investors began to realize how extended prices were in some segments
of the market, and the volatility we've seen over the last few months supports
this. Valuations and earnings have been way above normal. Returning to more
typical conditions in corporate earnings performance or in stock prices may
require a period of increased price volatility. This is why risk control is part
of our decision-making process at all times.

Q: Where do you invest in a market like this?

A: A good question. This is a difficult market in which to invest, unless you
have a regimented investment discipline, such as the one we use in managing the
Fund. Our philosophy is to pursue a disciplined approach to seeking long-term
capital appreciation through a value-driven investment program. We utilize a
quantitative model as well as the fundamental input from our seasoned staff of
research analysts. Our focus is on individual stock selection, based principally
on three criteria: attractive relative valuations; fundamental research; and
portfolio risk control considerations.

Q: How do you use this "discipline" to select stocks for the portfolio?

A: We begin with a review of our universe of large company stocks -- primarily
stocks in the unmanaged Russell 1000 Index. This broad base serves as our
hunting ground. Then we rank stocks based on relative value and the companies'
long-term earnings outlooks. The list is divided into categories from least
expensive to most expensive. The most undervalued stocks -- our "buy" candidates
- -- fall into the top 40% of our ranking; the most expensive stocks -- our "sell"
candidates -- fall into the bottom 20% of our ranking.

Q: How do Scudder's analysts fit into the selection process?

A: Our analysts evaluate prospective portfolio holdings by digging into the
financial statements of each company to assess earnings prospects, and also
evaluate the corporate management and strategy, among other factors. By

6 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

incorporating the input of our research analysts, we attempt to anticipate
changes in the fundamentals of individual companies and the industries in which
they compete.

Q: Risk control is an important component of your investment discipline. How do
you control it?

A: Stocks by definition are volatile, but undervalued (`value') stocks typically
have lower risk characteristics than the average stock contained in the
broad-based S&P 500 Index. By seeking stocks with attractive valuations, the
Fund has tended to have lower volatility than the S&P 500. For example, during
the twelve-month period, the Fund outperformed the broad market on average on
over 75% of the down days. We think the value of this approach can be
particularly useful during periods of increased volatility.

Q: What worked well during the period?

A: The Fund's significant exposure to financial stocks, such as Travelers, which
was up 87% over the twelve months, was an important contributor to performance.
However, the portfolio had many other big winners, and they were a diverse
group, crossing several different industries: Bergen Brunswig, (up 62%), IBM,
(up 72%), Whirlpool (up 35%), Browning Ferris (up 56%), Eaton (up 57%), National
Semiconductor (up 104%), and Consolidated Freight (up 114%), to name a few.

Q: Did you add any new names to the portfolio?

A: Yes, recently we have been adding to our holdings of utility stocks. The
important thing to remember about the utility sector is that while all other

7 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>
industry sectors moved up with the bull market, utility stocks have basically
gone nowhere. There are a number of perceived negatives, including flat earnings
and fears concerning the impact of deregulation. Until recently there has been a
big performance disparity between utility stocks and the market. In addition,
valuations in this sector are near all-time lows. Given these factors, we have
made selected, incremental additions in the utility area.

Q: What is your outlook?

A: First, I would like to stress that our model is not based on an outlook for
the markets, but on our value-oriented stock selection using quantitative
disciplines and proprietary fundamental research. We believe this approach
should provide both upside potential and downside protection in varying market
environments. That said, aggregate market price levels reached historical highs
during the period, but we believe that there are always relatively attractive
valuation opportunities to unearth. For investors who are seeking long-term
growth of capital from undervalued securities, we believe the Fund will continue
to provide rewarding returns.

Scudder Large Company
Value Fund:
A Team Approach to Investing

Scudder Large Company Value Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management
process. Team members work together to develop investment strategies and
select securities for the Fund's portfolio. They are supported by Scudder's
large staff of 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 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 Friedman Roman, Portfolio Manager, joined
the Fund in 1995 and Scudder in 1994 and has ten years of experience as an
equity analyst.

