<PAGE>
Registration Nos. 333-47394
811-10169
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. 1 /X/
Post-Effective Amendment No. __ / /
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 1 /X/
(Check appropriate box or boxes)
SCUDDER WEISEL CAPITAL ENTREPRENEURS FUND
(Exact name of Registrant as specified in charter)
(formerly, Scudder Weisel Digital Innovators Fund)
88 Kearny Street
San Francisco, CA 94108
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (415) 262-6100
c/o Peter H. Mattoon
President
Scudder Weisel Capital LLC
88 Kearny Street
San Francisco, CA 94108
(Name and address of agent for service)
Please send copies of all communications to:
Robert W. Helm, Esq.
Dechert
1775 Eye Street, NW
Washington, DC 20006
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box. /X/
------------------
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<PAGE>
<TABLE>
<CAPTION>
============================================================================
TITLE OF AMOUNT BEING PROPOSED PROPOSED AMOUNT OF
SECURITIES REGISTERED (1) MAXIMUM MAXIMUM REGISTRATION
BEING OFFERING PRICE AGGREGATE FEE (2)
REGISTERED PER UNIT (1) OFFERING
PRICE (1)
<S> <C> <C> <C> <C>
Class A
Shares of Beneficial 40,000 $25.00 $1,000,000 $264.00
Interest, par value
$0.01 per share
Class O
Shares of Beneficial 40,000 $24.55 982,000 $260.00
Interest, par value
$0.01 per share
============================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933.
(2) Previously paid.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Securities and Exchange Commission, acting
pursuant to Section 8(a), may determine.
C-2
<PAGE>
CROSS REFERENCE SHEET
PARTS A AND B OF PROSPECTUS
<TABLE>
<CAPTION>
Item Caption Location in Prospectus
No.
<S> <C> <C>
1. Outside Front Cover Page............................................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Page............................ Inside Front and Outside Back Cover Page
3. Fee Table and Synopsis.............................................. Summary of Fund Expenses
4. Financial Highlights................................................ Not Applicable
5. Plan of Distribution................................................ Inside Front Cover Page; Management of the Fund;
How to Purchase Fund Shares
6. Selling Shareholders................................................ Not Applicable
7. Use of Proceeds..................................................... Use of Proceeds
8. General Description of the Registrant............................... Outside Front Cover Page; Principal Risk Factors and
Investment Techniques; Investment Objective and
Strategies; General Information
9. Management.......................................................... Management of the Fund; Use of Proceeds
10. Capital Stock, Long-Term Debt, and Other Securities................. Shares of Beneficial Interest; Distribution Policy
11. Defaults and Arrears on Senior Securities........................... Not Applicable
12. Legal Proceedings................................................... Not Applicable
13. Table of Contents of the Statement of Additional Information........ Table of Contents of the Statement of Additional
Information
14. Cover page of SAI................................................... Cover Page (SAI)
15. Table of Contents of SAI............................................ Table of Contents (SAI)
16. General Information and History..................................... Investment Management and Other Services
17. Investment Objective and Policies................................... Additional Investment Policies (SAI)
18. Management.......................................................... Trustees and Officers (SAI); Investment Management
and Other Services (SAI)
19. Control Persons and Principal Holders of Securities................. Not Applicable
20. Investment Advisory and Other Services.............................. Investment Management and Other Services (SAI)
21. Brokerage Allocation and Other Practices............................ Portfolio Transactions and Brokerage Commissions
(SAI)
22. Tax Status.......................................................... Taxes
23. Financial Statements................................................ Not Applicable
</TABLE>
<PAGE>
[LOGO]
Scudder Weisel Capital Entrepreneurs Fund
_______ Class A Shares of Beneficial Interest
_______ Class O Shares of Beneficial Interest
Scudder Weisel Capital Entrepreneurs Fund ("Fund") is a newly organized,
non-diversified, closed-end management investment company that has been
organized as a Delaware business trust. The Fund's investment objective is to
provide its investors superior risk-adjusted returns. The Fund seeks to achieve
its objective by investing up to 80% of its assets in public and private
securities of U.S. and non-U.S. companies that participate in the information
technology, communications, healthcare, financial services, or transforming
industries sectors (collectively, the "Target Sectors"). Up to 60% of the Fund's
assets may be invested in privately placed securities issued by companies in the
Target Sectors, which will consist substantially of private equity securities,
and will also include special situation investments (collectively, "private
securities"). Issuers of private equity securities that may conduct an initial
public offering ("IPO") are referred to in this prospectus as "venture capital
companies". The Fund may pursue its investment strategy directly or indirectly
through investments in private investment companies. Unless otherwise specified,
percentage limitations are applied at the time of investment. Therefore,
these percentages could be exceeded due to fluctuation in the value of the
Fund's portfolio securities or liquidation of portfolio securities to pay
expenses or fulfill repurchase requests. There can be no assurance that the Fund
will achieve its objective. For a discussion of these investments, including
special situation investments, see "Principal Risk Factors and Investment
Techniques."
The Fund's publicly traded securities may be issued by companies of any
size, although the Fund intends to invest the public securities portion of its
portfolio primarily in securities of small and mid-sized companies with market
capitalizations of less than $10 billion, and in some cases less than $2
billion. The Fund's private equity investments may be issued by companies in
the early stage or later stages of their financing activities. Investors should
recognize that (i) there will be no public market for the private securities at
the time of the Fund's investment, and (ii) there can be no assurance that any
planned IPO or other exit strategy with respect to such investment will ever be
completed. In evaluating both public and private companies, the Fund's
investment adviser conducts fundamental due diligence focusing on management
strength, sector attractiveness, competitive dynamics, strategic positioning and
potential operational gains at the company.
To the extent consistent with applicable regulatory guidelines, the Fund
may invest in private investment companies and other investment funds that may
be affiliated with the Fund, Scudder Weisel Capital LLC, or the Fund's
investment adviser. See "Investment Objective and Strategies."
Investment Manager, Investment Adviser and Distributor. The Fund's
investment manager and distributor is Scudder Weisel Capital LLC ("Scudder
Weisel"), a registered investment adviser and broker-dealer. Scudder Weisel
employs Whitney Holdings LLC (the "Investment Adviser") as investment adviser to
manage the Fund's portfolio on a day-to-day basis, subject to the supervision of
Scudder Weisel and the Fund's Board of Trustees.
Investments in securities of companies in the Target Sectors, and, in
particular, private securities and private investment companies, may be
speculative and pose special risks. These risks are more fully explained below
under the heading "Principal Risk Factors and Investment Techniques."
No market exists for the Fund's shares. The Fund's shares will not be
listed on any securities exchange and the Fund does not anticipate that a
secondary market for its shares will develop. Consequently, you may not be able
to sell your shares. Because the Fund is a closed-end investment company, shares
of the Fund will not be redeemed on a daily basis nor will they be exchangeable
for shares of any other fund. The Fund's shares are appropriate only as a long-
term investment.
<PAGE>
The Fund will provide a limited degree of liquidity to shareholders,
beginning in July 2001, by making quarterly offers to repurchase a minimum of 5%
of its outstanding shares at current net asset value. Repurchase of the full
amount of shares tendered is not guaranteed, and to the extent the number of
shares tendered by shareholders for repurchase exceeds the number of shares to
be repurchased in that quarter, repurchases will be made on a pro rata basis.
See "Repurchase Offers."
This Prospectus applies to the offering of Class A and Class O shares of
beneficial interest of the Fund. Selected brokers and dealers ("broker-dealers")
will offer Class A Shares of the Fund during the initial offering period at a
maximum offering price of $25.00 per share, including the applicable front-end
sales charge, and the Fund's Class A shares may be offered on a continuous basis
thereafter at net asset value, plus any applicable sales charge. The Fund's
Class A shares will be subject to a front-end sales commission of up to 4.75%,
and other expenses. Scudder Weisel will offer Class O shares of the Fund to its
investment advisory clients during the initial offering period at a maximum
offering price of $24.55 per share, including the applicable front-end sales
charge, and the Fund's Class O shares may be offered on a continuous basis
thereafter at net asset value, plus any applicable sales charge. The Fund's
Class O shares will be subject to a front-end sales commission of up to 3.00%,
and other expenses. The Fund has registered ____ Class A shares and _____ Class
O shares for sale under the Registration Statement to which this Prospectus
relates.
Through its initial offering, the Fund intends to raise approximately $500
million of proceeds. However, there can be no assurance that the Fund will
attain this goal. Scudder Weisel will serve as the Fund's distributor in the
initial offering and any continuous offering. See "How to Purchase Fund Shares."
The Fund will pay organizational and offering expenses estimated at
________________ from the proceeds of the offering. The initial offering will
terminate on ________ , 2001 unless Scudder Weisel extends the initial offering.
After termination of the initial offering period, the Fund may commence a
continuous offering of its shares through Scudder Weisel and broker-dealers at a
public offering price equal to their net asset value plus any applicable sales
charge. Any such continuous offering, if commenced, may be discontinued at any
time. The Fund may conduct other offerings from time to time in the future.
The Fund will pay Scudder Weisel a shareholder services fee at an annual
rate of up to 0.50% of the net asset value of the outstanding shares of the
Fund. Scudder Weisel may enter into related arrangements with broker-dealers or
other service or administrative firms that provide services and facilities for
their customers or clients who are investors in the Fund.
This Prospectus provides information that prospective investors should know
about the Fund before investing. You are advised to read this Prospectus
carefully and to retain it for future reference. Additional information about
the Fund, including a statement of additional information ("SAI") dated
____________, 2001, has been filed with the Securities and Exchange Commission
("SEC"). The SAI is available upon request and without charge by writing the
Fund at 88 Kearny Street, San Franscisco, CA 94108; or by calling (800)
____________. The SAI is incorporated by reference into this Prospectus in its
entirety. The table of contents of the SAI appears on page __ of this
Prospectus. The SAI, and other information about the Fund, is also available on
the SEC's website (http://www.sec.gov).
Investment Management Fee. The Fund's investment management fee has two
components, an asset based fee and a performance based (or "incentive") fee. The
Fund will pay Scudder Weisel an asset based fee at an annual rate of 2.0% of the
Fund's average daily net assets and an annual incentive fee equal to 20% of the
Fund's net realized capital gains or losses, net investment income or loss, and
net unrealized appreciation or depreciation for the year. No incentive fee will
be paid unless the Fund has offset all prior net realized capital losses, net
unrealized depreciation and net investment loss. The Investment Adviser is
compensated by Scudder Weisel. The incentive fee structure presents risks that
are not present in funds without an incentive fee. The overall fees the Fund and
its shareholders pay will be higher than those that most other funds pay. See
"Management of the Fund."
Investor Qualifications. The Fund will sell shares only to investors who
have a net worth of more than $1,500,000, including any amount invested in the
Fund, who have at least $750,000 under the management of Scudder Weisel or the
Investment Adviser, or who otherwise meet the definition of a "qualified client"
as defined herein (any such person, a "Qualified Client"). The minimum initial
investment is $25,000. The minimum subsequent investment is $1,000. Investors
must hold their shares through intermediaries that have entered into
<PAGE>
selling group agreements with Scudder Weisel or through Scudder Weisel directly.
See "How to Purchase Fund Shares - Investor Qualifications and Transfer
Restrictions."
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Price to Public (1) Sales Load Proceeds to Fund (2)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A Share.......... $ $ $
----------------------------------------------------------------------------------------------------------------------
Total.................. $ $ $
----------------------------------------------------------------------------------------------------------------------
Per Class O Share.......... $ $ $
----------------------------------------------------------------------------------------------------------------------
Total.................. $ $ $
----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Scudder Weisel will offer the Class A and Class O shares on a best
efforts basis at net asset value, plus the applicable sales charge.
Shares will be offered during an initial offering period scheduled to
end on _________, 2001, unless extended by Scudder Weisel, and may be
offered on a continuous basis thereafter. The minimum initial
investment is $25,000. No escrow arrangements have been established in
connection with the initial or continuous offering of the Fund's
shares. Net asset value and, accordingly, proceeds to the Fund, will
fluctuate over the course of the offering.
(2) Assumes sale of all shares currently registered at the net asset value
indicated, and exclusion of organizational and offering expenses,
estimated to be $_______________, which will be borne by the Fund. See
"Use of Proceeds."
Neither the SEC nor any state securities commission has determined whether
this prospectus is truthful or complete, nor have they made, nor will they make,
any determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
Shares of the Fund are not deposits of obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency.
The date of this Prospectus is __________
[LOGO]
<PAGE>
[PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY......................................................... 6
SUMMARY OF FUND EXPENSES................................................... 15
PRINCIPAL RISK FACTORS AND INVESTMENT TECHNIQUES........................... 17
USE OF PROCEEDS............................................................ 32
INVESTMENT OBJECTIVE AND STRATEGIES........................................ 32
MANAGEMENT OF THE FUND..................................................... 37
REPURCHASE OFFERS.......................................................... 41
CALCULATION OF NET ASSET VALUE............................................. 44
SHARES OF BENEFICIAL INTEREST.............................................. 45
DISTRIBUTION POLICY........................................................ 46
TAXES...................................................................... 47
HOW TO PURCHASE FUND SHARES................................................ 48
GENERAL INFORMATION........................................................ 52
TABLE OF CONTENTS OF SAI................................................... 54
</TABLE>
---------------------
No broker-dealer, salesperson or other person is authorized to give an investor
any information or to represent anything not contained in this Prospectus. As an
investor you must not rely on any unauthorized information or representations
that anyone provides to you. This Prospectus is an offer to sell or a
solicitation of an offer to buy the securities it describes, but only under the
circumstances and in jurisdictions where it is lawful to do so. The information
contained in this Prospectus is current only as of the date of this Prospectus.
5
<PAGE>
PROSPECTUS SUMMARY
THE FUND Scudder Weisel Capital
Entrepreneurs Fund ("Fund") is a
newly organized non-diversified,
closed-end management investment
company registered under the
Investment Company Act of 1940, as
amended ("1940 Act").
INVESTMENT OBJECTIVE AND PRINCIPAL The Fund's investment objective is
STRATEGIES to provide its investors superior
risk-adjusted returns. The Fund
seeks to achieve its objective by
investing up to 80% of its assets
in public and private securities of
U.S. and non-U.S. companies that
participate in the information
technology, communications,
healthcare, financial services, or
transforming industries sectors
(collectively, the "Target
Sectors"). Up to 60% of the Fund's
assets may be invested in privately
placed securities issued by
companies in the Target Sectors,
which will consist substantially of
private equity securities, and will
also include special situation
investments, as discussed further
below (collectively, "private
securities"). The Fund may pursue
its investment strategy directly or
indirectly through investments in
private investment companies.
Investors should recognize that (i)
there will be no public market for
the private securities at the time
of the Fund's investment, and (ii)
there can be no assurance that any
planned initial public offering
("IPO") or other exit strategy with
respect to any such investment will
ever be completed.
To the extent consistent with
applicable regulatory guidelines,
the Fund may invest in private
investment companies and other
investment funds that may be
affiliated with the Fund, Scudder
Weisel or the Investment Adviser.
The Fund's publicly traded
portfolio securities may be issued
by companies of any size, although
the Fund intends to invest the
public securities portion of its
portfolio primarily in securities
of small and mid-sized companies
with market capitalizations of less
than $10 billion, and in some cases
less than $2 billion. The Fund's
private securities investments may
be issued by companies in the early
stage or later stages of their
financing activities. In evaluating
both public and private companies,
the Investment Adviser conducts
fundamental due diligence focusing
on management strength, sector
attractiveness, competitive
dynamics, strategic positioning and
potential operational gains at
6
<PAGE>
the company.
In addition to other investment
opportunities, the Fund intends to invest
in special situation investments. Special
situations investments include mezzanine
debt securities, PIK preferred securities,
collateralized debt obligation ("CDOs") and
distressed securities (collectively,
"Special Situation investments"). Specific
Special Situations investments may also
include unrated and non-investment grade
subordinated debt (with or without equity
"kickers") securities of financially
distressed or bankrupt issuers and deeply
discounted convertible bonds, among other
similar investments. The Investment Adviser
will pursue its historical approach to
evaluating Special Situation investment
opportunities by engaging in intensive
credit and in-depth relative value
analyses. Special Situation investments may
be made directly or indirectly through
investments in private investment companies
that are affiliated with Scudder Weisel or
the Investment Adviser. Special Situation
investments are included in the portion of
the Fund's portfolio invested in private
securities.
In order to provide for adequate Fund
liquidity, the Fund will invest up to 15%
of its assets in non-cash liquid
investments. These investments could be
liquidated opportunistically to fund
repurchases, pay Fund operating expenses,
repay borrowing, redeploy in other assets,
pay management and incentive fees or as the
Investment Adviser believes appropriate.
Non-cash liquid investments will consist
primarily of high yield bonds and
institutional bank loans for which the
Investment Adviser believes a liquid market
exists.
See "Investment Objective and Strategies."
INVESTMENT APPROACH In the private equity portion of its
portfolio, the Fund seeks to provide growth
capital to private companies at a point in
their development where a partnership with
management can be developed to achieve the
next level of value creation. The
Investment Adviser attempts to identify
unique investments through its highly
proactive and thesis-driven deal sourcing
approach referred to as "top-down/bottom-
up," which develops a thoughtful "top-down"
macro perspective and then works "bottom-
up" to identify or create the best private
company to take advantage of the investment
thesis. This approach has historically
generated a considerable number of
investment ideas, both long and short, for
the public securities portion of the
portfolio. The Fund's private securities
investments may be issued by companies in
the early stage or later stage of their
7
<PAGE>
financing activities.
In the public securities portion of its
portfolio, the Fund will typically invest
in companies that have a market
capitalization between $2 billion and $10
billion for small and mid-cap companies,
and over $10 billion for large-cap
companies, that the Investment Adviser
believes the investment community under-
follows or misunderstands. The Investment
Adviser's approach stresses fundamental
analysis that seeks to identify high
return-on-capital businesses run by strong
management teams at attractive prices and
looks to avoid over-paying for any company.
The Investment Adviser, drawing from its
long history of private equity investing
and track record of public investing, uses
its established network to identify,
conduct due diligence on, and monitor its
public portfolio.
See "Investment Objective and Strategies --
Investment Approach."
THE INVESTMENT MANAGER, INVESTMENT Scudder Weisel Capital LLC ("Scudder
ADVISER AND DISTRIBUTOR Weisel") is the Fund's investment manager.
Scudder Weisel employs Whitney Holdings LLC
as investment adviser (the "Investment
Adviser") to manage the Fund's portfolio on
a day-to-day basis, subject to the
supervision of Scudder Weisel and the
Fund's Board of Trustees. Scudder Weisel
also serves as distributor of the Fund's
shares.
INVESTMENT MANAGEMENT FEES The Fund will pay an asset based management
fee at an annual rate of 2.0% of the Fund's
average daily net assets and a performance
based management fee equal to 20% of the
Fund's net realized capital gains or
losses, net investment income or loss, and
net unrealized appreciation or depreciation
for the year. No incentive fee will be paid
unless the Fund has offset all prior net
realized capital losses, net unrealized
depreciation and net investment loss. The
incentive fee structure presents risks that
are not present in funds without an
incentive fee. The overall fees the Fund
and its shareholders pay will be higher
than those that most other funds pay. The
Investment Adviser is compensated by
Scudder Weisel, and receives no management
fees directly from the Fund. See "Principal
Risk Factors and Investment Techniques -
Incentive Fee" and "Management of the
Fund - Incentive Fee."
BORROWING; USE OF LEVERAGE The Fund is authorized to borrow money to
fund the purchase of portfolio securities
(including additional investments in
private securities), to meet repurchase
requests and for cash management purposes.
The Fund may also borrow money to pay
operating expenses, including management
fees, and to comply with
8
<PAGE>
applicable diversification and distribution
requirements under federal tax law. The use
of borrowing involves a high degree of
risk. The Fund will generally borrow money
for investment to take advantage of
perceived opportunities, such as short-term
price disparities between markets or
related securities, or when the Investment
Adviser believes other attractive
investment opportunities are available.
Additionally, the Fund may borrow money
when sufficient cash or other liquid
resources are not otherwise available, or
where the Investment Adviser believes it
would not be prudent to sell existing
portfolio holdings. If the Fund borrows to
finance repurchases of its shares, interest
on that borrowing will negatively affect
shareholders who do not tender all of their
shares, by increasing the Fund's expenses
and reducing any net investment income.
The Fund is not permitted to borrow for any
purposes if, immediately after such
borrowing, it would have an asset coverage
(as defined in the 1940 Act) of less than
300%. The Fund must also limit its
borrowings to the extent necessary to
permit the Fund to repurchase securities
pursuant to its repurchase policy without
causing the Fund to have an asset coverage
of less than 300%.
The Fund will engage in short selling, but
will cover its short positions as required
under applicable regulatory authority.
See "Principal Risk Factors and Investment
Techniques -Borrowing; Use of Leverage".
USE OF DERIVATIVES The Fund may, but is not required to, use
derivative instruments to hedge portfolio
risks and for portfolio management
purposes. Hedging activity may relate to a
specific security or to the Fund's
portfolio as a whole. The Investment
Adviser may decide not to employ any of
these strategies and there is no assurance
that any derivatives strategy used by the
Fund will succeed, or that the Fund or the
Investment Adviser will be able to use a
particular hedging instrument when the Fund
or the Investment Adviser may desire to use
it. See "Principal Risk Factors and
Investment Techniques - Use of
Derivatives."