8 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

Glossary of Investment Terms

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

GROWTH STOCK Stock of a company that has
displayed above average earnings growth
and is expected to continue to increase
profits rapidly going forward. Stocks of
such companies usually trade at a higher
price relative to earnings and exhibit
greater price volatility.

LIQUIDITY A stock that is liquid has enough shares
outstanding and a substantial enough
market capitalization to allow large
purchases and sales to occur without
causing a significant change in its
market price.

MARKET CAPITALIZATION The value of a company's
outstanding shares of common stock,
determined by the number of shares
outstanding multiplied by the share price
(Shares x Price = Market Capitalization).
The universe of publicly traded companies
is frequently divided into large-, mid-,
and small-capitalizations. In general,
"large-cap" stocks tend to be more liquid
than "small-cap" stocks.

OVER/UNDER WEIGHTING Refers to the allocation of
assets -- usually by sector, industry, or
country -- within a portfolio relative to
a benchmark index, (i.e. the Russell 1000
Value Index) or an investment universe.

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

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

(Sources: Scudder; Barron's Dictionary of Finance and Investment Terms)

9 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

Investment Portfolio as of September 30, 1997

<TABLE>
<CAPTION>
Principal Market
Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements 1.7%
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreement with Donaldson, Lufkin & Jenrette dated 9/30/97 at 6.02%, to be
repurchased at $37,182,217 on 10/1/97, collateralized by a $37,671,000 U.S. Treasury -------------
Note, 5%, 2/15/99 (Cost $37,176,000) .................................................. 37,176,000 37,176,000
-------------

<CAPTION>
Shares
- ------------------------------------------------------------------------------------------------------------------------------
Common Stocks 98.3%
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Discretionary 6.0%
Apparel & Shoes 0.8%
Reebok International Ltd.* ............................................................. 344,600 16,777,713
-------------
Department & Chain Stores 3.5%
Dayton Hudson Corp. ..................................................................... 385,500 23,105,906
Price/Costco, Inc.* ..................................................................... 815,800 30,694,475
Rite Aid Corp. .......................................................................... 410,700 22,768,181
-------------
76,568,562
-------------
Hotels & Casinos 0.5%
Circus Circus Enterprises, Inc.* ........................................................ 461,300 11,618,994
-------------
Restaurants 1.2%
Brinker International, Inc.* ............................................................ 1,437,900 25,612,594
-------------
Consumer Staples 9.6%
Alcohol & Tobacco 2.0%
Philip Morris Companies, Inc. ........................................................... 1,082,800 45,003,875
-------------
Consumer Electronic & Photographic Products 2.2%
Whirlpool Corp. ......................................................................... 739,600 49,044,725
-------------
Food & Beverage 4.4%
American Stores Co. ..................................................................... 986,700 24,050,813
ConAgra Inc. ............................................................................ 331,800 21,898,800
H.J. Heinz Co. .......................................................................... 548,000 25,310,750
Unilever NV (New York shares) ........................................................... 124,600 26,493,075
-------------
97,753,438
-------------
Textiles 1.0%
VF Corporation .......................................................................... 242,400 22,452,300
-------------
Health 6.4%
Health Industry Services 3.3%
Bergen Brunswig Corp. "A" ............................................................... 829,875 33,506,203
</TABLE>