THE OFFERING The initial offering will terminate on ___,
2001 unless Scudder Weisel extends the
initial offering. In the initial offering
the Fund intends to raise approximately
$500 million of net proceeds. However,
there can be no assurance that the Fund
will attain this goal. The Fund is
initially offering its shares through
Scudder Weisel and a group of brokers and
dealers that Scudder Weisel
9
<PAGE>
or its delegate has selected ("broker-
dealers"). The minimum initial investment
is $25,000. See "How to Purchase Fund
Shares."
After termination of the initial offering
period, the Fund may commence a continuous
offering of its shares through broker-
dealers and Scudder Weisel at a public
offering price equal to their net asset
value, plus any applicable sales charge.
Any such continuous offering, if commenced,
may be discontinued at any time. See "How
to Purchase Fund Shares."
The Fund will pay Scudder Weisel a
shareholder services fee at an annual rate
of up to 0.50% of the net asset value of
the outstanding shares of the Fund. Scudder
Weisel may enter into related arrangements
with broker-dealers or other service or
administrative firms that provide services
and facilities for their customers or
clients who are investors in the Fund.
INVESTOR QUALIFICATIONS Scudder Weisel will offer shares only to
investors who have a net worth of more than
$1,500,000, who have $750,000 under
management with Scudder Weisel or the
Investment Adviser or who otherwise meet
the requirements for a "qualified client"
as defined in Rule 205-3 under the
Investment Advisers Act of 1940, as amended
("Qualified Clients"). You may hold your
shares only through a broker-dealer that
has entered into a selling group agreement
with Scudder Weisel or its delegate. Before
you may invest in the Fund, your financial
advisor or brokerage representative may
require a certification from you that you
are a Qualified Client and that you will
not transfer your shares except to a person
who is a Qualified Client and who will hold
the shares through a broker-dealer that has
entered into a selling group agreement with
Scudder Weisel or its delegate. (The form
of investor certification that you may be
asked to sign is attached to this
Prospectus as Appendix A.) If you attempt
to transfer your shares to someone who is
not a Qualified Client or to an account
with a broker or dealer that has not
entered into a selling group agreement with
the Fund or its delegate, the transfer will
not be permitted and will be void. The Fund
may also offer shares to certain
knowledgeable employees who participate in
Scudder Weisel's or the Investment
Adviser's investment activities. See "How
to Purchase Fund Shares -- Investor
Qualifications and Transfer Restrictions."
DISTRIBUTION POLICY The Fund will pay dividends on the shares
annually in amounts representing
substantially all of the net investment
income, if any, earned each year. It is
likely that many of the private securities
in which the
10
<PAGE>
Fund invests will not pay any
dividends. The Fund will pay
substantially all of any taxable net
capital gain realized on investments
to shareholders at least annually.
Pursuant to the dividend reinvestment
plan ("Plan"), shareholders are
presumed to have elected to have all
income dividends and capital gains
distributions automatically reinvested
in Fund shares pursuant to the Plan.
Shares will be issued under the Plan
at their net asset value on the ex-
dividend date. There is no sales
charge or other charge for
reinvestment. The Plan may be
terminated by the Fund at any time.
Shareholders who choose not to
participate in the Plan will receive
all income dividends and capital gains
distributions in cash. See
"Distribution Policy."
CLOSED-END STRUCTURE; The Fund has been organized as a
LIMITED LIQUIDITY; SHARES NOT LISTED closed-end management investment
company. Closed-end funds differ from
open-end management investment
companies (commonly known as mutual
funds) in that shareholders of a
closed-end fund do not have the right
to redeem their shares on a daily
basis at a price based on net asset
value. In order to be able to meet
daily redemption requests, mutual
funds are subject to more stringent
liquidity requirements than closed-end
funds. In particular, a mutual fund
generally may not invest more than 15%
of its assets in illiquid securities.
The Investment Adviser believes that
unique investment opportunities exist
in the market for companies in the
Target Sectors, including in private
securities and in private funds.
However, these investments are often
illiquid, and an open-end fund's
ability to make such investments is
limited. For this reason, among
others, the Fund has been organized as
a closed-end fund so that it can
invest more than 15% of its assets in
illiquid securities.
The Fund's shares will not be listed
on any securities exchange and the
Fund does not expect any secondary
market to develop for its shares. As
an investor in the Fund, you will not
be able to redeem your shares on a
daily basis and shares of the Fund
will not be exchangeable for shares of
any other fund. As described directly
below, however, in order to provide a
limited degree of liquidity, the Fund
will make quarterly offers to
repurchase a minimum of 5% of its
outstanding shares at their net asset
value beginning in July 2001. An
investment in the Fund is suitable
only for investors who can bear the
risks associated with the limited
liquidity of the shares and the
underlying investments of the Fund.
The Fund's shares may be transferred
only to another Qualified Client. In
addition, shares may be held only
11
<PAGE>
through a broker-dealer that has entered into a
selling group agreement with Scudder Weisel or
its delegate. The existence of transfer
restrictions will be indicated on customer
confirmations by the broker-dealers through
which shares are held. These broker-dealers
will be required to implement procedures
designed to ensure that transfers between their
customers are made only to Qualified Clients.
If you attempt to transfer your shares to
someone who is not a Qualified Client or to an
account with a broker or dealer that has not
entered into a selling group agreement with
Scudder Weisel or its delegate, the transfer
will not be permitted and will be void. These
transfer restrictions will apply to all
transfers, including gifts or bequests of your
shares. It will be difficult to sell or
transfer your shares in the Fund. You may be
unable to sell or transfer shares in the manner
or at the time you desire, and you should not
expect that you would be able to transfer your
shares at all.
QUARTERLY REPURCHASE OFFERS In order to provide a limited degree of
liquidity to shareholders, beginning in July
2001, the Fund will make quarterly offers to
repurchase a minimum of 5% of its outstanding
shares at their net asset value. The Fund
intends to commence the first repurchase offer
for a minimum of 5% of its outstanding shares
in July 2001 and to complete it in August 2001.
The Fund anticipates that it will not offer to
repurchase more than 5% of its outstanding
shares per quarter for the foreseeable future.
If the number of shares tendered for repurchase
exceeds the number the Fund intends to
repurchase, the Fund will repurchase shares on
a pro rata basis, with limited exceptions, and
the tendering shareholders will not have all of
their tendered shares repurchased by the Fund.
See "Repurchase Offers."
PRINCIPAL RISK FACTORS An investment in the Fund involves a high
degree of risk related to both the underlying
securities in the Fund's portfolio and the
structure of the Fund. These include, but are
not limited to, the following risks.
Risks related to the Fund's portfolio
investments:
. Investing in companies in the Target
Sectors;
. Investing in private securities, including
Special Situation investments, and private
investment funds;
. Concentration in a small number of sectors
and maintaining a "non-diversified"
portfolio;
. Investing in smaller companies;
12
<PAGE>
. Investing in securities of non-U.S.
issuers;
. Investing in companies using borrowed
money, which has the effect of
magnifying gains and losses in the
Fund's portfolio;
. Selling securities short; and
. Investing in securities that are
illiquid and volatile.
Risks related to the Fund's structure:
. Investing in shares of an unlisted,
closed-end fund with limited liquidity;
. The impact on the Fund of a performance
based management fee;
. Transfer restrictions; and
. Limitations on the Fund's ability to
participate in IPOs of companies where
an affiliate of the Fund, Scudder Weisel
or the Investment Adviser is a member of
the underwriting syndicate.
See "Principal Risk Factors and Investment
Techniques."
ENHANCED LIQUIDITY CONSIDERATIONS The Board of Trustees of the Fund is not
required to take any particular action that
would enhance the Fund's liquidity at any
time. The Board anticipates that the Fund,
commencing seven years after the date of
the Fund's first public issuance of shares,
may, subject to any shareholder approval
that may be sought at the time, take steps
to offer enhanced liquidity to
shareholders. These enhanced liquidity
features may include, but are not limited
to, undertaking quarterly repurchase offers
for up to 25% of the Fund's shares or
engaging in periodic tender offers for a
percentage of the Fund's shares. The Board
of Trustees may delay implementation of, or
decline to implement, any enhanced
liquidity features in its discretion, based
on an assessment of market factors at that
time. Investors should not purchase shares
of the Fund in anticipation that any such
enhanced liquidity feature will be
implemented.
13
<PAGE>
SUMMARY OF FUND EXPENSES
The following table is intended to assist the Fund's shareholders in
understanding the various costs and expenses associated with investing in Class
A and Class O shares of the Fund. Because the Fund has not yet completed a full
year of operations, many of these expenses are estimated.
<TABLE>
<CAPTION>
CLASS A CLASS O
------- -------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of public offering price)................................................ 4.75% 3.00%
Maximum Sales Charge on Reinvested Dividends........................................ NONE NONE
Maximum Early Withdrawal Charge..................................................... NONE NONE
Annual Expenses (as a percentage of net assets attributable to shares of
beneficial interest)
Management fees
Asset based management fee....................................................... 2.0% 2.0%
Performance based management fee accrual(1)...................................... ___% ___%
Distribution fees................................................................... NONE NONE
Interest Payments on Borrowed Funds(2).............................................. ___% ___%
Other Expenses(3)................................................................... ___% ___%
Shareholder servicing fees.......................................................... 0.50% 0.50%
Total Annual Expenses (before reimbursement)(4)....................................... ___% ___%
Total Annual Expenses (after reimbursement)(4)........................................ ___% ___%
</TABLE>
________
(1) The performance based management fee accrual will be reduced if
declines in net assets due to investment operations have not
already been recovered. Assumes a 5% annual return. The Fund's
actual performance could be higher or lower. To the extent the
Fund's actual performance is greater than 5%, the performance based
management fee accrual will be higher. See "Management of the
Fund -- Management Fee."
(2) Assumes borrowing outstanding for __ months of the current fiscal
year, an annual interest rate of __%, a borrowing level of __% of
total assets and a $_______ total asset level.
(3) "Other Expenses" are based on estimated amounts for the current
fiscal year, including the organizational and initial offering
expenses borne by the Fund.
(4) Scudder Weisel has contractually undertaken to reimburse a portion
of the Fund's expenses or to waive a portion of its management fee
to the extent that the Fund's total expenses (before payment of the
performance based management fee, offering costs, interest expense
on any borrowings and any extraordinary
14
<PAGE>
expenses) would otherwise exceed 2.85% of its average daily net
assets with respect to the Fund's Class A and Class O shares during
the first fiscal year of the Fund's operations. This contractual
undertaking expires on December 31, 2001.
This following hypothetical example assumes that all dividends and other
distributions are reinvested at net asset value and that the percentage amounts
listed under Annual Expenses remain the same in the years shown. The tables and
the assumption in the hypothetical example of a 5% annual return are required by
regulation of the SEC applicable to all investment companies; the assumed 5%
annual return is not a prediction of, and does not represent, the projected or
actual performance of the Fund's shares. For more complete descriptions of
certain of the Fund's costs and expenses, see "Management of the Fund."
The following example should not be considered a representation of past or
future expenses, and actual expenses may be greater or less than those shown.
Example
<TABLE>
<CAPTION>
(1) Class A Shares 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Based on the estimated level of total
operating expenses listed above, you
would pay the following expenses on a
$1,000 investment, assuming a 5%
annual return and repurchase at the
end of each time period of your entire $ - $ - $ - $ -
investment /1/............................................
</TABLE>
<TABLE>
<CAPTION>
(2) Class O Shares 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Based on the estimated level of total
operating expenses listed above, you
would pay the following expenses on a
$1,000 investment, assuming a 5%
annual return and repurchase at the
end of each time period of your entire $ - $ - $ - $ -
investment /1/............................................
</TABLE>
/1/ There can be no assurance that you will be able to submit all of your
shares for repurchase in any particular time period. See "Repurchase
Offers."
The examples include an accrual for the performance based management fee.
The dollar amounts in the examples could be significantly higher if the Fund's
actual rate of return exceeds 5%.
15
<PAGE>
PRINCIPAL RISK FACTORS AND INVESTMENT TECHNIQUES
GENERAL
-------
The values of equity and debt securities fluctuate. Apart from the specific
risks identified below, the broad investment environment in the U.S. and
international securities markets may negatively affect the Fund's investments.
The investment environment may be influenced by, among other things, interest
rates, inflation, politics, fiscal policy, current events, competition,
productivity, and technological and regulatory change. Therefore, as with any
fund that invests in equity and debt securities, the Fund's net asset value will
fluctuate. You may experience a significant decline in the value of your
investment and could lose money. You should consider the Fund a speculative
investment, and you should invest in the Fund only if you can sustain a complete
loss of your investment.
The Fund may invest in leveraged transactions or in companies that have a
significant amount of indebtedness. In addition, certain of the Fund's portfolio
companies may incur indebtedness in connection with various corporate
transactions, such as acquisitions, self-tender offers, recapitalizations and
others, that may be undertaken contemporaneously with or subsequent to the
Fund's investment in such company. A highly leveraged company is generally more
sensitive to downturns in its business and to changes in prevailing economic
conditions than is a company with a lower level of debt. The ability of
portfolio companies to refinance debt securities may depend on their ability to
sell new securities in the public high yield debt market or otherwise.
In addition, the securities in which the Fund will invest may be among the
most junior in a company's capital structure, and thus subject to the greatest
risk of loss.
NEWLY ORGANIZED FUND AND INVESTMENT MANAGER
-------------------------------------------
The Fund is a newly organized investment company with no previous operating
history, and the Fund may not succeed in meeting its objective. The Fund's net
asset value may decrease. In addition, Scudder Weisel is a recently organized
registered investment adviser. The Investment Adviser, however, has over fifty
years of experience investing in private equity securities, and significant
experience in public equity and Special Situation investing. See "Management of
the Fund."
CLOSED-END FUND; LIMITED LIQUIDITY; SHARES NOT LISTED
-----------------------------------------------------
The Fund is a closed-end management investment company designed primarily
for long-term investors and is not intended to be a trading vehicle. You should
not invest in this Fund if you need a liquid investment. Closed-end funds differ
from open-end management investment companies (commonly known as mutual funds)
in that shareholders of a closed-end fund do not have the right to redeem their
shares on a daily basis at a price based on net asset value. In order to be able
to meet daily redemption requests, mutual funds are subject to more stringent
liquidity requirements than closed-end funds. In particular, a mutual fund
generally may not invest more than 15% of its assets in illiquid securities. The
Investment Adviser believes that unique investment opportunities exist in the
market for private securities, particularly in the Target Sectors, and in
private funds that invest in such securities. However, these investments are
often illiquid, and an open-end fund's ability to make such investments is
limited. For this reason, among others, the Fund has been organized as a closed-
end fund so that it can invest more than 15% of its assets in illiquid
securities.
The Fund does not intend to list its shares for trading on any national
securities exchange. There is no secondary trading market for Fund shares, and
none is expected to develop. The Fund's shares are, therefore, not readily
marketable. Because the Fund is a closed-end investment company, its shares will
not be redeemable on a daily basis and they will not be exchangeable for shares
of any other fund. Although, as a matter of fundamental policy, the Fund will,
beginning in July 2001, make quarterly repurchase offers for a minimum of 5% of
its outstanding shares at their net asset value, the Fund's shares are less
liquid than shares of funds that trade on a stock
16
<PAGE>
exchange, or shares of open-end investment companies. An investment in the Fund
is suitable only for investors who can bear the risks associated with the
limited liquidity of the shares and the underlying investments of the Fund.
Also, because the Fund's shares will not be listed on any securities exchange,
the Fund is not required, and does not intend, to hold annual meetings of its
shareholders.
REPURCHASE OFFERS
-----------------
In order to provide a limited degree of liquidity to shareholders,
beginning in July 2001, the Fund will make quarterly offers to repurchase a
minimum of 5% of its outstanding shares at their net asset value. The Fund
intends to commence the first repurchase offer for a minimum of 5% of its
outstanding shares in July 2001 and to complete it in August 2001. The Fund
anticipates that it will not offer to repurchase more than 5% of its outstanding
shares per quarter for the foreseeable future. There is no guarantee that you as
a shareholder will be able to sell all of the Fund shares that you desire to
sell at that time. If the Fund's shareholders oversubscribe any quarterly
repurchase offer, the Fund will repurchase only a pro rata portion of the shares
that each shareholder tenders, with limited exceptions. The potential for pro-
ration may cause some shareholders to tender more shares for quarterly
repurchase than they wish to have repurchased. Moreover, the Fund's quarterly
repurchase policy may have the effect of decreasing the size of the Fund. This
may force the Fund to sell assets it would not otherwise sell. It may also
reduce the investment opportunities available to the Fund and cause its expense
ratio to increase. In addition, the Fund's repurchase of shares may require the
Fund to liquidate portfolio securities, which could result in the realization of
taxable gains, and would increase the Fund's portfolio turnover rate, which may
result in an increase in the Fund's expense ratio. The Fund may borrow money to
meet repurchase requests, which would increase the Fund's operating expenses.
See "Repurchase Offers."
TRANSFER RESTRICTIONS
---------------------
The Fund's shares will be subject to transfer restrictions that permit
transfers only to persons who satisfy certain net worth requirements and who
otherwise meet the standard for a Qualified Client. Shares may be held only
through a broker-dealer that is a party to selling group agreement with Scudder
Weisel or its delegate. The existence of transfer restrictions will be indicated
on customer confirmations by the entities through which shares are held. These
broker-dealers will be required to implement procedures designed to ensure that
all subsequent purchasers of the shares that are clients of the broker-dealers
are Qualified Clients. Your ability to sell your shares will be limited even if
a secondary trading market for the shares develops. If you attempt to transfer
your shares to someone who is not a Qualified Client or to an account with a
broker or dealer that has not entered into a selling group agreement with the
Fund or its delegate, the transfer will not be permitted and will be void.
Broker-dealers or the Fund may require substantial documentation in connection
with a requested transfer of shares, and you should not expect that you would be
able to transfer shares at all. Attempted transfers may require a substantial
amount of time and expense to effect.
INVESTMENT IN THE TARGET SECTORS
--------------------------------
The Fund plans to invest up to 80% of its assets in public and private
securities of U.S. and non-U.S. companies that participate in the information
technology, communications, healthcare, financial services, or transforming
industries sectors (collectively, the "Target Sectors"). While the Fund may
focus more of its investment activities in the information technology sector,
attractive investments in all Target Sectors will be pursued. In addition to the
general risks of equity investments, these sectors have specific risks.
Information Technology Sector
The value of the Fund's shares will be susceptible to factors affecting the
information technology sector and to greater risk and market fluctuation than an
investment in a fund that invests in a broader range of portfolio
17
<PAGE>
securities, especially due to the focused attention on this sector more so than
the other Target Sectors. The specific risks these companies face may include
rapidly changing technologies and products that may quickly become obsolete,
exposure to a high degree of government regulation, making these companies
susceptible to changes in government policy and failures to secure regulatory
approvals, cyclical patterns in information technology spending that may result
in inventory write-offs, scarcity of management, engineering and marketing
personnel with appropriate technological training, the possibility of lawsuits
related to technological and intellectual property patents, changing investor
sentiments and preferences with regard to information technology sector
investments (which are generally perceived as risky), potential for poor
financial results (e.g., suppressed earnings) due to participation in highly
competitive businesses that low barriers to the entry of additional competitors
can exacerbate, and the risk that the company will run out of money and not
bring a product to market without additional investment.
Telecommunications Sector
The value of securities of telecommunications companies is particularly
vulnerable to rapidly changing technology, relatively high risks of obsolescence
caused by technological advances, and intense competition. For these and other
reasons, securities of telecommunications companies may be more volatile than
the overall market. The telecommunications sector is subject to certain pro-
competitive governmental policies and government regulation of rates charged and
services that may be offered, and changes in these regulations may adversely
affect the value of the telecommunications company securities the Fund holds.
Risks particular to the media sector involve a greater price volatility for
the overall market, rapid obsolescence of products and services resulting from
changing consumer tastes, intense competition and strong market reactions to
technological developments throughout the sector.
The Federal Communications Commission ("FCC") imposes various types of
ownership restrictions on investments both in mass media companies, such as
broadcasters and cable operators, as well as in common carrier companies, such
as the providers of local telephone service and cellular radio. For example, the
FCC's broadcast multiple ownership rules, which apply to the radio and
television industries, provide that investment managers are deemed to have an
"attributable" interest whenever the manager has the right to determine how more
than five percent of the issued and outstanding voting stock of a broadcast
company may be voted. These same broadcast rules prohibit the holding of an
attributable interest in AM and FM radio broadcast stations and television
stations nationally. Similar types of restrictions apply in the mass media and
common carrier industries.
Healthcare Sector
Investments in companies in the medical technology sector may be more
volatile than the market in general, based on, among other things, greater risk
of obsolescence due to rapid technological progress, increased commercial
targeting of consumers in the marketing of new medical products and techniques,
and potentially rapid development of government regulation of medical devices
and technologies. Such volatility may adversely affect the value of your
investment in the Fund.
Financial Services Sector
Companies involved in the financial services sector are generally subject
to the adverse effects of economic recession, volatile interest rates, portfolio
concentrations in geographic markets, commercial and residential real estate
loans and competition. In addition, such companies are subject to extensive
regulation and tax law changes, and face the risk of loss from their proprietary
trading and investment activities. Insurance companies are also subject to the
imposition of premium rate caps, pressure to compete globally, weather
catastrophes and other disasters that require payouts, and mortality rates.
18
<PAGE>
Transforming Industries
The Investment Advisor considers "transforming industry" companies to be
traditional or "old-line" companies that have an established operating history
but nonetheless are experiencing growth and generating positive cash flows. Many
of these companies have undergone recapitalizations and have significant debt
burdens.
SMALLER COMPANY SECURITIES
--------------------------
The Fund may invest in the securities of small or medium-sized companies
these companies may be more susceptible to market downturns, and their prices
may be more volatile than those of larger companies. Small companies often have
narrower markets and more limited managerial and financial resources than
larger, more established companies. In addition, publicly traded small company
stocks typically are traded in lower volume, and their issuers are subject to
greater degrees of changes in their earnings and prospects. In current market
conditions, the Fund considers small and medium-sized companies to be those with
market capitalizations, at the time of purchase by the Fund, of as little as $2
billion and as much as $10 billion. The Fund's definition of small and medium-
sized companies may change in light of market developments.
INVESTMENTS IN PRIVATELY PLACED SECURITIES AND VENTURE CAPITAL COMPANIES
------------------------------------------------------------------------
Up to 60% of the Fund's assets may be invested in privately placed
securities issued by companies in the Target Sectors, which will consist
substantially of private equity securities, but may also include Special
Situation investments (collectively, "private securities"). The Fund may pursue
this investment strategy directly or indirectly through investments in private
investment companies.
These private security investments may include securities of companies that
are deemed to be in the later stage of their financing activities and may also
include early stage investment opportunities. Investors should recognize that
(i) there will be no public market for the private securities at the time of the
Fund's investment, and (ii) there can be no assurance that any planned initial
public offering ("IPO") or other exit strategy with respect to such investment
will ever be completed. In evaluating both public and private companies, the
Investment Adviser conducts fundamental due diligence focusing on management
strength, sector attractiveness, competitive dynamics, strategic positioning and
potential operational gains at the company.
Private securities of companies in the Target Sectors present all of the
risks of investments in small companies and in the Target Sectors described
above, plus certain additional risks. Certain of the private securities may be
issued by privately owned companies that plan to conduct an IPO (a "venture
capital company"), and are highly speculative investments. The Fund's ability to
realize value from an investment in a venture capital company is to a large
degree dependent upon the successful completion of the company's IPO or the sale
of the venture capital company to another company, which may not occur for a
period of several years after the date of the Fund's investment, if ever. There
can be no assurance that any of the venture capital companies in which the Fund
invests will complete public offerings or be sold, or, if such events occur, as
to the timing and values of, or the ability of the Fund to benefit from, such
offerings or sales. The Fund may lose all or part of its entire investment if
these companies fail or their product lines fail to achieve an adequate level of
market recognition or acceptance. Conversely, there can be no assurance that the
Fund will be able to identify a sufficient number of desirable private security
or venture capital investments. This could cause the Fund to invest
substantially less than 60% of its assets, and possibly none of its assets, in
private securities investments. The Fund's venture capital investments
may include securities of private investment funds that invest primarily in
venture capital companies. These investments may involve relatively high fees
(the Fund will be indirectly paying fees to the manager of such investment funds
and to Scudder Weisel on the same assets) and a high degree of risk.
All venture capital investments involve substantial risks. A portion of the
Fund's venture capital investments may be in companies that have not yet
developed infrastructure or commenced earning revenues. These types of companies
are in the early stage of development. The risks associated with investments in
companies in the early stages of development are greater than those of companies
in the late (sometimes called "pre-IPO")
19
<PAGE>
stage, because the concepts generally are unproven, the companies have little or
no track record, and the prospect of an IPO is highly contingent on factors that
often are not in the companies' control. The Investment Adviser also may lack
information on which to base its evaluation of an investment in a venture
capital company. For example, since venture capital companies do not file
periodic reports with the SEC, there is less publicly available information
about them than there is for other small companies, if there is any at all. The
Fund must therefore often rely on information received directly from the venture
capital company or persons associated with it to evaluate potential investment
returns. Early stage companies are not expected by the Investment Adviser to
conduct an IPO within 36 months of the Fund's initial investment. The earliest
investment in early-stage companies typically involves a relatively small amount
of capital that finances a concept, so that start-up capital can be obtained.
Early stage financing may also refer to capital extended to companies completing
product development and initial marketing. Typically, a company at the early
financing stage has not yet sold its product commercially. Companies that have
expended or anticipate expending their initial capital (often in developing and
market-testing a prototype) and that require funds to initiate full-scale
manufacturing and sales seek "expansion financing." Expansion capital may also
provide working capital for the initial expansion of a company that is
manufacturing and shipping its product, but that does not yet show a profit. The
Fund generally will participate in early stage and/or expansion financing for a
company only if the company has an established management team with a proven
track record of building a business and, in the judgment of the Investment
Adviser, an innovative idea with a sustainable competitive advantage. Late stage
companies will typically have small market capitalizations and limited or no
liquidity; even after an IPO, liquidity may be limited and the Fund may be
subject to contractual limitations on its ability to sell shares. Late stage
companies are expected by the Investment Adviser to conduct an IPO within 12 to
24 months of the Fund's initial investment, although there can be no assurance
what a late-stage company will ever conduct an IPO.
The Investment Adviser's other clients, including private funds, may
compete with the Fund for investments in early-stage companies, and therefore
the Fund may not be able to invest in these companies to the extent it desires.
In addition, the Fund may have to forego attractive investment opportunities in
companies in which certain of the Investment Adviser's other clients have
existing investments when such investment would be inconsistent with applicable
law.
For additional information about the risks of investing in venture capital
companies, see "Additional Information on Investment Techniques - Venture
Capital Companies" in the SAI.
INVESTMENTS IN PRIVATE INVESTMENT FUNDS
---------------------------------------
Private investment funds may involve all the risks of investing in private
securities and venture capital companies described above, plus certain
additional risks. In particular, the Fund must rely upon the judgment of the
general partner or other manager of a private investment fund in selecting the
companies in which the fund invests and in deciding when to sell its
investments. Typically, private investment funds request capital contributions
from their investors over time. The timing and amounts of capital calls on
investors can be unpredictable and the Fund may have to sell portfolio
securities or borrow money to meet capital calls. A private investment fund may
employ leverage, which can magnify any losses incurred by its investors,
including the Fund. Borrowing to meet capital calls will increase the Fund's
leverage and expenses, which may reduce returns.
When the Fund invests in a private investment fund, the Fund will pay its
share of the private investment fund's fees and expenses. In particular, a
private investment fund may also be required to pay management fees and/or
performance fees to its general partner or manager, which can reduce the return
to investors, including the Fund. These fees and expenses are in addition to the
fees and expenses paid directly by the Fund in connection with its operations. A
private investment fund may also pay certain costs of evaluating and negotiating
each of its investment, including fees of outside legal counsel, which may
reduce the Fund's return. The shareholders of the Fund indirectly will bear
these fees.
Investments in private investment funds generally are highly illiquid. The
Fund may not be able to dispose of a holding when it wishes to, or may be able
to do so only at a disadvantageous price.
20
<PAGE>
Because the Fund may invest in securities issues by other investment
companies, the Fund (and indirectly, its shareholders) will bear its
proportionate share of investment management and other fees and expenses
incurred at the underlying investment company level.
The Fund may invest in private investment funds that employ Scudder Weisel
or the Investment Adviser, or their affiliates, as investment advisor or in
which such an entity has some economic interest. Any such investment will be
made in accordance with applicable regulations or exemptive relief thereunder.
SPECIAL SITUATION INVESTMENTS
-----------------------------
The Investment Adviser intends to invest, on behalf of the Fund, in Special
Situation investments. Special Situation investments are included in the portion
of the Fund's portfolio invested in private securities. Special Situation
investments primarily include mezzanine debt securities, PIK preferred
securities, investments in collateralized debt obligations ("CDOs"), and
distressed securities. The risks associated with these Special Situations
investments include the risks of illiquidity since these investments are
generally not traded on any established or efficient markets, market volatility
related to uncertainties in the global financial markets, and the use of
leverage (used by CDOs) to seek enhanced returns. In addition, debt securities
are subject to the risk of an issuer's inability to meet principal and interest
payments ("credit risk") and price volatility due to interest rate sensitivity,
market perception of the issuer's creditworthiness and market liquidity.
Mezzanine debt investments are typically privately negotiated subordinated
debt securities issued by private companies with enterprise values ranging from
$50 million to $500 million. Mezzanine debt investments typically have two
components: a cash coupon in excess of 10% and an "equity kicker" structured to
provide total returns in excess of 18%. Typically, issuers of mezzanine debt
securities use the proceeds to finance internal growth, to effect
recapitalizations, or to make acquisitions. Because these investments are
unrated or non-investment grade rated, mezzanine debt has greater credit and
liquidity risk than more highly rated debt. Further, adverse changes in the
financial condition of the obligor, general economic conditions, or relatively
high debt-to-equity ratios of an obligor may impair the ability of the obligor
to make payments of principal and interest.
PIK preferred investments are typically privately negotiated preferred
equity securities that are subordinated to any debt in a company's capital
structure, but senior to more traditional "common" equity. Typically, PIK
preferred securities are paid a coupon in additional securities rather than cash
and issued with either "equity kickers" or convertible into common stock at the
holders' election. Similar to mezzanine debt investments, PIK preferred
securities are typically used to finance internal growth, assist in effecting
recapitilizations, or to make acquisitions, and are subject to the same general
risks as mezzanine investments.
The Fund may make investments in CDOs. CDOs are innovative investment
vehicles consisting of portfolios of fixed income securities and/or bank loans
(in both cases, typically non-investment grade). A CDO finances its portfolio
of fixed income securities and bank loans through the issuance of debt and
equity securities. The spread between the yield on the assets that the CDO owns
and the cost of the CDO's debt is generally available for the benefit of the
equity investors. The Investment Adviser expects that the Fund will typically
invest in the equity of a CDO that is the riskiest capital issued by a CDO.
Distressed securities include public and private debt and equity securities
and other obligations (trade debt) of companies that are either in or near
default. The Investment Adviser has extensive experience in assessing an
issuer's credit profile and negotiating complex transactions. However,
investments in distressed securities involve substantial risk including that the
investment may not show any return for a considerable period of time, or at all,
and in certain reorganization or liquidation proceedings, the Fund may lose its
entire investment or may be required to accept cash and securities with a value
less than the original investment.
21
<PAGE>
The Fund may invest in any of these Special Situations investments directly
or indirectly by investing in funds that, in turn, make such direct investments.
Any other fund in which the Fund may invest also impose management and incentive
fees on their investors. If the Fund were to invest in another fund, affiliated
or otherwise, the Fund's shareholders would bear two layers of such fees and,
therefore, the return to the Fund's investors will be impacted. In addition, the
general partner, manager or adviser of such other fund may receive the economic
benefit of certain fees from its portfolio companies for services provided,
including from unconsummated transactions (e.g., topping, break-up, placement,
monitoring, organizational and set-up fees) and advisory services.
For additional information about Special Situation investments, see
"Additional Information About Investment Techniques " in the SAI.
NON-CASH LIQUID INVESTMENTS
---------------------------
The Investment Adviser intends to invest up to 15% of its assets in non-
cash liquid investments in order to manage the Fund's ongoing liquidity
requirements. The Fund may invest in non-cash liquid investments primarily
consisting of high yield bonds and institutional bank loans.
High yield bonds are typically characterized as debt securities rated
below investment grade that historically trade in excess of 350 basis points
(3.5%) over U.S. Treasury securities with comparable maturities. High yield
securities (sometime referred to as "junk bonds") are generally subordinated to
the senior debt in a company's capital structure. The returns of high yield
securities are also subject to: (i) adverse changes in general economic
conditions; (ii) changes in the financial condition of their issuers;
(iii) changes in interest rates; and (iv) changes in market liquidity. During
periods of economic downturn or rising interest rates, issuers of securities
rated below investment grade or comparable unrated securities may experience
financial stress that could adversely affect their ability to make payments of
principal and interest and increase the possibility of default. High yield
securities have historically experienced greater default rates than investment
grade securities. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may also decrease the value and liquidity of high
yield securities. In addition, the Fund may incur additional expenses to the
extent recovery is sought on defaulted securities. Because of the many risks
involved in investing in high yield securities, the success of such investments
is dependent on the credit analysis of the Investment Adviser.
High yield securities are those rated below the fourth highest category by
all nationally recognized statistical ratings agencies that have rated them, or
unrated securities deemed to be of comparable quality by the Investment Adviser.
Securities rated below investment grade may be considered speculative.
Securities rated B are judged to be predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal in accordance with
their terms and obligations. For a description of debt ratings, see Appendix A
in the SAI.
During periods of economic downturn or rising interest rates, highly
leveraged issuers may experience financial stress which could adversely affect
their ability to make payments of interest and principal and increase the
possibility of default. In addition, such issuers may not have more traditional
methods of financing available to them and may be unable to repay debt at
maturity by refinancing. The risk of loss due to default by such issuers is
significantly greater because such securities frequently are unsecured and
subordinated to the prior payment of senior indebtedness.
The market for lower rated debt securities has expanded rapidly in recent
years, and its growth generally paralleled a long economic expansion. In the
past, the prices of many lower rated debt securities declined substantially,
reflecting an expectation that many issuers of such securities might experience
financial difficulties. As a result, the yields on lower rated debt securities
rose dramatically. However, such higher yields did not reflect the value of the
income stream that holders of such securities expected, but rather the risk that
holders of such securities could lose a substantial portion of their value as a
result of the issuers' financial restructuring or defaults. There can be no
assurance that such declines will not recur.
22
<PAGE>
The market for lower rated debt issues generally is thinner or less active
than that for higher quality securities, which may limit the Fund's ability to
sell such securities at fair value in response to changes in the economy or
financial markets. Judgment may play a greater role in pricing such securities
than it does for more liquid securities. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may also decrease the
values and liquidity of lower rated debt securities, especially in a thinly
traded market.
Institutional bank loans are typically characterized by below investment
grade issuers whose secured loans cost 200 basis points (2%) or more in excess
of the London Inter-bank Offer Rate ("LIBOR"). These bank loans are typically
the senior-most debt in a company's capital structure and are secured with some
or all of the assets of an issuer. Bank loans and participations, like other
debt obligations, are subject to the risk that borrowers may default on
obligations to pay principal or interest when due, that lenders may have
difficulty liquidating the collateral, if any, securing the loans or
participations or enforcing their rights under the terms of the loans or
participations. See "Additional Information on Investment Techniques" in the SAI
for more information on bank loans and participations.
TARGET SECTOR FOCUS; NON-DIVERSIFIED STATUS
-------------------------------------------
The Fund will invest primarily in companies within or related to the Target
Sectors. Where a portfolio is concentrated in securities of a small number of
companies or in securities of companies in a limited number of sectors, the risk
of any investment decision is increased. The assets of the Fund will consist
primarily of companies considered by the Investment Adviser to participate
in the Target Sectors. Further, it is anticipated that the Investment Adviser
will focus more of the Fund's investment activities in the information
technology sector rather than any of the other four Target Sectors, although the
Investment Adviser has discretion to focus on other Target Sectors if it
believes market conditions so warrant. As a consequence, the Fund may be
exposed to greater risk of sector volatility where the Fund's investments are
concentrated in any one sector such as information technology. The Investment
Adviser will seek to reduce the company-specific risk, as opposed to sector-
specific risk, of the Fund's portfolio by investing in more than one company in
a particular sector, but this may not always be practicable.
The Fund is classified as a "non-diversified" management investment company
under the 1940 Act. This means that the Fund may invest a greater portion of its
assets in a limited number of issuers than would be the case if the Fund were
classified as a "diversified" management investment company.
Accordingly, the Fund may be subject to greater risk with respect to its
portfolio securities than a "diversified" fund because changes in the financial
condition or market assessment of a single issuer may cause greater fluctuation
in the net asset value of the Fund's shares. The Fund is "diversified," however,
for purposes of obtaining tax treatment as a regulated investment company under
the Internal Revenue Code of 1986, as amended.
INCENTIVE FEE
-------------
The Fund's management fee has two components - an asset based fee and a
performance based (or "incentive") fee. The Fund will pay Scudder Weisel an
asset based fee at an annual rate of 2.0% of the Fund's average daily net assets
and a performance based incentive fee equal to 20% of the Fund's net realized
capital gains or losses, net investment income or loss, and net unrealized
appreciation or depreciation for the year. No incentive fee will be paid unless
the Fund has offset all prior net realized capital losses, net unrealized
depreciation and net investment loss. Scudder Weisel will pay a portion of any
incentive fee payment to the Investment Adviser. The right to the incentive fee
may give Scudder Weisel or the Investment Adviser reason to select investments
for the Fund that are riskier or more speculative than it would select if it
were paid only the asset based management fee. In addition, since the
performance fee is calculated on a basis that includes unrealized appreciation
of the Fund's assets, it may be greater than if such fee was based solely on
realized gains.
The amount of the incentive fee accrual will be based in part on the
valuation of the Fund's private securities. Until a venture capital company or
other issuer of private securities completes an IPO or is acquired by a public
company, the Investment Adviser must estimate the value of an investment in that
company by using fair value procedures approved by the Fund's Board of Trustees
(see "Calculation of Net
23
<PAGE>
Asset Value"). The incentive fee structure could give the Investment Adviser an
incentive to select a higher fair value for the Fund's private securities
investments than it otherwise would. In addition, the Investment Adviser may
invest in securities issued by a venture capital company or other issuer of
private securities for other clients in addition to the Fund. The value ascribed
to these securities for such other clients may differ from the value at which
the securities are carried by the Fund by virtue of the procedures approved by
the Fund's Board of Trustees. To the extent possible, any differences in value
will be minimized. However, any differences in value that exist will have an
impact on the calculation of the incentive fee charged to the Fund and such
other clients.
For an explanation of the incentive fee calculation, see the section in
this Prospectus entitled "Investment Management and Other Services" and the
Fund's SAI.
RESTRICTED AND ILLIQUID SECURITIES
----------------------------------
The Fund may invest in restricted securities and other investments that are
illiquid. Restricted securities are securities that may not be resold to the
public without an effective registration statement under the Securities Act of
1933, as amended ("1933 Act") or, if they are unregistered, may be sold only in
a privately negotiated transaction or pursuant to an exemption from
registration. Some of the Fund's portfolio securities, even if they are
publicly traded, may be thinly traded and relatively illiquid. Private
securities and securities issued by venture capital companies are illiquid.
Restricted and other illiquid investments involve the risk that the
securities will not be able to be sold at the time desired by the Fund or at
prices approximating the value at which the Fund is carrying the securities on
its books, particularly where the value of the restricted or otherwise illiquid
investment is volatile. Difficulty in selling illiquid investments could impair
the Fund's ability to meet repurchase requests or to pay its fees and expenses.
Private equity investments may typically take several years from the date
of initial investment to reach a state of maturity when the investment can be
realized. These investments typically will not be liquid prior to that time.
In light of the foregoing, it is likely that the Fund will not realize returns
on its private securities investments until at least three and possibly up to
ten years from the date of the Fund's investment. At the end of the Fund's life,
a larger percentage of its assets may be private equity investments, and the
Fund's Board of Trustees may take action to cease repurchase offers to the
extent permitted under applicable regulations. The Board also may cause the Fund
to become a "liquidating trust" and sell its remaining illiquid assets. See
"General Information -- Liquidating Trust."
SHORT SALES
-----------
The Fund may make short sales of securities. The Fund may establish
aggregate short positions equal to up to 25% of its net assets. A short sale
is a transaction in which the Fund sells a security it does not own in
anticipation that the market price of that security will decline. When the Fund
makes a short sale, it must borrow the security sold short and deliver it to the
broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
also sell securities that it owns or has the right to acquire at no additional
cost but does not intend to deliver to the buyer, a practice known as selling
short "against-the-box." The Fund may have to pay a fee to borrow particular
securities and typically does not have rights to payments received on such
borrowed securities. The Fund's obligation to replace the borrowed security may
be secured by collateral deposited with the broker-dealers, usually cash, U.S.
Government securities or other highly liquid securities similar to those
borrowed. The Fund will be required to deposit similar collateral with its
custodian to the extent necessary so that the value of both collateral deposits
in the aggregate is at all times equal to at least 100% of the current market
value of the security sold short, or will otherwise cover the short position as
required under applicable regulatory authority. Depending on arrangements made
with the broker-dealer from which it borrowed the security, the Fund may not
receive any payments (including interest) on its collateral deposited with such
broker-dealer. The Fund will incur transaction costs, including interest
expenses, in connection with opening, maintaining, and closing short sales.
24
<PAGE>
If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a capital
gain. Any gain is limited to the price at which it sold the security short; its
potential loss is theoretically unlimited.