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

10 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Humana Inc.* ............................................................................ 1,665,100 39,650,194
-------------
73,156,397
-------------
Hospital Management 1.5%
Tenet Healthcare Corp.* ................................................................. 1,141,200 33,237,450
-------------
Pharmaceuticals 1.6%
American Home Products Corp. ............................................................ 284,900 20,797,700
Bristol-Myers Squibb Co. ................................................................ 173,300 14,340,575
-------------
35,138,275
-------------
Communications 5.2%
Telephone / Communications
American Telephone & Telegraph Co. ...................................................... 275,200 12,194,800
Bell Atlantic Corp. ..................................................................... 671,200 53,989,650
BellSouth Corp. ......................................................................... 474,000 21,922,500
GTE Corp. ............................................................................... 597,100 27,093,413
-------------
115,200,363
-------------
Financial 25.9%
Banks 12.4%
Banc One Corp. .......................................................................... 394,900 22,040,356
BankAmerica Corp. ....................................................................... 633,800 46,465,463
BankBoston Corp. ........................................................................ 443,500 39,222,031
Chase Manhattan Corp. ................................................................... 434,300 51,247,400
First Chicago NBD Corp. ................................................................. 220,200 16,570,050
First Union Corp. ....................................................................... 358,000 17,922,375
J.P. Morgan & Co., Inc. ................................................................. 259,100 29,440,238
KeyCorp ................................................................................. 426,800 27,155,150
NationsBank Corp. ....................................................................... 385,900 23,877,563
-------------
273,940,626
-------------
Insurance 8.7%
Allstate Corp. .......................................................................... 518,600 41,682,475
Chubb Corp. ............................................................................. 317,400 22,555,238
Cigna Corp. ............................................................................. 207,400 38,628,250
EXEL, Ltd. (ADR) ........................................................................ 513,700 30,597,256
General Re Corp. ........................................................................ 142,700 28,325,950
Mid Ocean, Ltd. ......................................................................... 288,200 18,264,667
Safeco Corp. ............................................................................ 224,300 11,887,900
-------------
191,941,736
-------------
</TABLE>

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

11 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Other Financial Companies 4.8%
American Express Credit Corp. ........................................................... 461,600 37,793,500
Federal National Mortgage Association ................................................... 396,700 18,644,900
Travelers Group, Inc. ................................................................... 716,466 48,898,805
-------------
105,337,205
-------------
Service Industries 3.3%
Environmental Services 1.9%
Browning Ferris Industries .............................................................. 1,112,500 42,344,531
-------------
Investment 1.4%
Merrill Lynch & Co., Inc. ............................................................... 421,800 31,292,288
-------------
Durables 5.0%
Aerospace 0.5%
United Technologies Corp. ............................................................... 138,000 11,178,000
-------------
Automobiles 2.5%
Eaton Corp. ............................................................................. 287,000 26,511,625
Ford Motor Co. .......................................................................... 410,300 18,566,075
General Motors Corp. .................................................................... 162,300 10,863,956
-------------
55,941,656
-------------
Tires 2.0%
Goodyear Tire & Rubber Co. .............................................................. 640,200 44,013,750
-------------
Manufacturing 7.0%
Chemicals 1.8%
Dow Chemical Co. ........................................................................ 318,900 28,920,244
E.I. du Pont de Nemours & Co. ........................................................... 185,000 11,389,063
-------------
40,309,307
-------------
Diversified Manufacturing 2.0%
Dresser Industries, Inc. ................................................................ 450,300 19,362,900
Textron, Inc. ........................................................................... 372,000 24,180,000
-------------
43,542,900
-------------
Electrical Products 1.8%
Emerson Electric Co. .................................................................... 223,900 12,902,238
Philips Electronics NV (New York shares) ................................................ 315,800 26,527,200
-------------
39,429,438
-------------
Specialty Chemicals 1.4%
Witco Corp. ............................................................................. 688,100 31,394,563
-------------
</TABLE>