INVESTMENTS IN FOREIGN SECURITIES AND DEPOSITARY RECEIPTS
---------------------------------------------------------
The Fund plans to invest in the securities of foreign companies in the
Target Sectors. The Fund may invest directly in foreign securities or it may
invest through depositary receipts, which are certificates issued by a bank or
other financial institution that evidence the right to receive the underlying
foreign security. Investments in non-U.S. securities involve certain risks in
addition to those of securities generally. The Fund may not invest more than
33% of its total assets in non-U.S. securities but this limit does not apply to
investments in depositary receipts traded in the United States or to commercial
paper and certificates of deposit issued by foreign banks. Investments in
foreign securities face specific risks, which may include:
. unfavorable changes in currency rates and exchange control
regulations;
. restrictions on, and costs associated with, the exchange of currencies
and the repatriation of capital invested abroad;
. reduced availability of information regarding foreign companies;
. foreign companies may be subject to different accounting, auditing and
financial standards and to less stringent reporting standards and
requirements;
. reduced liquidity as a result of inadequate trading volume and
government-imposed trading restrictions;
. the difficulty in obtaining or enforcing a judgment abroad;
. increased market risk due to regional economic and political
instability;
. increased brokerage commissions and custody fees;
. securities markets that are subject to a lesser degree of supervision
and regulation by competent authorities;
. foreign withholding taxes;
. the threat of nationalization and expropriation; and
. an increased potential for corrupt business practices in certain
foreign countries
BORROWING; USE OF LEVERAGE
--------------------------
The Fund is authorized to borrow money to fund the purchase of portfolio
securities (including additional investments in equity and debt securities,
private securities, Special Situation investments or other structured product),
to meet repurchase requests and for portfolio management purposes. The Fund may
also borrow money to pay operating expenses, including management fees, and to
comply with applicable diversification and distribution requirements under
federal tax law. The Fund generally intends to borrow money for financial
leverage purposes only in limited circumstances to take advantage of perceived
opportunities such as short-term price disparities between markets or related
securities, or when the Investment Adviser believes other attractive investment
opportunities are available, and sufficient cash or other liquid resources are
not otherwise available, or where the Investment Adviser believes it would not
be prudent to sell existing portfolio holdings. If the Fund borrows to finance
repurchases of its shares, interest on that borrowing will negatively affect
shareholders who do not tender all of their shares, by increasing the Fund's
expenses and reducing any net investment income.
25
<PAGE>
The Fund will not borrow money until the proceeds of the offering are
substantially invested in furtherance of the Fund's investment objective. The
Fund is not permitted to borrow for any purposes if, immediately after such
borrowing, it would have an asset coverage (as defined in the 1940 Act) of less
than 300%. The 1940 Act also provides that the Fund may not declare dividends
or distributions, or purchase its stock (including in repurchase offers) if,
immediately after doing so, it will have an asset coverage of less than 300%.
For this purpose, an asset coverage of 300% means that the Fund's total assets
equal 300% of the total outstanding principal balance of indebtedness. The Fund
must also limit its borrowings and leverage practices to the extent necessary to
permit the Fund to repurchase securities pursuant to its repurchase policy
without causing the Fund to have an asset coverage of less than 300%. The Fund
will engage in short selling, but typically (although not in all cases) will
cover its short positions to avoid creating leverage. Lenders may require the
Fund to agree to more restrictive asset coverage requirements as a condition to
providing credit to the Fund, and may also limit the extent to which the Fund
may hold illiquid securities, reducing the Fund's investment flexibility. If
the Fund is unable to make distributions as a result of these requirements, it
may no longer qualify as a regulated investment company and could be required to
pay additional taxes. The Fund may also be forced to sell investments on
unfavorable terms if market fluctuations or other factors reduce the asset level
below what is required by the 1940 Act or the Fund's loan agreements. In
certain cases this may be impossible.
The Fund's willingness to borrow money, and the amount it will borrow, will
depend on many factors, the most important of which are the investment outlook,
market conditions and interest rates. Successful use of borrowing will depend
on the ability of the Investment Adviser to analyze interest rates and market
movements, and there is no assurance that a borrowing strategy will be
successful during any period in which it is employed.
The use of borrowings for financial leverage involves a high degree of
risk. The Board of Trustees may modify the Fund's borrowing policies, including
the percentage limitations, the purposes of borrowings and the length of time
that the Fund may hold portfolio securities purchased with borrowed money.
Management of the Fund has no current intention of requesting any such
modifications. See "Additional Investment Policies -- Fundamental Policies" in
the SAI.
To the extent that the Fund uses leverage and borrows money, the value of
its net assets will tend to increase or decrease at a greater rate than if no
leverage were employed. If the Fund's investments decline in value, your loss
will be magnified if the Fund has borrowed money to make its investments.
If the Fund does not generate sufficient cash flow from operations, it may
not be able to repay borrowings within one year of incurring them, or it may be
forced to sell investments at disadvantageous times in order to repay
borrowings. The Fund's performance may be adversely affected if it is not able
to repay borrowings (because of the continued interest expense) or if it is
forced to sell investments at disadvantageous times in order to repay
borrowings. If the Fund is forced to sell investments to repay borrowings
(including borrowing incurred to finance the repurchase of shares) the Fund's
portfolio turnover rate will increase, which may result in an increase to the
Fund's expense ratio.
26
<PAGE>
The rights of any lenders to the Fund to receive payments of interest or
repayments of principal will be senior to those of the holders of the Fund's
shares, and the terms of any borrowings may contain provisions that limit
certain activities of the Fund, including the payment of dividends (if any) to
holders of shares. Interest payments and fees incurred in connection with
borrowings will increase the Fund's expense ratio and will reduce any income the
Fund otherwise has available for the payment of dividends. The Fund's
obligation to make interest or principal payments on borrowings may prevent the
Fund from taking advantage of attractive investment opportunities.
USE OF DERIVATIVES
------------------
The Fund may, but is not required to, use financial instruments known as
derivative instruments to hedge portfolio risks and for portfolio management
purposes. A derivative is generally defined as an instrument whose value is
derived from, or based upon, some underlying index, reference rate (such as
interest rates or currency exchange rates), security, commodity or other asset.
The Fund will use a specific type of derivative only after consideration of,
among other things, how the derivative instrument serves the Fund's investment
objective and the risk associated with the instrument. The Investment Adviser
may decide not to employ any of these strategies and there is no assurance that
any derivatives strategy used by the Fund will succeed, or that the Fund or the
Investment Adviser will be able to use a particular derivative instrument when
the Fund or the Investment Adviser may desire to use it.
Hedging activity may relate to a specific security or to the Fund's
portfolio as a whole. The Fund may buy or sell put or call options on
transferable securities to hedge against adverse movements in the prices of
securities held in the Fund's portfolio. The Fund may buy or sell these options
if they are traded on options exchanges or over-the-counter markets and will
enter into transactions only with broker-dealers that are reputable financial
institutions that specialize in these types of transactions, that make markets
in these options, or are participants in over-the-counter markets. A put option
gives the purchaser of the option the right to sell, and obligates the seller of
the put option to buy, the underlying security at a stated exercise price at
some point prior to the expiration of the option. Similarly, a call option
gives the purchaser of the option the right to buy, and obligates the seller to
the call option to sell, the underlying security at a stated exercise price at
some point prior to the expiration of the option. See "Additional Information
on Investment Techniques -- Derivatives" in the SAI.
The Investment Adviser will consider changes in foreign currency exchange
rates in making investment decisions about non-U.S. securities. As one way of
managing exchange rate risk, the Fund may enter into forward currency exchange
contracts (agreements to purchase or to sell U.S. dollars or non-U.S. currencies
at a future date). A forward contract may help reduce the Fund's losses on
securities denominated in a currency other than U.S. dollars, but it may also
reduce the potential gain on the securities depending on changes in the
currency's value relative to the U.S. dollar. See "Additional Information on
Investment Techniques -- Foreign Currency Transactions" in the
SAI.
Investing in derivative instruments involves numerous risks. For example:
. the underlying investment or security might not perform in the manner
that the Investment Adviser expects it to perform. This could make the
derivative strategy unsuccessful;
. the company issuing the instrument may be unable to pay the amount due
on the maturity of the instrument;
. certain derivative investments that the Fund holds may trade only in
the over-the-counter markets or not at all, and can be illiquid;
. derivatives may change rapidly in value because of their inherent
leverage.
27
<PAGE>
In addition, depending on market conditions, from time to time the Fund may
invest in securities that seek to track nationally recognized securities
indices. Such securities may include but are not limited to, exchange traded
funds, which are a type of investment company.
The Fund's net asset value may change more often and to a greater degree
than it otherwise would if it did not use derivatives.
LENDING OF SECURITIES
---------------------
The Fund may lend its portfolio securities to earn fees and increase the
Fund's returns. The Fund may not lend any security or make any other loan if,
as a result, more than 33 1/3% of its total assets would be lent to other
parties. Although the Fund will receive collateral in connection with all loans
of portfolio securities, and such collateral will be marked to market, the Fund
will be exposed to the risk of loss should a borrower default on its obligation
to return the borrowed securities. For example, loaned securities may have
appreciated beyond the value of the collateral that the Fund holds at the time
of a default. In addition, the Fund will bear the risk of loss on any collateral
that it chooses to invest.
COUNTERPARTY RISK
-----------------
Many of the markets in which the Fund effects its transactions are "over-
the-counter" or "interdealer" markets. The participants in such markets are
typically not subject to credit evaluation and regulatory oversight as are
members of "exchange based" markets. This exposes the Fund to the risk that a
counterparty will not settle a transaction in accordance with or because of a
credit or liquidity problem, thus causing the Fund to suffer a loss. In
addition, in the case of a default, the Fund could become subject to adverse
market movements while replacement transactions are executed. Such
"counterparty risk" is accentuated for contracts with longer maturities where
events may intervene to prevent settlement, or where the Fund has concentrated
its transactions with a single or small group of counterparties. The Fund is
not restricted from dealing with any particular counterparty or from
concentrating any or all of its transactions with one counterparty. Although
the Investment Adviser evaluates the creditworthiness of its counterparties,
there can be no assurance that such analysis will be adequate in all cases to
reduce or eliminate counterparty risk. The ability of the Fund to transact
business with any one or a number of counterparties, the lack of any meaningful
and independent evaluation of such counterparties' financial capabilities in
some cases, and the absence of a regulated market to facilitate settlement may
increase the potential for losses by the Fund.
LIMITATIONS ON INVESTMENTS IN CERTAIN INITIAL PUBLIC OFFERINGS
--------------------------------------------------------------
From time to time, an affiliate of the Fund may act as a member of an
underwriting syndicate in connection with a company's IPO. The Fund is limited
in its ability to participate in such IPOs. This limitation may cause the Fund,
from time to time, to miss advantageous opportunities in connection with
investing in certain IPOs.
INSIDE INFORMATION
------------------
From time to time, the Investment Adviser or its affiliates may come into
possession of material, non-public information concerning an entity in which the
Fund has invested or proposes to invest, and applicable law may limit the
ability of the Fund to buy or sell securities of such entity while such
information remains non-public and material. Specifically, the Investment
Adviser or its affiliates may negotiate to have a seat on a board of directors
of a company in which any of their clients invest (or a presence at board
meetings), or may be involved in a workout situation for a company in which one
or more client has invested. In these cases, as well as other similar
circumstances, the Investment Adviser may come to possess material non-public
information about a company that it would be prohibited from using for the
benefit of any client, including the Fund. The Investment Adviser has taken
steps to minimize conflicts that can arise in these circumstances, such as
erecting "Chinese Walls".
28
<PAGE>
CONFLICTS OF INTEREST
---------------------
In addition to other possible conflicts of interest, the Fund and an
investment company whose investment adviser is Scudder Weisel or the Investment
Adviser (an "affiliated fund") may invest in the same portfolio company. If
this happens, the Fund and the affiliated fund may have conflicting interests,
particularly if the Fund and the affiliated fund invest in different classes or
types of securities of that company. Conflicts of interest may arise when the
Fund and the affiliated fund participate in structuring the financing of an
acquisition or other transaction and establishing the terms and conditions of
the securities offered. Conflicts also may arise during the period when the
Fund and the affiliated fund hold the same security in a portfolio company. The
Investment Adviser maintains a restricted list of securities and the Fund will
not be able to invest in public companies on this list.
The Fund expects to engage in transactions in the ordinary course of
business with firms and companies of which one or more trustees, directors or
officers is a Trustee and/or officer of the Fund.
USE OF PROCEEDS
The proceeds of the initial offering will be invested in accordance with
the Fund's investment objective and principal strategies as soon as practicable
after the termination date of the initial offering period. Based on current
market conditions, Scudder Weisel expects that approximately 80% of the Fund's
assets will be invested within one year to eighteen months, and that a longer
time period will be necessary for the remainder of the Fund's assets to be
invested. This lengthy investment period reflects the fact that: (i) the Fund
plans to spend considerable time researching prospective investments; (ii) the
companies in which the Fund plans to invest will be primarily small to medium-
sized companies that may have limited amounts of outstanding securities
available for purchase; (iii) in most instances, the Fund plans to minimize the
positive impact its purchases of securities will have on the price of these
securities by purchasing the securities over a period of time; and (iv) the
Investment Adviser must originate private securities for the Fund, which may
take a significant amount of time. Pending the full investment of the proceeds
of the offering pursuant to the Fund's investment policies, a portion of the
proceeds of the offering will be invested in short-term, high quality money
market securities. In addition, the Fund may invest in securities that seek to
track the performance of various stock market indices. The Fund will pay
organizational and offering expenses estimated to be __________________ from the
proceeds of the initial offering. Such expenses will therefore be borne by
investors in the initial offering. Investors in any subsequent continuous
offering may not bear any of these organizational or offering expenses, although
they will bear offering expenses of any such subsequent continuous offering.
INVESTMENT OBJECTIVE AND STRATEGIES
INVESTMENT OBJECTIVE
--------------------
The Fund's investment objective is to provide its investors superior risk-
adjusted returns. There can be no assurance that the Fund will achieve its
investment objective or avoid substantial losses.
29
<PAGE>
PERCENTAGE LIMITATIONS
----------------------
Unless otherwise specified, percentage limitations will be applied at the
time of investment. Therefore, these percentages could be exceeded due to
fluctuations in the value of the Fund's portfolio securities or liquidation of
portfolio securities to pay expenses or fulfill repurchase requests. The
percentage limitations contained in the Fund's Prospectus and SAI apply to the
direct investments made by the Fund. Accordingly, the Fund's investment
limitations are not applied to the portfolio securities held by the investment
funds in which the Fund may invest.
INVESTMENT APPROACH
-------------------
The Fund's investment objective is to provide its investors superior risk-
adjusted returns. The Fund seeks to achieve its objective by investing up to
80% of its assets in public and private securities of U.S. and non-U.S.
companies that participate in the information technology, communications,
healthcare, financial services, or transforming industries sectors
(collectively, the "Target Sectors"). The Fund may focus its Target Sector
investments in the information technology sector more so than in the other four
sectors. Up to 60% of the Fund's assets may be invested in privately placed
securities issued by companies in the Target Sectors, which will consist
substantially of private equity securities, and will also include Special
Situation investments (collectively, "private securities"). The Fund may pursue
its investment strategy directly or indirectly through investments in private
investment companies. The Fund's publicly traded securities may be issued by
companies of any size, although the Fund intends to invest the public securities
portion of its portfolio primarily in securities of small and mid-sized
companies with market capitalizations of less than $10 billion, and in some
cases less than $2 billion. The Fund's private securities investments may be
issued by companies in the early stage or later stages of their financing
activities. Investors should recognize that (i) there will be no public market
for the private securities at the time of the Fund's investment, and (ii) there
can be no assurance that any planned initial public offering ("IPO") or other
exit strategy with respect to such investment will ever be completed.
The Fund may also invest in securities convertible into or exchangeable for
common stocks, rights and warrants to purchase common stocks and depository
receipts representing an ownership interest in equity securities. The Fund
considers all of these securities equity securities for purposes of its
investment strategies. The Fund may also invest in non-convertible debt
securities or preferred stocks believed to provide opportunities for capital
gain.
The Investment Adviser will pursue the Fund's investment objective
primarily by selecting public and private equity securities in the Target
Sectors. The Investment Adviser's approach in making these selections is
described below.
General
Sector Expertise. The Investment Adviser's investment teams are focused on
----------------
five sectors in which they have developed extensive expertise, relationships and
portfolio company experience. The Investment Adviser believes the following
sectors present highly attractive opportunities today: information technology,
communications, financial services, healthcare, and transforming industries.
The Fund may focus its Target Sector investments in the information technology
sector more so than the other four sectors. The Investment Adviser believes
that its investing insights are improved significantly by the overlapping and
highly complementary nature of these sectors.
__________________________
Information Technology
. Internet
. Software
__________________________
___________________
Communications
. Services
. Content
. Technology
___________________
30
<PAGE>
________________
Healthcare
. Services
. Technology
________________
___________________________ _________________________________
Transforming Industries Financial Services
. Growth opportunities . Technology enablers
. Outsourcing . Sectors in transformation
. Recapitalizations . Consolidation opportunities
___________________________ _________________________________
Globalization. The Investment Adviser believes that most great companies
-------------
operate in a global economy, not confined by national borders that speak more of
politics than economic communities. This is particularly true today, as the
recent emergence of a worldwide entrepreneurial spirit, the explosion of the
information revolution and the development of international capital markets that
support growth companies all combine to create a unique global investment
environment. Searching for the great companies of tomorrow and the most talented
entrepreneurs, the Investment Adviser has created a global investment model to
participate in this revolution. By building global investing teams with a blend
of U.S. and foreign experience, the Investment Adviser utilizes its U.S.
knowledge and expertise as a basis for thoughtful investment in international
markets. Further, the Investment Adviser can transfer international insights and
sector skills to the U.S. The Investment Adviser's overseas offices in major
international financial centers fortify this globalization strategy, allowing us
to develop relationships with international businesses.
Complementary Investment Activities. The Investment Adviser invests
-----------------------------------
capital dedicated to private and public equity and private and public debt, and
it believes that the cross-fertilization of ideas that results from its
complementary investment activities offers the Investment Adviser significant
advantages. Scudder Weisel believes the Investment Adviser's complementary
products and overlapping sector expertise improve deal sourcing and create more
astute investing. In addition, with access to multiple sources of capital, the
Investment Adviser can serve as better partners with entrepreneurs. The
Investment Adviser believes this strategy may enhance returns.
Private Equity Investing
Growth Capital Niche. The Investment Adviser will execute an investment
--------------------
approach called "growth capital," which it helped pioneer in the early 1990s.
The Investment Adviser seeks to identify companies at a point in their
development where it can partner with management to achieve the next level of
value creation. Growth capital investing borrows from the traditional venture
capital and leveraged buyout sectors, but is a distinct style of investing. As
shown in the chart below, growth capital investing provides a large set of
opportunities and entails business execution risk, but generally avoids the
technological and conceptual risks of venture capital and the market and
financial risks of leveraged buyouts. Scudder Weisel believes that the
Investment Adviser is a leader in this sector of private equity.
Spectrum of Private Capital Investing
Venture Capital Growth Capital Leveraged Buyout
. Technology/Concepts . Business execution . Leverage/Financial
. Proof of concept . Growth/execution . Market timing
. Unlimited - idea based . Very large - idea based . Limited
. Intense . Inconsistent . Intense
. Generally long . Short . Varies
<PAGE>
Risk
Value Proposition
Opportunities
Competition
Gestation Period
32
<PAGE>
Unique "Top-Down/Bottom-Up" Deal Sourcing. The Investment Adviser
-----------------------------------------
attempts to identify unique investments and enhance returns through a highly
proactive and thesis-driven deal sourcing approach. This process is called "top-
down/bottom-up," because the Investment Adviser first develops a thoughtful "top
down" macro perspective and then works "bottom-up" to identify or create the
best private company to take advantage of its investment thesis. This form of
deal sourcing is difficult to execute. However, over the past decade the
Investment Adviser believes it has invested in the people, the organization and
the management process to succeed. The Investment Adviser believes that its
unique deal sourcing distinguishes it and enables it to create interesting
investments at attractive valuations.
Public Equity Investing
In the public equity portion of the Fund's portfolio, the Investment
Adviser seeks to:
. achieve superior returns through strategic security selection;
. mitigate the market risk of the portfolio through the selective use of
short positions; and
. maximize after-tax performance through low turnover and multi-year
investment horizons on a substantial portion of the portfolio.
Long Positions. The Fund will invest in companies of all sizes, including
--------------
small and middle capitalization companies, typically with less than $10 billion
in market capitalization and possibly as low as $2 billion. This market sector
directly parallels the Investment Adviser's experience in private equity
investing. Small and mid-cap stocks receive less attention from the investment
community than do large-cap stocks, enabling the Investment Adviser to develop
an investment thesis based on a unique and differentiated insight. The
Investment Adviser believes that such neglected or orphan securities offer
higher expected returns than larger securities followed by dozens of analysts.
Large capitalization companies are generally considered by the Investment
Adviser to be companies with market capital in excess of $10 billion. This
criteria is subject to change at the discretion of the Investment Adviser based
on market developments.
Consistent with the Investment Adviser's private equity strategy, the Fund
will maintain a high level of concentration. The portfolio will represent a
short list of "high conviction" investments, as opposed to a large, broadly
diversified approach characteristic of most mutual funds.
The Investment Adviser's approach stresses fundamental analysis. The
Investment Adviser seeks to identify high return-on-capital businesses run by
strong management teams at attractive prices. Businesses that exhibit high
capital returns generate excess cash over many years. Grounded in the Investment
Adviser's private equity heritage, it views management teams as partners and
strives to invest with entrepreneurial leaders whose incentives are aligned with
shareholders.
The Investment Adviser, on behalf of the Fund, intends to purchase a solid
business with strong management teams when the stock trades at a material
discount to the Investment Adviser's estimation of the company's value. The Fund
relies on the depth and experience of the Investment Adviser in evaluating the
worth of a business. Such research involves extensive due diligence and thorough
research into the company and sector. The Fund's investments will frequently
attempt to leverage the Investment Adviser's equity and debt investing
activities and its expertise in the Target Sectors.
The approach described above reflects the Investment Adviser's philosophy
and is not expected to change. Securities market conditions are volatile
however, and the Fund may pursue other strategies deemed appropriate by the
Investment Adviser.
33
<PAGE>
Mezzanine Debt Investing
The Investment Adviser's mezzanine debt investment strategy is
characterized by a growth capital focus and a proactive investment process. The
Investment Adviser believes that its mezzanine investments will capitalize on
market inefficiency resulting from a relatively large universe of target
companies and a relatively limited supply of capital for small to medium size
growth companies. The Investment Adviser believes that these mezzanine
investments are attractive because of the: (i) characteristics of the companies
in the growth capital marketplace; (ii) large and relatively inefficient
mezzanine market; (iii) increasing mezzanine debt "gap"; and (iv) operating and
financial risk profile of companies suitable for mezzanine investments. The
companies targeted by the Investment Adviser, or a mezzanine fund in which the
Fund may invest, typically range in size from $50 million to $500 million in
enterprise value. Capital is used by these businesses to fund internally driven
expansion, growth through strategic acquisitions, partial recapitalizations, and
management leveraged buyouts suitable for mezzanine investments.
For more information about the Investment Adviser's mezzanine investment
strategy, see "Additional Information on Investment Techniques - Mezzanine Debt
Investments" in the SAI.
INITIAL INVESTMENTS
-------------------
During a significant part of the first year of the Fund's operation, the
Fund expects that a substantial amount of its assets will be invested in
publicly traded companies. The Investment Adviser may sell many of these
investments and reinvest the proceeds in private securities, including
securities issued by venture capital companies, in accordance with the Fund's
principal investment strategies, subject to the availability of investment
opportunities that the Investment Adviser deems attractive. The Fund may incur
losses in such short-term investments. Short-term investing involves timing risk
in addition to other investing risk, and may be considered speculative. As the
Fund's private securities investments mature, they may undertake IPOs and become
public companies. In these cases, the Fund may be subject to contractual and
regulatory limitations that prevent it from selling part or all of these
investments for an extended period.
TEMPORARY AND DEFENSIVE MEASURES
--------------------------------
The Fund may, from time to time, take temporary or defensive positions in
cash or cash equivalents to attempt to minimize extreme volatility caused by
adverse market, economic, or other conditions. This could prevent the Fund from
achieving its investment objective.
THE FUND MAY CHANGE ITS INVESTMENT OBJECTIVE, STRATEGIES AND TECHNIQUES
-----------------------------------------------------------------------
The Fund may change any of the investment strategies discussed above if the
Board of Trustees believes doing so is consistent with the Fund's investment
objective of providing its investors superior risk-adjusted returns. The Fund's
investment objective is not a fundamental policy and may be changed by the Board
of Trustees without the approval of shareholders.
MANAGEMENT OF THE FUND
THE BOARD OF TRUSTEES
---------------------
The Board of Trustees of the Fund supervises the affairs of the Fund. At
least a majority of the Board of Trustees will be persons who are "interested
persons" of the Fund, as defined in Section 2(a)(19) of the 1940 Act.
THE INVESTMENT MANAGER AND INVESTMENT ADVISER
---------------------------------------------
Under an investment management agreement ("Investment Management
Agreement") with the Fund, Scudder Weisel, a registered investment adviser,
provides investment supervisory and administrative services to the Fund,
34
<PAGE>
including supervision of the Fund's investment program. Scudder Weisel was
formed as a joint venture among Thomas Weisel Partners Group LLC ("Thomas Weisel
Partners"), Scudder Kemper Investments, Inc. and Zurich On-Line Financing Ltd.
Currently, Scudder Kemper Investments, Inc. and Zurich On-Line Financing Ltd.,
each a majority- or wholly-owned subsidiary of Zurich Financial Services Group,
together hold ___% of the outstanding units of Scudder Weisel, and Thomas Weisel
Partners holds ___% of the outstanding units of Scudder Weisel. Management and
employees of Scudder Weisel hold the remaining units. Scudder Weisel has no
prior experience as an investment manager. Scudder Weisel's address is 88 Kearny
Street, San Francisco, CA 94108.
Subject to general supervision of the Board of Trustees and in accordance
with the investment objective, policies and restrictions of the Fund, Scudder
Weisel provides the Fund with ongoing investment guidance, policy direction and
monitoring of the Fund and the Investment Adviser pursuant to the Investment
Management Agreement.
Scudder Weisel has entered into an investment advisory agreement (an
"Advisory Agreement") with the Investment Adviser to delegate the day-to-day
discretionary management of the Fund's assets, subject to the supervision of
Scudder Weisel. The Investment Adviser, located at 177 Broad Street, Stamford,
CT 06901, has provided asset management, administration and advisory services
for over fifty years. As of December 31, 2000, the Investment Adviser and its
affiliates provided investment advisory services for $__ billion of assets. The
Investment Adviser is not compensated directly by the Fund. The Advisory
Agreement may be terminated by the Board of Trustees, the Fund's shareholders,
or by Scudder Weisel.
An investment committee of the Investment Adviser comprised of senior
investment personnel will manage the investment portfolio on a day-to-day
basis.
Scudder Weisel has contractually undertaken to reimburse a portion of the
Fund's expenses or to waive a portion of its management fee to the extent that
the Fund's total expenses (before payment of the performance based management
fee, offering costs, interest expense on any borrowings and any extraordinary
expenses) would otherwise exceed 2.85% of its average daily net assets with
respect to the Class A and Class O shares during the first fiscal year of the
Fund's operations. This contractual undertaking expires on December 31, 2001.
The Fund and Scudder Weisel are seeking an exemptive order from the SEC
that will permit Scudder Weisel, subject to approval by the Board of Trustees,
to add or substitute investment advisers for any fund managed by Scudder Weisel
in Scudder Weisel's sole discretion without approval by the Fund's shareholders.
This order would permit Scudder Weisel to appoint multiple investment advisers
to manage various portions of the Fund's portfolio. If granted, such relief
would require shareholder notification in the event of any change in investment
adviser. There is no assurance the exemptive order will be granted.
MANAGEMENT FEE
--------------
The Fund's investment management fee has two components, an asset based
management fee and a performance based (or "incentive") fee.
Asset Based Management Fee. The Fund will pay an asset based management fee
to Scudder Weisel at an annual rate of 2.0% of the Fund's average daily net
assets. The fee is calculated daily and payable monthly. In addition, the Fund
will pay an incentive fee to Scudder Weisel as described below. Scudder Weisel
compensates the Investment Adviser for providing its investment advisory
services to the Fund. Very few registered investment companies pay an incentive
fee similar to the incentive fee that the Fund pays. This management fee is
higher than management fees that most U.S. investment companies pay. The payment
of fees and expenses by the Fund may require the Fund to liquidate portfolio
securities, which could result in the realization of taxable gains.
Incentive Fee. The following discussion of the incentive fee is only a
summary, and is qualified in its entirety by reference to the more complete
description contained in the SAI under "Investment Management and
35
<PAGE>
Other Services -- Incentive Fee." The calculation of the incentive fee involves
complex accounting concepts. The Fund encourages you to consult with your
financial adviser regarding this calculation.
In addition to the asset based management fee, the Fund may pay an
incentive fee to Scudder Weisel at the end of each year. The incentive fee will
equal to 20% of the Fund's net realized capital gains or losses, net investment
income or loss, and net unrealized appreciation or depreciation for the year. No
incentive fee will be paid unless the Fund has offset all prior net realized
capital losses, net unrealized depreciation and net investment loss. This is
sometimes known as a "high water mark" calculation. Scudder Weisel will be under
no obligation to repay any incentive fees that the Fund previously paid.
The incentive fee is paid annually, but shareholders may have their shares
repurchased by the Fund quarterly. The Fund believes that it is appropriate for
investors whose shares are repurchased to bear their share of the incentive fee
for those shares for the period between the last incentive fee payment to
Scudder Weisel and the date of repurchase. Otherwise, the remaining shares, and
thus their shareholders, could pay a disproportionate share of the incentive
fee. For this reason, the Fund will calculate a liability for the incentive fee
each day that net asset value is calculated based on the Fund's performance. The
Fund's net asset value will be reduced or increased each day it is calculated to
reflect this calculation. The daily calculation will be made on the same basis
as the incentive fee payable to Scudder Weisel.
If the Fund is in a net loss situation for the year, there will be no
accrual, and no incentive fee will be payable. If this situation arises, the
Fund will keep track of its "cumulative loss" on each day net asset value is
calculated. Each time shares are repurchased in a repurchase offer, the Fund
will adjust the amount of any cumulative loss downward in proportion to the
number of shares repurchased, so that the repurchase of shares has the effect of
reducing the amount of cumulative loss. In addition, each time additional shares
are sold, the Fund will adjust the amount of any cumulative loss upward in
proportion to the number of shares issued (but not to an amount larger than the
cumulative loss would be if no shares had been repurchased). This will ensure
that the amount of cumulative loss remains constant on a per-share basis.
The incentive fee is accrued as a liability of the Fund each day that the
Fund calculates net asset value, and so reduces the net asset value of all
shares. The repurchase price received by an investor in a quarterly repurchase
offer will reflect an incentive fee accrual if the Fund has experienced an
increase in net assets due to investment operations through the date of
repurchase. However, the incentive fee accrual may subsequently be reversed if
the Fund's performance declines. In that case, the Fund will retain some or all
of the incentive fee accrual borne by the investor. No adjustment to a
repurchase price will be made after it has been paid.
The Fund will not accrue an incentive fee for any year unless it has fully
recovered any cumulative losses from prior periods. However, the total amount of
cumulative loss will be shared equally by all outstanding shares of the Fund. If
some shareholders reinvest distributions by the Fund in additional shares, then
the number of outstanding shares will increase, and the per-share amount of
cumulative loss (if any) will be reduced. As a result, if you do not reinvest
your distributions, the benefit you receive from a cumulative loss (if any) will
be diluted. This means that you may bear a higher percentage incentive fee than
if you had reinvested dividends.
In addition, whenever shares are repurchased in a repurchase offer, the
amount of any cumulative loss will be reduced in proportion to the number of
shares repurchased. For example, if the Fund has a cumulative loss of $5
million, and 5% of the Fund's shares are repurchased in a repurchase offer, then
the amount of the cumulative loss will be reduced by 5% (or $250,000) to
$4,750,000. It is possible that the Fund may experience a net loss from
investment operations for a full year, but you will have a positive return on
your investment and an incentive fee will be accrued for that year. (In the
preceding example, if, after the repurchase, the Fund experiences an increase in
assets due to investment operations increasing its assets to $4,850,000, then
the net loss from investment operations for the period would be $150,000, but
the Fund would accrue an incentive fee equal to 20% of $100,000, or $20,000).
36
<PAGE>
OTHER EXPENSES OF THE FUND
--------------------------
The Fund pays a management fee, consisting of an asset based fee and a
performance based fee, to Scudder Weisel plus all of the Fund's expenses other
than those that Scudder Weisel assumes. The expenses of the Fund include, but
are not limited to, the shareholder servicing fee, brokerage commissions,
interest on any borrowings by the Fund, fees and expenses of outside legal
counsel (including fees and expenses associated with review of documentation for
prospective investments by the Fund) and independent auditors, taxes and
governmental fees, custody fees, expenses of printing and distributing
prospectuses, reports, notices and proxy material to shareholders of the Fund,
expenses of printing and filing reports and other documents with government
agencies, expenses of shareholders' meetings, expenses of corporate data
processing and related services, shareholder record keeping and shareholder
account services, fees and disbursements, fees and expenses of Trustees of the
Fund that Scudder Weisel or its affiliates do not employ, insurance premiums and
extraordinary expenses such as litigation expenses. The Fund may need to sell
portfolio securities to pay fees and expenses, which could cause the Fund to
realize taxable gains.
Kemper Service Corporation, whose principal business address is 811 Main
Street, Kansas City, MO 64105-2005, serves as the transfer and dividend
disbursing agent ("Transfer Agent") pursuant to a transfer agency agreement with
the Fund, under which the Transfer Agent (i) issues and repurchases shares of
the Fund, (ii) addresses and mails all communications by the Fund to its record
owners, including reports to shareholders, dividend and distribution notices and
proxy materials for any meetings of shareholders, (iii) maintains shareholder
accounts, (iv) responds to correspondence by shareholders of the Fund, and (v)
makes periodic reports to the Board of Trustees concerning the operations of the
Fund. The Transfer Agent may delegate some or all of these responsibilities to a
sub-transfer agent at its discretion from time to time.
State Street Bank and Trust Company ("State Street"), whose principal
business address is 225 Franklin Street, Boston, MA 02110, serves as the
custodian of the Fund's assets (the "Custodian") pursuant to a custodial
services agreement with the Fund, under which the Custodian (i) maintains a
separate account in the name of the Fund, (ii) holds and transfers portfolio
securities on account of the Fund, (iii) accepts receipts and makes
disbursements of money on behalf of the Fund, (iv) collects and receives all
income and other payments and distributions on account of the Fund's securities
and (v) makes periodic reports to the Board of Trustees concerning the Fund's
operations.
State Street also serves as administrator for the Fund pursuant to an
administration agreement ("Administration Agreement"). State Street has agreed
to maintain office facilities for the Fund; oversee the computation of the
Fund's net asset value, net income and realized and unrealized capital gains, if
any; perform recordkeeping services for the Fund; assist in administration of
the Fund's quarterly repurchase offers; furnish statistical and research data,
clerical services, and stationery and office supplies; prepare and file various
reports, notices and filings with the appropriate federal and state regulatory
agencies; and prepare various materials required by the SEC. State Street may
enter into an agreement with one or more third parties pursuant to which such
third parties will provide administrative services on behalf of the Fund.
DISTRIBUTION EXPENSES
---------------------
Pursuant to the Distribution Agreement, Scudder Weisel bears all of its
expenses of providing its services under that Agreement. Scudder Weisel provides
for the preparation of advertising or sales literature and bears the cost of
printing and mailing prospectuses to persons other than existing shareholders.
The Fund bears the cost of printing and mailing prospectuses and reports to
existing shareholders. The Fund bears the cost of qualifying and maintaining the
qualification of Fund shares for sale under the securities laws of the various
states and the expense of registering its shares with the SEC. Scudder Weisel
may enter into related selling group agreements with various broker-dealers,
including affiliates of Scudder Weisel, that provide distribution services to
investors. Scudder Weisel also may provide some of the distribution services. In
addition, Scudder Weisel is authorized to delegate authority to enter into
selling group agreements with respect to Class A shares to other broker-dealers,
who will be compensated by Scudder Weisel.
37
<PAGE>
SHAREHOLDER SERVICING FEE
-------------------------
The Fund will pay Scudder Weisel a shareholder services fee at an annual
rate of up to 0.50% of the net asset value of the outstanding shares of the Fund
pursuant to a Shareholder Services Agreement. Scudder Weisel may enter into
related arrangements with broker-dealers or other service or administrative
firms ("intermediaries") to compensate them for providing shareholder services
and the maintenance of accounts for their customers who are shareholders of the
Fund. These services include: the provision of personal, continuing services to
investors in the Fund; receiving, aggregating and processing purchase and
redemption orders; maintaining retirement plan accounts and providing and
maintaining retirement plan records; communicating periodically with
shareholders and providing information and responding to questions about the
Fund, the shares, the availability of shares in any continuous offering, and
repurchase offers, and handling correspondence from shareholders about their
accounts; acting as the sole shareholder of record and nominee for shareholders;
maintaining account records and providing beneficial owners with account
statements; processing dividend payments; issuing shareholder reports and
transaction confirmations; providing subaccounting services for shares held
beneficially; forwarding shareholder communications to beneficial owners;
receiving, tabulating and transmitting proxies executed by beneficial owners;
general account administration activities; and providing such other similar
services as the Fund may reasonably request to the extent the intermediary is
permitted to do so under applicable statutes, rules, or regulations. This fee is
accrued every day net asset value is calculated as an expense of the Fund.
Scudder Weisel bears all of its expenses of providing services under the
Shareholder Services Agreement, including the payment of any service fees to
intermediaries. Scudder Weisel may compensate each intermediary at an annual
rate of up to 0.50% of the net asset value of the outstanding shares of the Fund
maintained and serviced by the intermediary. Intermediaries may include
affiliates of Scudder Weisel.
Scudder Weisel may also provide some of the above services and may retain
any portion of the fee under the Shareholder Services Agreement not paid to
intermediaries to compensate itself for administrative functions and services it
performs in assisting with and coordinating shareholder servicing, including the
provision of services to Scudder Weisel's customers who are shareholders of the
Fund.
CONTROL PERSONS
---------------
As of January__, 2001, __ Class A and __ Class O shares of the Fund,
constituting all of the outstanding shares of beneficial interest of the Fund as
of that date, were owned by Scudder Weisel. Accordingly, as of that date,
Scudder Weisel is deemed to "control" the Fund as that term is defined in the
1940 Act. It is anticipated that Scudder Weisel will no longer control the Fund
as of immediately after completion of the Fund's initial offering.
REPURCHASE OFFERS
The Fund expects that a substantial portion of its investments will be
illiquid and does not intend to maintain a significant cash position. For this
reason, the Fund is structured as a closed-end fund, which means that you will
not have the right to redeem your shares on a daily basis. In addition, the Fund
does not expect any trading market to develop for its shares. As a result, if
you invest in the Fund you will have limited opportunity to sell your shares.
To provide you with a degree of liquidity, and the ability to receive net
asset value on a disposition of a portion of your shares, the Fund will make
quarterly offers to repurchase its shares. The repurchase offers will be limited
to a specified percentage of the Fund's outstanding shares, which is currently
anticipated to be 5% of the Fund's outstanding shares at the time of each
repurchase offer. Shares will be repurchased at their net asset value. The Fund
intends to commence the first quarterly repurchase offer in July 2001 and to
complete it in August 2001.
38
<PAGE>
The quarterly offers will be made pursuant to a fundamental policy of the Fund
that may be changed only with the approval of the Fund's shareholders. The
repurchase of shares by the Fund may require the Fund to liquidate portfolio
securities, which could result in the realization of taxable gains. The Fund may
borrow money to meet repurchase requests, which would increase the Fund's
operating expenses and lower its return.
QUARTERLY REPURCHASES OF A MINIMUM OF 5% OF ITS OUTSTANDING SHARES
------------------------------------------------------------------
Each quarter, the Fund will offer to repurchase a minimum of 5% of the
number of shares outstanding on the date repurchase requests are due. The Board
of Trustees may establish a larger percentage for any quarterly repurchase
offer. However, the percentage will not be less than 5% or more than 25% of the
shares outstanding on the date repurchase requests are due.
The Fund intends to commence the first quarterly repurchase offer in July
2001 and to complete it in August 2001. Thereafter, quarterly repurchase offers
will commence each January, April, July, and October, and will normally be
completed in the following month.
When a repurchase offer commences, the Fund will send a written
notification of the offer to shareholders via their financial intermediaries.
The notification will specify, among other things:
. the percentage of the Fund's shares that the Fund is offering to
repurchase. This will ordinarily be 5%;
. the date on which a shareholder's repurchase request is due;
. the date that will be used to determine the Fund's net asset value
applicable to the quarterly share repurchase. This date is generally
expected to be the day on which the quarterly repurchase requests are
due;
. the date by which shareholders will receive the proceeds from their
share sales; and
. the net asset value of the Fund's shares as of a date no more than
seven days prior to the date of the notification.
The Fund intends to send this written notification approximately 30 days
before the due date for the repurchase request. In no event will the
notification be sent less than 21 or more than 42 days in advance. In order to
participate in any quarterly repurchase offer, your shares of the Fund must be
held through a broker-dealer or Scudder Weisel. You will not be able to receive
repurchase offers directly from the Fund. In addition, it is important for you
to recognize that your financial intermediary may require additional time to
mail the repurchase offer to you, to process your request, and to credit your
account with the proceeds of any repurchased shares.
The due date for repurchase requests is a deadline that will be strictly
observed. If your intermediary fails to submit your repurchase request in good
order by the due date, you will be unable to liquidate your shares until a
subsequent quarter, and you will have to resubmit your request for that quarter.
You should be sure to advise your intermediary of your intentions in a timely
manner. You may withdraw or change your repurchase request at any point before
the due date.
THE FUND'S FUNDAMENTAL POLICIES WITH RESPECT TO SHARE REPURCHASES
-----------------------------------------------------------------
The Fund has adopted the following fundamental policies in relation to its
share repurchases that may only be changed by a majority vote of the outstanding
voting securities of the Fund:
. as stated above, the Fund will make share repurchase offers every
three months, pursuant to Rule 23c-3 under the 1940 Act, as it may be
amended from time to time, beginning in July 2001;
39
<PAGE>
. a minimum 5% of the Fund's outstanding shares of beneficial interest
will be subject to the repurchase offer, unless the Board of Trustees
establishes a different percentage, which must be a minimum of 5% and
a maximum of 25%;
. the repurchase request due dates will be a business day determined by
the Board of Trustees no earlier than 21 business days and no later
than 42 business days after the mailing to shareholders of a notice
with respect to each repurchase offer; and
. there will be a maximum 14 day period between the due date for each
repurchase request and the date on which the Fund's net asset value
for that repurchase is determined.