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

12 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

<TABLE>
<CAPTION>
Market
Shares Value ($)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology 7.7%
Diverse Electronic Products 1.7%
Harris Corp. ............................................................................ 842,200 38,530,650
-------------
EDP Peripherals 0.7%
Western Digital Corp.* .................................................................. 394,300 15,796,644
-------------
Electronic Data Processing 2.5%
International Business Machines Corp. ................................................... 526,000 55,723,125
-------------
Military Electronics 0.9%
General Dynamics Corp. .................................................................. 228,600 19,916,775
-------------
Semiconductors 1.9%
National Semiconductor Corp.* 1,048,100 42,972,100
-------------
Energy 10.2%
Oil & Gas Production 1.8%
Coastal Corp. ........................................................................... 523,400 32,058,250
Royal Dutch Petroleum Co. ............................................................... 140,000 7,836,792
-------------
39,895,042
-------------
Oil Companies 8.4%
Atlantic Richfield Co. .................................................................. 255,600 21,837,825
British Petroleum PLC (ADR) ............................................................. 272,400 24,737,325
Exxon Corp. ............................................................................. 799,400 51,211,563
Mobil Corp. ............................................................................. 453,200 33,536,800
Royal Dutch Petroleum Co. (New York shares) ............................................. 284,800 15,806,400
Texaco Inc. ............................................................................. 639,800 39,307,713
-------------
186,437,626
-------------
Construction 3.3%
Building Materials 0.6%
Vulcan Materials Co. .................................................................... 139,600 12,145,200
-------------
Building Products 0.8%
Armstrong World Industries, Inc. ........................................................ 255,800 17,154,588
-------------
Forest Products 1.9%
Weyerhaeuser Co. ........................................................................ 725,900 43,100,313
-------------
Transportation 3.7%
Railroads 3.0%
CSX Corp. ............................................................................... 484,800 28,360,800
Canadian National Railway ............................................................... 380,700 19,788,248
</TABLE>

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

13 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

* Non-income producing security.
(a) The cost for federal income tax purposes was $1,506,252,042. At September
30, 1997, net unrealized appreciation for all securities based on tax cost
was $708,672,306. This consisted of aggregate gross unrealized
appreciation for all securities in which there was an excess of market
value over tax cost of $709,219,770 and aggregate gross unrealized
depreciation for all securities in which there was an excess of tax cost
over market value of $547,464.

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

14 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

Financial Statements

Statement of Assets and Liabilities
as of September 30,1997

<TABLE>
<S> <C>
Assets
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at market (identified cost $1,502,523,094) ............ $2,214,924,348
Cash ............................................................... 920
Receivable on investments sold ..................................... 2,182,529
Dividends and interest receivable .................................. 3,698,053
Receivable on Fund shares sold ..................................... 923,838
Receivable on foreign taxes recoverable ............................ 49,258
Other assets ....................................................... 33,581
----------------
Total assets ....................................................... 2,221,812,527
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------
Payables for investments purchased ................................. 3,284,374
Payable for Fund shares redeemed ................................... 4,058,758
Accrued management fee ............................................. 1,145,100
Other payables and accrued expenses ................................ 591,157
----------------
Total liabilities .................................................. 9,079,389
--------------------------------------------------------------------------------------------
Net assets, at market value $2,212,733,138
--------------------------------------------------------------------------------------------
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------
Net assets consist of:
Undistributed net investment income ................................ 22,560,347
Unrealized appreciation on investments ............................. 712,401,254
Accumulated net realized gain ...................................... 110,159,843
Paid-in capital .................................................... 1,367,611,694
--------------------------------------------------------------------------------------------
Net assets, at market value $2,212,733,138
--------------------------------------------------------------------------------------------
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, offering and redemption price per share
($2,212,733,138 / 76,343,193 outstanding shares of beneficial ----------------
interest, $.01 par value, unlimited number of shares authorized). $28.98
----------------
</TABLE>

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

15 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

Statement of Operations
year ended September 30, 1997

Realized and unrealized gain (loss) on investment transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net realized gain from:
Investments ........................................................ 134,428,197
-----------------

Net unrealized appreciation (depreciation) during the period on:
Investments ........................................................ 519,791,121
Foreign currency related transactions .............................. (333)
-----------------
519,790,788
---------------------------------------------------------------------------------------------
Net gain on investment transactions 654,218,985
---------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $ 682,916,274
---------------------------------------------------------------------------------------------
</TABLE>