PRO RATA PURCHASES OF SHARES IN THE EVENT OF AN OVERSUBSCRIBED REPURCHASE OFFER
-------------------------------------------------------------------------------
There is no minimum number of shares that must be tendered before the Fund
will honor repurchase requests. However, the percentage determined by the Board
of Trustees for each quarterly repurchase offer will set a maximum number of
shares that may be purchased by the Fund. In the event a repurchase offer by the
Fund is oversubscribed, the Fund may, but is not required to, repurchase
additional shares, but only up to a maximum amount of 2% of the outstanding
shares of the Fund. If the Fund determines not to repurchase additional shares
beyond the repurchase offer amount, or if shareholders tender an amount of
shares greater than that which the Fund is entitled to purchase, the Fund will
repurchase the shares tendered on a pro rata basis.
If pro-ration is necessary, the Fund will send a notice of pro-ration to
the broker-dealers on the business day following the repurchase request due
date. The number of shares each investor asked to have repurchased will be
reduced by the same percentage. If any shares that you wish to have repurchased
by the Fund are not repurchased because of pro-ration, you will have to wait
until the next repurchase offer, and your repurchase request will not be given
any priority over other shareholders' requests. Thus, there is a risk that the
Fund may not purchase all of the shares you wish to sell in a given quarter or
in any subsequent quarter. In anticipation of the possibility of pro-ration,
some shareholders may tender more shares than they wish to have repurchased in a
particular quarter, thereby increasing the likelihood of pro-ration. There is no
assurance that you will be able to sell as many of your shares as you desire to
sell.
The Fund may suspend or postpone a repurchase offer in limited
circumstances, but only with the approval of a majority of the Board of
Trustees, including a majority of independent Trustees.
DETERMINATION OF REPURCHASE PRICE
---------------------------------
The repurchase price payable for a repurchased share will be equal to the
share's net asset value on the date for such determination specified in the
notification provided to shareholders. The Fund's net asset value per share may
change substantially in a short time as a result of developments at the
companies in which the Fund invests. Changes in the Fund's net asset value may
be more pronounced and more rapid than with other funds because of the Fund's
emphasis on investment in private securities, including securities issued by
venture capital companies that are not publicly traded. The Fund's net asset
value per share may change materially between the date a quarterly repurchase
offer is mailed and the request due date, and it may also change materially
shortly after a repurchase is completed. Accordingly, the net asset value
included in the repurchase materials we mail to you and the repurchase price the
Fund pays for your shares may differ significantly. The method by which the Fund
calculates net asset value is discussed under the caption "Calculation of Net
Asset Value."
PAYMENT
-------
The Fund expects to repurchase shares on the next business day after the
net asset value determination date. Proceeds will be distributed to
intermediaries as specified in the repurchase offer notification, usually on the
third business day after repurchase. In any event, the Fund will pay repurchase
proceeds no later than seven days after the net asset value determination date.
40
<PAGE>
IMPACT OF REPURCHASE POLICIES ON THE LIQUIDITY OF THE FUND
----------------------------------------------------------
From the time the Fund distributes each repurchase offer notification until
the net asset value determination date, the Fund must maintain liquid assets at
least equal to the percentage of its shares subject to the repurchase offer. For
this purpose, liquid assets means assets that may be disposed of in the ordinary
course of business at approximately the price at which they are valued or which
mature by the repurchase payment date. The Fund is also permitted to borrow
money to meet repurchase requests. Borrowing by the Fund involves certain risks
for shareholders. See "Principal Risk Factors and Investment Techniques --
Borrowing; Use of Borrowing for Leverage." The requirement that the Fund
maintain a certain percentage of liquid assets may reduce the investment
performance of the Fund's portfolio.
CONSEQUENCES OF REPURCHASE
---------------------------
The Fund believes that repurchase offers generally will benefit the Fund's
shareholders, and will generally be funded from available cash or sales of
portfolio securities. The Fund may temporarily hold more of its total assets in
highly liquid securities (including cash) if it anticipates financing some or
all repurchases in a repurchase offering by selling portfolio investments.
However, if the Fund borrows to finance repurchases, interest on that borrowing
will increase the Fund's expenses and may reduce any net investment income. From
time to time, commencing at least 30 days after the closing of this initial
offering, the Fund may offer new shares, which may alleviate these potential
consequences, but there is no assurance that the Fund will be able to secure new
investments or raise new cash.
Repurchase offers provide shareholders with the opportunity to dispose of
shares at net asset value. The Fund does not anticipate that a secondary market
will develop, but in the event that a secondary market were to develop, it is
possible that shares would trade in that market at a discount to net asset
value. The existence of periodic repurchase offers at net asset value may not
alleviate such discount.
Repurchase of the Fund's shares will tend to reduce the number of
outstanding shares and, depending upon the Fund's investment performance and its
ability to sell additional shares in a continuous offering, its net assets. A
reduction in the Fund's net assets will tend to increase the Fund's expense
ratio.
In addition, the repurchase of shares by the Fund will be a taxable event
to shareholders. For a discussion of these tax consequences, see "Taxes."
IN-KIND REPURCHASES
-------------------
Under normal circumstances, the Fund will repurchase its shares for cash.
However, the Fund may apply for exemptive relief from the SEC to permit the Fund
to pay for all or a portion of its repurchased shares with an in-kind
distribution of its portfolio securities.
CALCULATION OF NET ASSET VALUE
During the Fund's initial and continuous offering, the Fund will compute
its net asset value (total assets less total liabilities) on each business day
on which the New York Stock Exchange ("NYSE") is open for trading, as of the
close of regular business of the NYSE, which is generally 4:00 p.m. Eastern
time. In addition, the Fund will calculate its net asset value as frequently as
required under Rule 23c-3 under the 1940 Act. The Fund will value its
securities at current market prices. If reliable market prices are unavailable
(e.g., in the case of the Fund's venture capital investments and other private
----
debt and equity securities), securities will be valued by the Fund at fair value
as determined in good faith in accordance with procedures approved by the Board
of Trustees. Private securities, including securities issued by venture
capital companies, will be valued at fair value, which will be cost unless the
Investment Adviser determines, pursuant to the Fund's valuation procedures, that
such a valuation is no longer fair or appropriate. Examples of cases where cost
may no longer be appropriate include sales of similar securities to third
41
<PAGE>
parties at different prices, or if a venture capital company in which the Fund
has an investment undertakes an IPO. In such situations, the Fund's investment
will be revalued in a manner that the Investment Adviser, following procedures
approved by the Board of Trustees, determines best reflects its fair value.
When the Fund holds securities of a class that has been sold to the public, fair
valuation would often be market value less a discount to reflect contractual or
legal restrictions limiting resale. Fair value represents a good faith
approximation of the value of an asset and will be used where there is no public
market or possibly no market at all for a company's securities. The fair values
of one or more assets may not, in retrospect, be the prices at which those
assets could have been sold during the period in which the particular fair
values were used in determining the Fund's net asset value. As a result, the
Fund's issuance or repurchase of its shares at net asset value at a time when it
owns securities that are valued at fair value may have the effect of diluting or
increasing the economic interest of existing shareholders. All fair value
determinations that the Investment Adviser makes are subject to ratification by
the Board of Trustees. The Board of Trustees will be responsible for ensuring
that the valuation policies utilized by Scudder Weisel and the Investment
Adviser are fair to the Fund and consistent with applicable regulatory
guidelines.
The Investment Adviser or its affiliates act as investment adviser to other
clients that may invest in securities for which no public market price exists.
The Investment Adviser or its affiliates may use other acceptable methods of
valuation in these contexts that may result in differences in the value ascribed
to the same security owned by the Fund and other clients. While the Investment
Adviser will attempt to minimize any such differences that may exist, no
assurance can be given that all differences in value will be eliminated.
Consequently, the fees charged to the Fund and other clients may be different
since the method of calculating the fees, including the incentive fee, takes the
value of all assets, including assets carried at different valuations, into
consideration.
Expenses of the Fund, including Scudder Weisel's management fee and
incentive fee and the costs of any borrowings, are accrued every day net asset
value is calculated and taken into account for the purpose of determining net
asset value.
The net asset value per share is computed by dividing (i) the net asset
value of the Fund by (ii) the number of shares then outstanding. The net asset
value per share will be rounded up or down to the nearest cent. You may obtain
the Fund's net asset value per share by calling _______________. The Fund also
intends to publish its net asset value daily on Scudder Weisel's website
(www._______________.com).
SHARES OF BENEFICIAL INTEREST
The Fund is authorized to issue an unlimited number of shares of beneficial
interest, and the Board of Trustees may divide the Fund's shares into separate
classes or series. Shareholders do not have preemptive, subscription or
conversion rights, and are not liable for further calls or assessments. The
Board of Trustees is authorized to classify and reclassify any unissued shares
of beneficial interest from time to time by setting or changing the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such shares.
The Fund is unlikely to have substantial income or to pay dividends. Shares are
not available in certificated form and shares must be held through a broker-
dealer who has entered into a selling group agreement with Scudder Weisel or its
delegate, or through Scudder Weisel directly.
Each of the beneficial interests is entitled to one vote per share of all
shares entitled to be cast at shareholder meetings. The Fund does not intend to
hold annual meetings of shareholders, except when required by applicable law and
regulation. Special meetings may be called by Trustees or the President of the
Fund. The Fund's Declaration of Trust provides that, unless approved by the
Trustees, any transfer will be void if made (i) to an account held through an
entity other than Scudder Weisel or a broker-dealer that has not entered into a
selling group agreement with Scudder Weisel or its delegate or (ii) to any
person who is not a Qualified Client. In general, any action requiring a vote of
the holders of the shares of beneficial interest of the Fund shall be effective
if taken or authorized by the affirmative vote of a majority of the shares
entitled to be cast of the requisite quorum of thirty-three and one-third
percent (33-1/3%). Any change in the Fund's fundamental policies requires
approval of a majority of the votes entitled to be cast in person or by proxy,
as defined in the 1940 Act. Shareholders must also
42
<PAGE>
approve any amendment to the Fund's charter or by laws that would result in a
change in their voting rights. Some of the foregoing could have the effect of
delaying, deferring or preventing changes in control of the Fund.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Fund, after payment of all of the liabilities of the Fund, the
Fund's shareholders are entitled to share ratably in all the remaining assets of
the Fund.
DISTRIBUTION POLICY
Dividends will be paid annually on the shares in amounts representing
substantially all of the net investment income, if any, earned each year.
Payments will vary in amount, depending on investment income received and
expenses of operation. It is likely that many of the companies in which the Fund
invests will not pay any dividends, and this, together with the Fund's
relatively high expenses, means that there can be no assurance the Fund will
have substantial income or pay dividends. The Fund is not a suitable investment
if you require regular dividend income.
Substantially all of any taxable net capital gain realized on investments
will be paid to shareholders at least annually. The net asset value of each
share that you own will be reduced by the amount of the distributions or
dividends that you receive from that share.
AUTOMATIC REINVESTMENT PLAN
---------------------------
Pursuant to the automatic reinvestment plan ("Plan"), shareholders are
presumed to have elected to have all income dividends and capital gains
distributions automatically reinvested in Fund shares pursuant to the Plan.
Shareholders who choose not to participate in the Plan will receive all income
dividends and/or capital gains distributions in cash.
Each shareholder of the Fund whose shares are registered in his or her own
name will automatically be a participant under the Plan, unless such shareholder
specifically elects to receive all dividends and/or capital gain distributions
in cash. You are free to change your election at any time by contacting your
broker-dealer or other nominee, who will inform the Fund. A Fund shareholder
whose shares are registered in the name of a broker-dealer or other nominee must
contact the broker-dealer or other nominee regarding his or her status under the
Plan, including whether such broker-dealer or other nominee will participate on
such shareholder's behalf.
You may elect to:
. reinvest both dividends and capital gain distributions;
. receive dividends in cash and reinvest capital gain distributions; or
. receive both dividends and capital gain distributions in cash.
Generally, for U.S. federal income tax purposes, shareholders receiving
shares under the Plan will be treated as having received a distribution equal to
the amount payable to them in cash as a distribution had the shareholder not
participated in the Plan.
Shares will be issued to you at their net asset value on the ex-dividend
date. There is no sales charge or other charge for reinvestment. Your request
must be received by the Fund before the record date to be effective for that
dividend or capital gain distribution. The Fund may terminate the automatic
reinvestment plan at any time.
For more information about the Plan, please contact the Transfer Agent by
writing to 811 Main Street, Kansas City, MO 64105-2005 or by calling
1-800-___________.
43
<PAGE>
TAXES
The Fund intends to qualify and elect to be treated as a regulated
investment company under the Internal Revenue Code. As a regulated investment
company, the Fund will generally be exempt from federal income taxes on net
investment income and capital gains distributed to shareholders, as long as at
least 90% of the Fund's investment income and net short-term capital gains are
distributed to shareholders each year.
The Fund will have to satisfy certain requirements relating to the source
of its income and the diversification of its assets in order to qualify as a
regulated investment company. To the extent that the Fund invests in private
investment funds, investments made by such funds could affect the Fund's ability
to qualify as a regulated investment company. Increases in the value of any
illiquid assets that the Fund holds, when combined with the effect of share
repurchases could also adversely affect the Fund's ability to qualify as a
regulated investment company. As a result, there can be no assurance that the
Fund will be able to continue to qualify as a regulated investment company. If
the Fund fails to so qualify, it would be subject to tax on any income or gains
that it earns and the shareholders would also be subject to tax on distributions
and/or redemptions of shares.
The Fund may also be subject to an annual excise tax of 4% to the extent
that it does not make certain distributions of income and gains during each
calendar year. Although it is anticipated that the Fund will make such
distributions, it may be difficult to obtain appropriate information from
private investment funds on a timely basis. In addition, Scudder Weisel may
determine that it would be appropriate for the Fund to pay the excise tax in
light of the potential illiquidity of Fund investments and other factors.
Dividends from net investment income and distributions from net short-term
capital gain are taxable as ordinary income and, to the extent attributable to
dividends received by the Fund from U.S. corporations, may be eligible for a 70%
dividends-received deduction for shareholders that are corporations.
Distributions, if any, from the excess of net long-term capital gain over net
short-term capital loss are taxable to shareholders as long-term capital gain,
regardless of how long the shareholder has held the shares in the Fund, and are
not eligible for the dividends-received deduction. The tax treatment of
dividends and capital gain distributions is the same whether you take them in
cash or reinvest them to buy additional Fund shares. Because the Fund engages
in limited repurchase offers, there is no assurance that you will be able to
have Fund shares repurchased to provide cash for the payment of tax liabilities.
The Fund does not intend to operate so as to be permitted to "pass-through"
to its shareholders credit for foreign taxes, if any, that the Fund pays.
Hedging activities by the Fund may increase the amount of short-term capital
gain realized by the Fund, which is taxed as ordinary income when distributed to
shareholders and may also result in the deferral of the recognition of losses by
the Fund (which could increase the amount of taxable distributions to
shareholders). Gains from foreign currency forward contracts will generally be
treated as ordinary income.
Each January, you will be sent information on the tax status of any
distribution made during the previous calendar year.
Shareholders should consult their tax advisors regarding the specific tax
consequences, including state and local tax consequences, of participating in a
repurchase offer. A sale of Fund shares pursuant to a repurchase offer will be
treated as a taxable sale or exchange of the Fund shares if the tender (i)
completely terminates the shareholder's interest in the Fund, (ii) is treated as
a distribution that is "substantially disproportionate" or (iii) is treated as a
distribution that is "not essentially equivalent to a dividend." A
"substantially disproportionate" distribution generally requires a reduction of
at least 20% in the shareholder's proportionate interest in the Fund after
taking into account all shares sold under the repurchase offer. A distribution
"not essentially equivalent to a dividend" requires that there be a "meaningful
reduction" in the shareholder's interest, which should be the case if the
shareholder has a minimal proportionate interest in the Fund, exercises no
control over Fund affairs and suffers a reduction in his or her proportionate
interest.
44
<PAGE>
The Fund intends to take the position that sales of Fund shares pursuant to
a repurchase offer will qualify for sale or exchange treatment. If the
transaction is treated as a sale or exchange for tax purposes, any gain or loss
recognized will be treated as a capital gain or loss by shareholders who hold
their Fund shares as a capital asset and as a long-term capital gain or loss if
such shares have been held for more than one year. However, if you sell Fund
shares on which a long-term capital gain distribution has been received and you
held the shares for six months or less, any loss you realize will be treated as
a long-term capital loss to the extent that it offsets the long-term capital
gain distribution. All or a portion of any loss realized on a sale may also be
disallowed if the shareholder acquires other Fund shares within 30 days before
or after the sale and, in such a case, the basis of the acquired shares would
then be adjusted to reflect the disallowed loss.
If a sale of Fund shares pursuant to a repurchase offer is not treated as a
sale or exchange, then the amount received upon a sale of shares may consist in
whole or in part of ordinary dividend income, a return of capital or capital
gain, depending on the Fund's earnings and profits for its taxable year and the
shareholder's tax basis in the Fund shares. In addition, if any amounts
received are treated as a dividend to tendering shareholders, there is a risk
that a constructive dividend may be considered to be received by non-tendering
shareholders whose proportionate interest in the Fund has been increased as a
result of the tender. In addition, to the extent that the price under a
repurchase offer includes unrealized gains, non-tendering shareholders would be
taxed if and when the Fund recognizes and distributes such gains.
The Fund generally will be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividends paid, capital gain
distributions, and redemption proceeds to individuals and certain other non
corporate shareholders if (1) the shareholder fails to furnish the Fund with the
shareholder's correct taxpayer identification number or social security number,
(2) the IRS notifies the shareholder or the Fund that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he or she is not subject to backup
withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.
Distributions may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Non-U.S. shareholders may
be subject to U.S. tax rules that differ significantly from those summarized
above, including the likelihood that ordinary income dividends (including
distributions of net short-term capital gains) to them would be subject to
withholding of U.S. tax at a rate of 30% (or a lower treaty rate, if
applicable).
The discussion contained in this section is a general and abbreviated
summary of certain federal tax considerations affecting the Fund and its
shareholders, and is not intended as tax advice or to address a shareholder's
particular circumstances. Investors are urged to consult their tax advisors
regarding the tax consequences of investing in the Fund.
HOW TO PURCHASE FUND SHARES
INVESTOR QUALIFICATIONS AND TRANSFER RESTRICTIONS
-------------------------------------------------
Scudder Weisel will offer shares of the Fund only to investors who are
"qualified clients" as that term is defined in Rule 205-3 under the Investment
Advisers Act of 1940, as that rule may be amended from time to time. Currently,
qualified clients include natural persons and companies that have a net worth
(together, in the case of a natural person, with assets held jointly with a
spouse) of more than $1,500,000, or who meet the standard for a "qualified
purchaser" in the 1940 Act and the rules thereunder. Qualified clients also
include persons who have at least $750,000 under management by Scudder Weisel or
the Investment Adviser, including any amount invested in the Fund, and certain
knowledgeable employees who participate in investment activities of Scudder
Weisel or the Investment Adviser. All of these persons are referred to in this
Prospectus as "Qualified Clients." Your broker-dealer may require you to
complete and sign an investor certification before
45
<PAGE>
you may invest. The form of investor certification that you may be asked to sign
is included as Appendix A to this Prospectus.
Shares may be transferred only to another Qualified Client. In addition,
shares may be held only through a broker-dealer that is a party to a selling
group agreement with Scudder Weisel or its delegate. The existence of transfer
restrictions will be indicated on customer confirmations by the broker-dealers
through which shares are held. These broker-dealers will be required to
implement procedures designed to ensure that transfers between their customers
are made only to Qualified Clients. In accordance with the Fund's charter, the
Fund will not recognize any transfer (i) to an account held through any entity
other than Scudder Weisel or a broker or dealer that is not party to a selling
group agreement with Scudder Weisel or its delegate or (ii) to any person who is
not a Qualified Client. Any such transfer will be void. These transfer
restrictions will apply to all transfers, including gifts or bequests of your
shares. It will be difficult to sell or transfer your shares in the Fund. You
may be unable to sell or transfer shares in the manner or at the time you
desire, and you should not expect that you would be able to transfer your shares
at all.
INITIAL AND CONTINUOUS OFFERING
-------------------------------
Scudder Weisel is the distributor of the Fund's shares pursuant to a
Distr ibution Agreement between the Fund and Scudder Weisel. Scudder Weisel is
offering the Fund's shares during an initial offering period that terminates on
________, 2001. The minimum investment is $25,000. Broker-dealers will offer
Class A shares of the Fund during the initial offering period at a price of
$25.00 per share, plus the applicable front-end sales charge. Scudder Weisel
will offer Class O shares of the Fund to its advisory clients during the initial
offering period at a maximum offering price of $25.00 per share. After the
termination of the initial offering period, the Fund may sell the shares on a
continuous basis at net asset value, plus any applicable sales charge.
The Fund must receive your payment for shares purchased in the initial
offering by _______, 2001 unless Scudder Weisel extends the initial offering.
You should consult with your broker-dealer to ensure that this deadline is met.
The Fund will have the sole right to accept orders to purchase shares and
reserves the right to reject any order in whole or in part.
No market exists for the Fund's shares. The Fund's shares will not be
listed on any securities exchange, and the Fund does not anticipate that a
secondary market will develop for its shares. Neither Scudder Weisel, nor any
broker-dealer that Scudder Weisel may select to participate in the initial
offering of the Fund's shares, intends to make a market in the Fund's shares.