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

16 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

Statements of Changes in Net Assets

<TABLE>
<CAPTION>
Years Ended September 30,
Increase (Decrease) in Net Assets 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income ................................... $ 28,697,289 $ 25,638,335
Net realized gain from investment transactions .......... 134,428,197 156,485,746
Net unrealized appreciation on investment transactions
during the period .................................... 519,790,788 50,222,142
---------------- -----------------
Net increase in net assets resulting from operations .... 682,916,274 232,346,223
---------------- -----------------
Distributions to shareholders from:
Net investment income ................................... (11,553,936) (5,186,735)
---------------- -----------------
Net realized gains on investment transactions ........... (179,180,946) (226,928,336)
---------------- -----------------
Fund share transactions:
Proceeds from shares sold ............................... 255,862,093 242,975,623
Net asset value of shares issued to shareholders in
reinvestment of distributions ........................ 182,941,443 222,385,560
Cost of shares redeemed ................................. (369,711,587) (305,801,902)
---------------- -----------------
Net increase in net assets from Fund share transactions. 69,091,949 159,559,281
---------------- -----------------
Increase in net assets .................................. 561,273,341 159,790,433
Net assets at beginning of period ....................... 1,651,459,797 1,491,669,364
Net assets at end of period (including undistributed
net investment income of $22,560,347 and ---------------- -----------------
$5,294,851, respectively) ............................ $2,212,733,138 $1,651,459,797
---------------- -----------------
Other Information
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in Fund shares
Shares outstanding at beginning of period ............... 72,934,700 65,078,938
---------------- -----------------
Shares sold ............................................. 10,356,988 11,066,908
Shares issued to shareholders in reinvestment of
distributions ........................................ 8,148,839 10,795,415
Shares redeemed ......................................... (15,097,334) (14,006,561)
---------------- -----------------
Net increase in Fund shares ............................. 3,408,493 7,855,762
---------------- -----------------
Shares outstanding at end of period ..................... 76,343,193 72,934,700
---------------- -----------------
</TABLE>

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

17 -- SCUDDER LARGE COMPANY VALUE FUND
<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,
1997(a)* 1996 1995 1994 1993(c) 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of --------------------------------------------------------------------------------------
period $22.64 $22.92 $19.54 $23.06 $19.12 $19.30 $14.77 $22.30 $16.10 $20.41
--------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) .38 .36 .13 (.02) .06 .12 .20 .30(b) .21 .09
Net realized and unrealized gain
(loss) on investment
transactions 8.60 2.94 3.98 (.88) 5.23 .90 6.05 (6.22) 6.61 (1.82)
Total from investment --------------------------------------------------------------------------------------
operations 8.98 3.30 4.11 (.90) 5.29 1.02 6.25 (5.92) 6.82 (1.73)
--------------------------------------------------------------------------------------
Less distributions from:
Net investment income (.16) (.08) -- -- (.10) (.22) (.37) (.16) (.07) (.20)
Net realized gains on
investment transactions (2.48) (3.50) (.73) (2.62) (1.25) (.98) (1.35) (1.45) (.55) (2.38)
Total distributions (2.64) (3.58) (.73) (2.62) (1.35) (1.20) (1.72) (1.61) (.62) (2.58)
Net asset value, end of --------------------------------------------------------------------------------------
period $28.98 $22.64 $22.92 $19.54 $23.06 $19.12 $19.30 $14.77 $22.30 $16.10
--------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Total Return (%) 43.06 15.94 21.96 (4.72) 28.83 5.61 45.85 (28.20) 44.05 (5.61)
Ratios and Supplemental Data
Net assets, end of period
($ millions) 2,213 1,651 1,492 1,338 1,387 1,054 1,058 712 1,013 491
Ratio of operating expenses to
average daily net assets (%) .93 .92 .98 .97 .96 .98 1.04 .94 .88 .95
Ratio of net investment income
(loss) to average daily
net assets (%) 1.51 1.62 .62 (.12) .22 .57 1.24 1.56 1.22 .63
Portfolio turnover rate (%) 43.02 150.7 153.6 75.8 92.2 92.4 93.2 87.9 55.7 48.5
Average commission rate paid (d) $.0562 $.0533 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
</TABLE>

(a) Based on monthly average shares outstanding during the period.
(b) Net investment income per share includes nonrecurring dividend income
amounting to $.14 per share.
(c) Effective October 1, 1992, the Fund discontinued using equalization
accounting.
(d) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years ending on or after September 30, 1996.
* On February 1, 1997, the Fund adopted its current name. Prior to that
date, the Fund was known as the Scudder Capital Growth Fund.