The Fund has agreed to indemnify Scudder Weisel against certain
liabilities, including liabilities under the 1933 Act.
Shares of the Fund are sold with a front-end sales charge and are subject
to an ongoing shareholder services charge.
The primary distinction among the classes of the Fund's shares lies in
their distribution channels, resulting in differing initial sales charges. These
differences are summarized in the table below. See also, "Fund Expenses."
<TABLE>
<CAPTION>
Annual Distribution Fees (as a %
Sales Charge of average daily net assets) Other Information
------------- ----------------------------------- -----------------
<S> <C> <C> <C>
Class A Up to 4.75% of the public offering None Shareholder service fee of 0.50% of
price average daily net assets
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C> <C>
Class O Up to 3.00% of the public offering None Shareholder service fee of 0.50% of
price average daily net assets
</TABLE>
PURCHASE OF CLASS A SHARES. Class A shares are sold at net asset value
---------------------------
plus a front-end sales charge at the time of purchase, as set forth below,
through brokers-dealers that have entered into a selling group agreement with
Scudder Weisel or its delegate.
<TABLE>
<CAPTION>
Amount of Purchase As a % of public offering price As a % of net asset value
------------------ ------------------------------- -------------------------
<S> <C> <C>
Less than $100,000 4.75% ______%
$100,000 but less than $750,000 3.75% ______%
$750,000 but less than $1.5 million 2.75% ______%
$1.5 million or more 1.00% ______%
</TABLE>
You may qualify for reduced sales charges if you inform the Fund in writing
that you intend to purchase enough shares over a __ month period to qualify for
a reduced sales charge. A __ day back-dated period can also be used to count
previous purchases toward your goal. Your goal must be at least $____, and the
sales charge will be adjusted upward if you do not meet your goal.
The Fund receives the entire net asset value of all its Class A shares
sold. Scudder Weisel, the Fund's distributor, retains the sales charge, from
which it allows discounts from the applicable public offering price to brokers-
dealers, which discounts are uniform for all broker-dealers. The normal
discount allowed to broker-dealers in each of the categories set forth above is
4.0%, 3.0%, 2.0%, and 0.50% respectively. Upon notice to all broker-dealers
with whom it has sales agreements, Scudder Weisel may re-allow up to the full
applicable sales charge, as shown in the above table, during periods and for
transactions specified in such notice and such reallowances may be based on the
attainment of a minimum sales level.
PURCHASE OF CLASS O SHARES. Class O shares are sold directly through
--------------------------
Scudder Weisel at net asset value per share, plus a front-end sales charge, as
set forth below, to Scudder Weisel's investment advisory clients. Potential
investors who have not entered into an investment advisory relationship with
Scudder Weisel are not eligible to purchase Class O shares.
<TABLE>
<CAPTION>
Amount of Purchase As a % of public offering price As a % of net asset value
------------------ ------------------------------- -------------------------
<S> <C> <C>
Less than $750,000 3.00% ______%
$750,000 but less than $1.5 million 2.00% ______%
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C>
$1.5 million or more 0.50% ______%
</TABLE>
The Fund receives the entire net asset value of all of its Class O shares
sold. Scudder Weisel, the Fund's distributor, retains the entire sales charge.
CONTINUOUS OFFERING
-------------------
After the termination date of the initial offering, the Fund may commence a
continuous offering of its shares through broker-dealers and Scudder Weisel at a
public offering price equal to their net asset value, plus any applicable sales
charge. Any of these continuous offerings, if commenced, may be discontinued at
any time. The Fund may commence other continuous offerings from time to time in
the future. During any continuous offering of the Fund's shares, shares of the
Fund may be purchased only from the selected broker-dealers or through Scudder
Weisel.
The public offering price will be determined based upon the net asset value
next calculated after the Fund accepts your purchase order. Purchase orders
received by a broker-dealer or Scudder Weisel by the close of regular business
on the NYSE, currently 4:00 p.m., Eastern time, including orders received after
the close of regular business on the previous day, and accepted by the Fund
before 5:00 p.m., Eastern time, on the same day will be executed at the net
asset value per share calculated as of the close of business on the NYSE on that
day. If your purchase order is received after the times indicated above, your
order will be executed at the net asset value per share calculated as of the
close of business on the NYSE the next business day.
Whether you are investing in the Fund for the first time or adding to an
existing investment, the Fund provides you with several methods to buy its
shares.
METHODS FOR PURCHASING SHARES
-----------------------------
Investors may purchase shares in the following ways:
. Any selected broker-dealer authorized can sell you Class A shares of the
Fund. Please note that broker-dealers may charge you fees for their services
in addition to receiving a portion of the front-end sales charge.
. Investment advisory clients of Scudder Weisel can purchase Class O shares of
the Fund directly through Scudder Weisel.
. You may purchase shares through the Automatic Investment Plan.
. You may purchase shares through the Reinvestment Privilege.
Minimum Investment Requirements:
For your initial investment in the Fund $25,000
To buy additional shares of the Fund $ 1,000
48
<PAGE>
OPENING AN ACCOUNT WITH THE FUND
--------------------------------
To make an investment in the Fund, contact your broker-dealer, other
financial intermediary or Scudder Weisel at ______________. Accounts may be
opened only through the selected broker-dealers or through Scudder Weisel.
Shares are not available in certificated form. Shares may be transferred to an
account at another broker-dealer only if such broker-dealer has entered into a
selling group agreement with Scudder Weisel or its delegate.
SALES CHARGE WAIVERS
--------------------
Scudder Weisel may, at its discretion, waive sales charges and minimum
investment requirements for the purchase of shares of the Fund by or on behalf
of (1) purchasers for whom Scudder Weisel or the Investment Adviser or one of
their affiliates acts in a fiduciary, advisory, custodial or similar capacity,
(2) employees and retired employees (including spouses, children and parents of
employees and retired employees) of Scudder Weisel or the Investment Adviser and
any affiliates of Scudder Weisel or the Investment Adviser, (3) Trustees and
retired Trustees of the Fund (including spouses and children of Trustees and
retired Trustees) and any affiliates thereof, (4) purchasers who use proceedsw
from an account for which Scudder Weisel or the Investment Adviser or one of
their affiliates acts in a fiduciary, advisory, custodial or similar capacity,
to purchase shares of the Fund, (5) brokers, dealers and agents who have a sales
agreement with Scudder Weisel, and their employees (and the immediate family
members of such individuals), (6) investment advisers or financial planners that
have entered into an agreement with Scudder Weisel and that place trades for
their own accounts or the accounts of eligible clients and that charge a fee for
their services, and clients of such investment advisers or financial planners
who place trades for their own accounts if such accounts are linked to the
master account of the investment adviser or financial planner on the books and
records of a broker-dealer or agent that has entered into an agreement with
Scudder Weisel, and (7) orders placed on behalf of other investment companies
that Scudder Weisel or the Investment Adviser or an affiliated company
distributes. To receive a sales charge or minimum investment waiver in
conjunction with any of the above categories, shareholders must, at the time of
purchase, give Scudder Weisel sufficient information to permit confirmation of
qualification.
GENERAL INFORMATION
DESCRIPTION OF THE FUND
-----------------------
The Fund is registered under the 1940 Act as a closed-end, non-diversified
management investment company. The Fund was established as a business trust
under the laws of the State of Delaware on October 5, 2000 and has no operating
history. The Fund's office is located at 88 Kearny Street, San Francisco, CA
94108 and its telephone number is ___________________. Scudder Weisel and the
Investment Adviser provide investment management services to the Fund.
The Fund's fiscal year ends on December 31.
STATUS OF SHARES
----------------
The Board of Trustees may classify or reclassify any issued or unissued
shares of the Fund into shares of any series or classes by redesignating such
shares or by setting or changing in any one or more respects, from time to time,
prior to the issuance of such shares, the preferences, conversion or other
rights, voting powers, restrictions,
49
<PAGE>
limitations as to dividends, qualifications, or terms or conditions of
repurchase of such shares. Any such classification or reclassification will
comply with the provisions of the 1940 Act.
The following table sets forth information about the Fund's Class A and
Class O shares, as of the date of this Prospectus. As of that date Class A and
Class O shares are the only shares authorized and issued by the Fund.
<TABLE>
<CAPTION>
Amount Outstanding
Amount Held Exclusive of
By Registrant or Amount Shown
Title of Class Amount Authorized for its Account Under Previous Column
--------------- ----------------- ----------------- ---------
<S> <C> <C> <C>
Class A shares Unlimited None --
Class O shares Unlimited None --
</TABLE>
ALLOCATION OF INVESTMENT OPPORTUNITIES
--------------------------------------
Allocation of investment opportunities among the Fund and other clients of
the Investment Adviser are made pursuant to procedures approved by the Board of
Trustees that seek to minimize the Investment Adviser's conflicts of interest.
For a more detailed discussion of the allocation procedures applicable with
respect to the Fund, see the SAI.
ENHANCED LIQUIDITY CONSIDERATIONS
---------------------------------
Although it has no obligation to take any particular action that would
enhance the Fund's liquidity at any time, the Board of Trustees anticipates that
the Fund, commencing seven years after the date of the Fund's first public
issuance of shares, may, subject to any shareholder approval that may be sought
at the time, take steps to offer enhanced liquidity to shareholders. These
enhanced liquidity features may include, but are not limited to, undertaking
quarterly repurchases offers for up to 25% of the Fund's shares or engaging in
periodic tender offers for a percentage of the Fund's then-outstanding shares.
The Board of Trustees may delay implementation of, or decline to implement, any
enhanced liquidity features in its discretion, based on an assessment of market
factors at that time. Investors should not purchase shares of the Fund in
anticipation that any such enhanced liquidity feature will be implemented.
LIQUIDATING TRUST
-----------------
The Board of Trustees may, at its discretion if determined to be in the
best interests of shareholders, distribute the assets of the Fund into and
through a liquidating trust to effect the liquidation of the Fund. The use of a
liquidating trust would be subject to the regulatory requirements of the 1940
Act and applicable Delaware law, and could result in expenses that the Fund's
shareholders would bear indirectly.
50
<PAGE>
TABLE OF CONTENTS OF SAI
ADDITIONAL INVESTMENT POLICIES................................................
ADDITIONAL INFORMATION ON INVESTMENT TECHNIQUES...............................
SHARE REPURCHASES.............................................................
TRUSTEES AND OFFICERS.........................................................
LIQUIDITY REQUIREMENTS........................................................
CODE OF ETHICS................................................................
INVESTMENT MANAGEMENT AND OTHER SERVICES......................................
INDEPENDENT AUDITORS..........................................................
CUSTODIAN AND ADMINISTRATOR...................................................
TRANSFER AGENT AND DIVIDEND PAYING AGENT......................................
DISTRIBUTOR AND SHAREHOLDER SERVICES AGENT....................................
LEGAL COUNSEL.................................................................
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS..............................
APPENDIX A....................................................................
51
<PAGE>
[back cover of prospectus]
Scudder Weisel Capital Entrepreneurs Fund
88 Kearny Street
San Francisco, CA 94108
A Management Type
Non-Diversified, Closed-End
Investment Company
-----------------------------
__________ CLASS A SHARES OF BENEFICIAL INTEREST
__________ CLASS O SHARES OF BENEFICIAL INTEREST
-----------------------------
PROSPECTUS
_____________________________
[Until ________ , 2001 (90 calendar days after the commencement of the
offering), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of the selected
broker-dealers to deliver a Prospectus in connection with each sale made
pursuant to this offering.]
INVESTMENT MANAGER FUND ACCOUNTANT
Scudder Weisel Capital LLC _______________________
INVESTMENT ADVISER TRANSFER AGENT
Whitney Holdings LLC Kemper Service Corporation
ADMINISTRATOR/CUSTODIAN LEGAL COUNSEL
State Street Bank and Trust Company Dechert
52
<PAGE>
APPENDIX A - FORM OF INVESTOR CERTIFICATION
Scudder Weisel Capital Entrepreneurs Fund
Account No.: _________________
Intermediary Name : _________________
Investor Certification
This certificate relates to my potential purchase of shares of Scudder
Weisel Capital Entrepreneurs Fund (the "Fund").
I hereby certify that I am a natural person with, or I am signing on behalf
of a company with, a net worth (if a natural person, together with assets held
jointly with my spouse) of more than the amount specified in Rule 205-3 under
the Investment Advisers Act of 1940, as amended (the "Advisers Act"), for a
"qualified client" (currently $1,500,000). If I am signing on behalf of a
company, I further certify that (A) such company is not a private investment
company,* a registered investment company or a business development company or
(B) if such a company, each equity owner can make the certification in the
preceding sentence. For purposes of this test, net worth is the fair market
value of the assets that I (jointly with my spouse) or such company own(s) other
than household effects, less all indebtedness and liabilities of any type
(including joint liabilities with any other person). I agree to produce evidence
to support the foregoing certification upon request.
In addition, I hereby confirm that I understand and agree that should I (or
the company) purchase shares of the Fund, the following conditions will apply to
the ownership and transfer of the shares:
(1) Shares may be held only through a broker or dealer or other
financial services intermediary that has entered into a selling
group agreement with Scudder Weisel Capital LLC ("Scudder Weisel)
or its delegate; and
(2) Shares may not be transferred except to a person who is a
"qualified client," as such term is defined in Rule 205-3 of the
Advisers Act, who agrees to hold his, her or its shares through a
broker or dealer or other financial services intermediary that has
entered into a selling group agreement with Scudder Weisel or its
delegate, and who agrees not to transfer the shares except to another
person who is a qualified client and agrees to comply with the
foregoing ownership and transfer restrictions.
I understand that you, the Fund and its investment adviser are relying on
the certification and agreements made herein in determining my qualification and
suitability as an investor in the Fund. I understand that shares of the Fund are
not an appropriate investment for, and may not be acquired by, any person who
cannot make this certification, and agree to indemnify you and hold you harmless
from any liability that
<PAGE>
you may incur as a result of this certification being untrue in any liability
that you may incur as a result of this certification being untrue in any
respect. I understand that it may be a violation of state and federal law for me
(or the company) to provide this certification if I know that it is not true. I
have read the preliminary or final prospectus for the Fund, including the
investor qualification and investor suitability provisions contained therein. I
understand that an investment in the Fund involves a considerable amount of risk
and that I (or the company) may lose some or all of my (or its) investment. I
understand that an investment in the Fund is suitable only for investors who can
bear the risks associated with the limited liquidity of the shares and should be
viewed as a long-term investment. I will promptly advise you if any of the
statements herein ceases to be true prior to my (or the company's) purchase of
shares.
Date: ________________ By: ________________________________
_____________________ Name:
* For this purpose, "private investment company" means a company that
would be defined as an investment company under Section 3(a) of the
Investment Company Act but for the exception provided from the
definition by Section 3(c)(1) of such Act. (i.e., not more than 100
security owners).
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Scudder Weisel Capital Entrepreneurs Fund
_________ Class A Shares of Beneficial Interest
_________ Class O Shares of Beneficial Interest
88 Kearny Street
San Francisco, CA 94108
1-800 -___________
This Statement of Additional Information ("SAI") is not a prospectus. This
SAI relates to an should be read in conjunction with the prospectus of the
Scudder Weisel Capital Entrepreneurs Fund (the "Fund") dated _______, 2001. A
copy of the prospectus may be obtained by contacting the Fund at the telephone
number or address set forth above.
The date of this statement of additional information and the related
prospectus is ________ .
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ADDITIONAL INVESTMENT POLICIES................................................................... 3
ADDITIONAL INFORMATION ON INVESTMENT TECHNIQUES.................................................. 4
SHARE REPURCHASES................................................................................ 11
TRUSTEES AND OFFICERS............................................................................ 11
LIQUIDITY REQUIREMENTS........................................................................... 13
CODE OF ETHICS................................................................................... 13
INVESTMENT MANAGEMENT AND OTHER SERVICES......................................................... 13
INDEPENDENT ACCOUNTANTS.......................................................................... 15
CUSTODIAN AND ADMINISTRATOR...................................................................... 15
TRANSFER AGENT AND DIVIDEND PAYING AGENT......................................................... 15
DISTRIBUTOR AND SHAREHOLDER SERVICES AGENT.......................................................
LEGAL COUNSEL.................................................................................... 16
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS................................................. 16
</TABLE>
2
<PAGE>
ADDITIONAL INVESTMENT POLICIES
The investment objective and principal investment strategies of the Fund,
as well as the principal risks associated with the Fund's investment strategies,
are set forth in the Prospectus. Certain additional investment information is
provided below. The Fund's investment manager is Scudder Weisel Capital LLC
("Scudder Weisel"). The Fund's investment adviser is Whitney Holdings LLC (the
"Investment Adviser"). Capitalized terms not otherwise defined herein have the
same meaning set forth in the Prospectus. Unless otherwise specified, percentage
limitations shall be applied at the time of investment. Therefore, these
percentages could be exceeded due to fluctuations in the value of the Fund's
portfolio securities or liquidation of portfolio securities to pay expenses or
fulfill repurchase requests.
FUNDAMENTAL POLICIES
The Fund's stated fundamental policies, which may not be changed without a
vote of shareholders, are listed below. No other policy, including the Fund's
investment objective, is a fundamental policy of the Fund, except as expressly
stated. Within the limits of these fundamental policies, the Fund's management
has reserved freedom of action. The Fund:
(1) May borrow money or issue any senior security, to the extent
permitted under the Investment Company Act of 1940, as amended
("1940 Act"), and as interpreted, modified, or otherwise
permitted by regulatory authority having jurisdiction, from time
to time.
(2) May not act as an underwriter of securities of other issuers,
except to the extent that in connection with the disposition of
portfolio securities, it may be deemed to be an underwriter under
the federal securities laws.
(3) May not purchase or sell real estate, although it may purchase
and sell securities secured by real estate or interests therein,
or securities issued by companies which invest in real estate, or
interests therein.
(4) May make loans only as permitted under the 1940 Act, and as
interpreted, modified, or otherwise permitted by regulatory
authority having jurisdiction, from time to time.
(5) With respect to its share repurchases:
. the Fund will, beginning in July 2001, make offers to
repurchase shares every three months, except to the extent
such offers may be suspended or postponed, pursuant to Rule
23c-3 under the 1940 Act, as that Rule may be amended from
time to time;
. a minimum of 5% of the Fund's outstanding shares of
beneficial interest will be subject to each quarterly
repurchase offer, unless the Board of Trustees establishes a
different percentage, which must be from 5% and 25%;
. the repurchase request deadlines will be a business day
determined by the Board of Trustees no earlier than 21
business days and no later than 42 business days after the
mailing of a notice with respect to each repurchase offer;
and
. there will be a maximum 14 day period between the repurchase
request deadline for each repurchase request and the date on
which the Fund's net asset value for that repurchase is
determined.
(6) May not invest 25% or more of the value of the Fund's total
assets in securities of issuers in any one industry. Investments
in securities issued by the U.S. government or states or local
governments or related agencies and instrumentalities are not
considered to be an industry for these purposes.
3
<PAGE>
(7) May not purchase or sell physical commodities and commodity
contracts, except that it may (a) enter into futures contracts
and options thereon in accordance with applicable law and (b)
purchase or sell physical commodities if acquired as a result of
ownership of securities or other instruments. The Fund will not
consider stock index, currency and other financial futures
contracts, swaps or hybrid instruments to be commodities for the
purposes of this investment policy.
As an additional fundamental policy, the Fund may pursue its investment
program through one or more subsidiary vehicles. The establishment of such
vehicles and the Fund's utilization thereof is wholly within the discretion of
the Fund's Board of Trustees.
ADDITIONAL INFORMATION ON INVESTMENT TECHNIQUES
Venture Capital Companies. The Fund may invest up to 60% of its net assets
in private equity and debt securities, including private equity and debt
securities issued by venture capital companies. All venture capital investments
involve substantial risks. The risks associated with investments in companies in
the early stages of development are greater than those of companies in the late
(sometimes called "pre-IPO") stage, because the concepts generally are unproven,
the companies have little or no track record, and the prospect of an IPO is
highly contingent on factors that often are not in the companies' control. The
Investment Adviser also may lack information on which to base its evaluation of
an investment in a venture capital company. For example, since venture capital
companies do not file periodic reports with the SEC, there is less publicly
available information about them than there is for other small companies, if
there is any at all. The Fund must therefore often rely on information received
directly from the venture capital company or persons associated with it to
evaluate potential investment returns. Early stage companies are not expected by
the Investment Adviser to conduct an IPO within 36 months of the Fund's initial
investment. The earliest investment in early-stage companies typically involves
a relatively small amount of capital that finances a concept, so that start-up
capital can be obtained. Early stage financing may also refer to capital
extended to companies completing product development and initial marketing.
Typically, a company at the early financing stage has not yet sold its product
commercially. Companies that have expended or anticipate expending their initial
capital (often in developing and market-testing a prototype) and that require
funds to initiate full-scale manufacturing and sales seek "expansion financing."
Expansion capital may also provide working capital for the initial expansion of
a company that is manufacturing and shipping its product, but that does not yet
show a profit. The Fund generally will participate in early stage and/or
expansion financing for a company only if the company has an established
management team with a proven track record of building a business and, in the
judgment of the Investment Adviser, an innovative idea with a sustainable
competitive advantage. The Investment Adviser's other clients, including private
funds, may compete with the Fund for investments in early-stage companies, and
therefore the Fund may not be able to invest in these companies to the extent it
desires. In addition, the Fund may have to forego attractive investment
opportunities in companies in which certain of the Investment Adviser's other
clients have existing investments when such investment would be inconsistent
with applicable law.