18 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

Notes to Financial Statements

A. Significant Accounting Policies

Scudder Large Company Value Fund (formerly 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.

19 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

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.

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, 1997, purchases and sales of investment
securities (excluding short-term investments) aggregated $800,239,914 and
$908,969,397, respectively.
C. Related Parties

Under the Fund's Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund has agreed 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,
0.60% of the next $500,000,000 of such net assets and 0.55% of such net assets
in excess of $1,500,000,000, 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. For the year ended September 30,
1997, the fee pursuant to the Agreement amounted to $12,187,280 which was
equivalent to an annual effective rate of .64% of the Fund's average daily net
assets.

Scudder Service Corporation ("SSC"), a subsidiary of the Adviser, is the
transfer, dividend paying and shareholder service agent for the Fund. Included
in services to shareholders is $2,505,046 charged to the Fund by SSC for the
year ended September 30, 1997, of which $206,660 is unpaid at September 30,
1997.

Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the year ended September 30,
1997, the amount charged to the Fund by STC aggregated $1,562,194, of which
$133,227 is unpaid at September 30, 1997.

Scudder Fund Accounting Corporation ("SFAC"), a subsidiary of the Adviser, is
responsible for determining the daily net asset value per share and maintaining
the portfolio and general accounting records of the Fund. For the year ended
September 30, 1997, the amount charged to the Fund by SFAC aggregated $157,173,
of which $13,819 is unpaid at September 30, 1997.

20 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

The Fund is one of several Scudder Funds (the "Underlying Funds") in which the
Scudder Pathway Series Portfolios (the "Portfolios") invest. In accordance with
the Special Servicing Agreement entered into by the Adviser, the Portfolios, the
Underlying Funds, SSC, SFAC, STC, and Scudder Investor Services, Inc., expenses
from the operation of the Portfolios are borne by the Underlying Funds based on
each Underlying Fund's proportionate share of assets owned by the Portfolios. No
Underlying Funds will be charged expenses that exceed the estimated savings to
each respective Underlying Fund. These estimated savings result from the
elimination of separate shareholder accounts which either currently are or have
potential to be invested in the Underlying Funds. At September 30, 1997, the
Special Servicing Agreement expense charged to the Fund amounted to $26,784.

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, 1997, Trustees' fees and expenses aggregated
$57,362.

21 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

Report of Independent Accountants

To the Trustees of Scudder Equity Trust and the Shareholders of Scudder Large
Company Value Fund:

We have audited the accompanying statement of assets and liabilities of Scudder
Large Company Value Fund (formerly Scudder Capital Growth Fund), including the
investment portfolio, as of September 30, 1997, 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, 1997 by correspondence with the custodian. 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 Large Company Value Fund (formerly Scudder Capital Growth Fund), as of
September 30, 1997, 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 5, 1997

22 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>

Tax Information

The Fund paid distributions of $.80 per share from long-term capital gains
during its taxable year ended September 30, 1997. Pursuant to section 852 of the
Internal Revenue Code, the Fund designates $74,182,619 as long-term capital gain
dividends for the year ended September 30, 1997.

Pursuant to section 854 of the Internal Revenue Code, the Fund designates
$37,399,677 as dividends eligible for the dividends received deduction for
corporations for the year ended September 30, 1997.

23 -- SCUDDER LARGE COMPANY VALUE FUND

<PAGE>

Officers and Trustees

Daniel Pierce*
President and Trustee

Paul Bancroft III
Trustee; Venture Capitalist and Consultant

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

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

Thomas J. Devine
Trustee; Consultant

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

David S. Lee*
Trustee and Vice President

Wilson Nolen
Trustee; Consultant

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

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

Robert G. Stone, Jr.
Honorary Trustee; Chairman Emeritus 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

Thomas F. McDonough*
Vice President, Secretary and Assistant Treasurer

Pamela A. McGrath*
Vice President and Treasurer

Kathleen T. Millard*
Vice President

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

*Scudder, Stevens & Clark, Inc.

24 -- SCUDDER LARGE COMPANY VALUE FUND
<PAGE>
Investment Products and Services