Late stage companies will typically have small market capitalizations and
limited or no liquidity; even after an IPO, liquidity may be limited and the
Fund may be subject to contractual limitations on its ability to sell shares. A
portion of the Fund's venture capital investments may be in companies that have
not yet developed infrastructure or commenced earning revenues. These types of
companies are in the early expansion stage of development. The Fund's venture
capital investments may include securities of private investment funds that
invest primarily in venture capital companies. These investments may involve
relatively high fees (the Fund will be indirectly paying fees to the manager of
such investment funds and to Scudder Weisel on the same assets) and a high
degree of risk. Late stage companies are expected by the Investment Adviser to
conduct an IPO within 12 to 24 months of the Fund's initial investment, although
there can be no assurance the company will ever conduct an IPO.
Venture capital companies tend to rely more heavily on the performance of
key personnel than more mature companies do. Competition for qualified personnel
and high turnover of personnel are particularly prevalent in venture capital
companies. The loss of one or a few key managers can substantially hinder or
delay a venture capital company's implementation of its business plan. In
addition, venture capital companies may not be able to attract and retain
qualified managers and personnel.
4
<PAGE>
Some venture capital companies may depend upon managerial assistance or
financing their investors provide. The Fund generally does not intend to provide
such managerial assistance, although affiliates of the Fund may have seats or
presence on boards of directors of these companies. The Fund may, however,
provide additional financing to the companies in which it invests, and at times
may be contractually obligated to do so (that is, its investment agreement may
require follow-on investments in certain circumstances) or may determine that it
is necessary to do so to protect its economic interests. The value of the Fund's
investments may depend in part upon the quality of managerial assistance other
investors provide and their ability and willingness to provide financial
support.
The Fund may invest in venture capital companies that have already received
funding from other sources. These companies may involve special risks, and the
economic terms that the Fund obtains from them may be less favorable than if the
Fund had invested earlier. For example, preferred stock acquired in later rounds
of financing may have less favorable conversion ratios than preferred stock
issued to earlier investors. A lower ratio will tend to reduce the Fund's
economic interest upon completion of an IPO.
Depending on the specific facts and circumstances of a venture capital
investment, there may not be a reasonable basis to revalue it for a substantial
period of time after the Fund's investment. If a venture capital company does
not complete an IPO or enter into a transaction whereby its shares are exchanged
for shares of a public company, there may never be a public market benchmark for
valuing the investment. The Fund's net asset value per share may change
substantially in short time periods as a result of developments at the companies
in which the Fund invests. Changes in the Fund's net asset value may be more
pronounced and more rapid than with other funds because of the Fund's emphasis
on venture capital companies that are not publicly traded. The Fund's net asset
value per share may change materially from day to day, including during the time
between the date a repurchase offer is mailed and the due date for tendering
shares, and during the period immediately after a repurchase is completed.
Accordingly, the net asset value included in the repurchase materials we mail to
you and the repurchase price the Fund pays for your shares may differ
significantly.
Mezzanine Debt Investment. Either directly or through an investment fund (a
"mezzanine fund"), the Fund may invest in mezzanine investments ("Mezzanine
Investments"). Mezzanine Investments generally are below investment grade rated
investments or comparable unrated securities (often referred to as "junk bonds")
that have greater credit and liquidity risk than more highly rated debt
obligations. Mezzanine Investments are typically issued in traditional private
placements and have no trading market. Moreover, Mezzanine Investments are
generally unsecured and subordinate to other obligations of the obligor
("issuer"). Adverse changes in the financial condition of the issuer of
Mezzanine Investments or in general economic conditions (including, for example,
a substantial period of rising interest rates or declining earnings) or both may
impair the ability of each issuer to make payment of principal and interest.
Certain issuers of Mezzanine Investments may be highly leveraged, and their
relatively high debt-to-equity ratios create increased risks that their
operations might not generate sufficient cash flow to service their debt
obligations. Additional risks of the Mezzanine Investments include, but are not
limited to, concentration of investments, and credit, interest rate and currency
exchange risks.
The Investment Adviser's Mezzanine Investment strategy is characterized by
a growth capital focus and a proactive investment process. The Investment
Adviser believes that its Mezzanine Investments will capitalize on market
inefficiency resulting from a relatively large universe of target companies and
a relatively limited supply of capital for small to medium size growth
companies. The Investment Adviser believes that these Mezzanine Investments are
attractive because of the: (i) characteristics of the companies in the growth
capital marketplace; (ii) large and relatively inefficient mezzanine market;
(iii) increasing mezzanine debt "gap"; and (iv) operating and financial risk
profile of companies suitable for Mezzanine Investments. The companies targeted
by the Investment Adviser, or a mezzanine fund in which the Fund may invest,
typically range in size from $50 million to $500 million in enterprise value.
Capital is used by these businesses to fund internally driven expansion, growth
through strategic acquisitions, partial recapitalizations, and management
leveraged buyouts suitable for Mezzanine Investments.
5
<PAGE>
The Investment Adviser believes that the characteristics of the target
Mezzanine Investment market include:
. a large potential market - according to sources the Investment
------------------------
Adviser believes to be reliable, there are over 35,000 private companies that
fall within the Investment Adviser's target market of companies with revenues
between $50 million and $500 million. Although not all of these companies are
appropriate for leverage, many have a significant need for both debt and equity
growth capital Fund, or a mezzanine fund in which it may invest, with a
significant number of investment opportunities;
. an inefficient mezzanine market - the Investment Adviser believes
-------------------------------
that the mezzanine debt market is undersupplied. According to sources the
Investment Adviser believes to be reliable, for the past three years (ended
December 31, 1999), over $270 billion has been raised in the private equity
market, but only $14 billion, or $0.5 for every dollar of equity, has been
raised in the mezzanine market;
. attractive operating and financial risk profile - within the
-----------------------------------------------
growth capital segment, the Investment Adviser targets companies that have
demonstrable market opportunities, have clearly defined strategies to achieve
growth, have operating histories and proven management teams, and have the
potential for the creation of value through successful business execution. The
Investment Adviser believes that growth companies that achieve scale rapidly
reduce the financial risk associated with a mezzanine investment, and that high
growth companies generally increase quickly in value, thus presenting the
Investment Adviser with more potential liquidity options in a shorter period of
time;
. increasing mezzanine debt "gap" - the Investment Adviser believes
-------------------------------
that the total volume of transactions using leverage in their capital structure
continues to grow. Volume in leveraged bank loans has grown from approximately
$194 billion in 1997 to approximately $320 billion in 1999, thus providing a
large market for mezzanine capital. At the same time, changes in the high yield,
senior debt and public equity markets have increased the need for private
mezzanine capital to complete these and other transactions. The Investment
Adviser believes that the public investors' focus on liquidity has significantly
increased the average size of high yield and public equity transactions and
greatly reduced the number of companies able to access the markets for smaller
transactions. This provides an opportunity for mezzanine investors;
. multiple refunding/liquidity options - investing in growth
------------------------------------
businesses will provide the mezzanine fund with a number of options to refund
its securities and realize equity appreciation. Common exit alternatives include
initial public offerings, secondary equity offerings, principal refundings
through bank and high yield markets, recapitalizations, sales or mergers.
The risks associated with Mezzanine Investments apply whether the Fund
invests in Mezzanine Investments directly or indirectly through an investment in
a mezzanine fund. An investment in a mezzanine fund may pose an additional
conflict of interest because the Investment Adviser will determine to some
extent the amount of the Fund's assets to invest in the mezzanine fund and
either the Investment Adviser or its affiliate will likely be the investment
adviser to that mezzanine fund. Similarly, the same risks associated with
investments in these other instruments exist when the Fund invests in structured
products that, in turn, invest in these securities.
High Yield Debt. The Fund may invest in high yield securities. The Fund
will not invest more than 15% of its net assets in debt securities that are not
rated within the four highest rating categories by Standard & Poor's Rating
Services Inc. or Moody's Investors Services, Inc., or other nationally
recognized statistical rating organization. Such lower rated securities are
commonly referred to as "junk bonds", and generally offer a higher current yield
than that available from investment grade issues, but involve greater risk. The
returns of high yield securities are also subject to: (i) adverse changes in
general economic conditions; (ii) changes in the financial condition of their
issuers; (iii) changes in interest rates; and (iv) changes in market liquidity.
During periods of economic downturn or rising interest rates, issuers of
securities rated below investment grade or comparable unrated securities may
experience financial stress that could adversely affect their ability to make
payments of principal and interest and increase the possibility of default. High
yield securities have historically experienced greater default rates than
investment grade securities. Adverse publicity and investor perceptions, whether
or not based on fundamental
6
<PAGE>
analysis, may also decrease the value and liquidity of high yield securities.
For a description of debt ratings, see Appendix A.
Bank Loans and Participations. The Fund may invest directly or through a
private investment fund, in bank loans or participations in bank loans
(collectively, "bank loans"), either of which may become non-performing for a
variety of reasons. Such non-performing bank loans may require substantial
workout negotiations or restructuring in the event of a default or bankruptcy,
which may entail, among other things, a substantial reduction in the interest
rate and a substantial write-down of the principal of the bank loan. In
addition, bank loans are generally subject to liquidity risks since bank loans
are traded in an "over-the-counter" market.
Bank loans, like most other debt obligations, are subject to the risk of
default. While all investments involve some amount of risk, bank loans generally
involve less risk than equity instruments of the same issuer because the payment
of principal of and interest on debt instruments is a contractual obligation of
the issuer that, in most instances, takes precedence over the payment of
dividends, or the return of capital, to the issuer's shareholders. Although the
Fund may invest in bank loans that will be fully collateralized with assets with
a market value that, at the time of acquisition, equals or exceeds the principal
amount of the bank loan, the value of the collateral may decline below the
principal amount of the bank loan subsequent to the Fund's investment in such
bank loan. In addition, to the extent that collateral consists of stock of the
borrower or its subsidiaries or affiliates, the Fund will be subject to the risk
that this stock may decline in value, be relatively illiquid, or may lose all or
substantially all of its value, causing the bank loan to be undercollateralized.
bank loans are also subject to the risk of default of scheduled interest or
principal payments. In the event of a failure to pay scheduled interest or
principal payments on bank loans held by the Fund, the Fund could experience a
reduction in its income, and would experience a decline in the market value of
the particular bank loan so affected, and may experience a decline in the net
asset value of Fund shares or the amount of its dividends. The risk of default
will increase in the event of an economic downturn or a substantial increase in
interest rates. To the extent that the Fund's investment is in a bank loan
acquired from another lender, the Fund may be subject to certain credit risks
with respect to that lender. Further, there is no assurance that the liquidation
of the collateral (if any) underlying a bank loan would satisfy the issuer's
obligation to the Fund in the event of non-payment of scheduled interest or
principal, or that collateral could be readily liquidated. The risk of non-
payment of interest and principal also applies to other debt instruments in
which the Fund may invest. Because of the protective terms of bank loans, the
Investment Adviser believes that the Fund is more likely to recover more of its
investment in a defaulted bank loan than would be the case for most other types
of defaulted debt securities. Nevertheless, even in the case of collateralized
bank loans, there is no assurance that the sale of collateral would raise enough
cash to satisfy the borrower's payment obligation or that the collateral can or
will be liquidated. Some or all of the bank loans held by the Fund may not
secured by any collateral, and such bank loans entail greater risk than secured
bank loans.
The Fund may acquire bank loans of borrowers that are experiencing, or are
more likely to experience, financial difficulty, including bank loans issued in
highly leveraged transactions. The Fund may even acquire and retain in its
portfolio bank loans of borrowers that have filed for bankruptcy protection or
that have had involuntary bankruptcy petitions filed against them by creditors.
In the case of bankruptcy, liquidation of collateral may not occur and the court
may not give lenders the full benefit of their loan position.
If the terms of a collateralized bank loan do not require the borrower to
pledge additional collateral in the event of a decline in the value of the
original collateral, the Fund will be exposed to the risk that the value of the
collateral will not at all times equal or exceed the amount of the borrower's
obligations under a bank loan. To the extent that a bank loan is collateralized
by stock in the borrower or its subsidiaries, such stock may lose all of its
value in the event of bankruptcy of the borrower. Uncollateralized bank loans
involve a greater risk of loss. In the event of the bankruptcy, receivership, or
other insolvency proceeding of a borrower, the Fund could experience delays or
limitations with respect to its ability to collect the principal of and interest
on the bank loan and with respect to its ability to realize the benefits of the
collateral securing the bank loan, if any. Among the credit risks involved in
such a proceeding are the avoidance of the bank loan as a fraudulent conveyance,
the restructuring of the payment obligations under the bank loan (including,
without limitation, the reduction of the principal amount, the extension of the
maturity, and the reduction of the interest rate thereof), the avoidance of the
pledge of collateral securing the bank loan as a fraudulent conveyance or
preferential transfer, the discharge of the obligation to repay that portion of
the bank loan that exceeds the value of the collateral, and the subordination of
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the Fund's rights to the rights of other creditors of the borrower under
applicable law. Similar delays or limitations of the Fund's ability to collect
the principal of and interest on the bank loan and with respect to its ability
to realize the benefits of the collateral securing the bank loan may arise in
the event of the bankruptcy, receivership, or other insolvency proceeding of an
original lender or an agent.
Investment decisions will be based largely on the credit analysis performed
by the Investment Adviser's investment personnel and not on analyses prepared by
rating agencies or other independent parties, and such analysis may be difficult
to perform for many borrowers and issuers. The Investment Adviser may also
utilize information prepared and supplied by the agent or other lenders.
Information about interests in bank loans generally will not be in the public
domain, and interests are often not currently rated by any nationally recognized
rating service. Many borrowers have not issued securities to the public and are
not subject to reporting requirements under federal securities laws. Generally,
borrowers are required to provide financial information to lenders, including
the Fund, and information may be available from other bank loan participants or
agents that originate or administer bank loans. There can be no assurance that
the Investment Adviser's analysis will disclose factors that may impair the
value of a bank loan. A serious deterioration in the credit quality of a
borrower could cause a permanent decrease in the Fund's net asset value.
There is no minimum rating or other independent evaluation of a borrower or
its securities limiting the Fund's investments. Although a bank loan often is
not rated by any rating agency at the time the Fund purchases the bank loan,
rating agencies have become more active in rating an increasing number of bank
loans and at any given time a substantial portion of the bank loans in the
Fund's portfolio may be rated. Although the Investment Adviser may consider such
ratings when evaluating a bank loan, it does not view such ratings as a
determinative factor in its investments decisions. The lack of a rating does not
necessarily imply that a bank loan is of lesser investment quality. Up to 15% of
the Fund's assets may be invested in securities, including bank loans, rated
below investment grade or that are unrated but of comparable quality. Debt
securities rated below investment grade and comparable unrated securities are
viewed by the ratings agencies as speculative and are commonly known as "junk
bonds."
While debt instruments generally are subject to the risk of changes in
interest rates, the interest rates of the bank loans in which the Fund will
invest will adjust with a specified interest rate. Thus the risk that changes in
interest rates will affect the market value of such bank loans is significantly
decreased, but is not eliminated.
Collateralized Debt Obligations. The Fund also may invest in equity
securities of investment vehicles that will in turn invest in certain types of
securities the Fund may hold directly, commonly known as collateralized debt
obligations ("CDOs").
CDOs typically invest in a portfolio of non-investment grade securities and
fund their investment by issuing primarily investment grade liabilities and
equity. The liabilities are collateralized by the CDO portfolio investments,
hence the name "collateralized debt obligations." The CDO portfolio's yield (or
income) is expected to be higher than its debt servicing costs. The difference
between the yield on the assets and the cost of the liabilities accrues to the
benefit of the CDO equity holder.
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There are two broad types of CDOs:
Cash Flow CDOs
--------------
Cash flow CDOs are structured to focus on the creditworthiness of the
underlying portfolio's assets and its ability to pay interest and principal on a
timely basis. The over-collateralization test in a cash flow CDO is primarily
focused on measuring defaults and the principal amount of the assets, while
generally ignoring the market value of the assets at any point in time. As long
as the underlying assets are paying interest, the CDOs are considered to be
performing and therefore included in the over-collateralization. The basic
premise is that the portfolio of assets will be held to maturity, and, if the
underlying assets are diverse and perform as expected based on historical
statistics, the CDO will collect enough cash to service the rated liabilities in
full over its life.
Market Value CDOs
-----------------
Market value CDOs are structured to use the market value of assets to
determine over-collateralization. The tests are focused on the value of
collateral versus the amount of liabilities outstanding. As long is there is
enough "liquidation" value to protect the liabilities, the over-
collateralization test is met. If the market value of assets is not adequate to
satisfy the over-collateralization compliance tests, then market value CDO must
sell assets and pay down debt with the sale of proceeds to return to compliance.
Because these CDOs are focused on the market value of assets and not cash flow
from the underlying assets, market value CDOs have more flexibility than cash
flow funds in the types of assets they can purchase.
CDO equity investors have the opportunity to earn returns comparable to
other alternative asset classes. Unlike most traditional alternative assets,
however, CDO equity investments are designed to provide investors with a high
current return on invested capital. These returns are generated by the ability
of a CDO to borrow in the investment grade markets and invest in the non-
investment grade markets. The spread between the yield on the assets and the
cost of the liabilities within the CDO accrues to the benefit of the Fund.
The underlying assets in CDOs include:
High Yield Securities - A significant portion of the investments of CDOs
are expected to be comprised of high yield securities, the risks of which are
discussed above.
Bank Loans - The bank loan markets includes corporate loans of below
investment grade issuers generally bearing interest rates in excess of 200
basis points above LIBOR. Bank loans are discussed above.
Mezzanine Investments - A portion of the investments of CDOs are expected
to consist of Mezzanine Investments. As discussed above, Mezzanine Investments
are generally unrated or below investment grade rated investments that have
greater credit and liquidity risk than more highly rated debt obligations.
Moreover, Mezzanine Investments are generally unsecured and subordinate to other
obligations of the issuer. Adverse changes in the financial condition of the
obligor of Mezzanine Investments or in general economic conditions or both may
impair the ability of each issuer to make payments of principal and interest.
The relatively high debt-to-equity ratios of certain issuers of Mezzanine
Investments may create increased risks that their operations might not generate
sufficient cash flow to service their debt obligations.
Special Situations - A portion of the investments of CDOs are expected to
be comprised of Special Situation investments. Although such investments may
result in significant returns to the Fund, they involve a substantial degree of
risk and may not show any return for a considerable period of time, if at all.
In certain reorganization or liquidation proceedings relating to companies in
which CDOs may invest, the CDO may lose its entire investment or may be required
to accept cash and securities with a value less than the CDO's original
investment. Under such circumstances, the returns generated from the CDOs
investment may not adequately compensate the CDO for the risk assumed.
Derivative Transactions - The CDOs in which the Fund invests are, to a
limited extent, expected to enter into certain transactions that include the use
of options and other derivative instruments. The CDOs may also from time to time
undertake short sales of selected investments, groups of securities or indices.
Possible losses from derivative transactions and short sales differ from losses
that could be incurred from a purchase of a security,
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because potential losses from derivative transactions and short sales may be
unlimited, whereas losses from purchases of securities cannot exceed the total
amount invested.
Other risks of CDOs include the following:
Illiquidity - There may not be established and efficient secondary markets
for the investments in CDOs by the Fund or for the investment made by the CDOs.
Consequently, the CDOs or the Fund may not be able to dispose of such
investments at prices that reflect their value or the amount paid by them.
Through its investments in CDOs, many of the Fund's underlying investments may
be illiquid, and there can be no assurance that the CDOs will be able to realize
their investments at attractive prices or otherwise be able to effect a
successful realization or exit strategy. Consequently, dispositions of such
investments may require a lengthy time period or may result in distributions in-
kind to the partners of the CDOs, including the Fund.
Market Volatility - During recent years, the high yield securities, bank
loans, mezzanine securities and Special Situations markets experienced
significant volatility with respect to market prices. This volatility has
generally been related to the uncertainties in global financial markets. No
assurance can be given that volatility in these markets will not continue or
worsen in the future. Such volatility can adversely impact the liquidity, market
prices and other performance characteristics of investments in these markets.
Leveraged Capital Structures - The CDOs in which the Fund invests will be
substantially leveraged. Utilization of leverage is a speculative technique and
involves certain risks to investors. The leverage provided to the CDOs will
result in interest expense and other costs incurred in connection with such
borrowings that may not be covered by the net interest income, dividends and
appreciation of the securities purchased by the CDOs. While leverage may enhance
total returns, if investment results fail to cover borrowing costs, then returns
will be lower than if there had been no borrowings.
The borrowing arrangement of CDOs are likely to contain events of default
that, under certain circumstances, could result in early amortization or in the
acceleration of the maturities of these obligations. In the event of
acceleration of the borrowing arrangements of a CDO, in whole or in part, it may
be required to dispose of all or a significant portion of its investments.
Depending upon the liquidity of the high yield securities, bank loans, mezzanine
securities and special situations markets, such a forced disposal of securities
could result in realization of value of such investments significantly below the
anticipated market values for such securities. In such circumstances, additional
debt or equity financing may not be available when needed, or, if available,
will be obtainable on terms that are not favorable to the CDO.
Multiple Levels of Fees - Both the Fund and the CDOs impose management fees
and carried interest or other performance allocations on realized and unrealized
appreciation and other income. This may result in greater expense than if
investors were able to invest directly in the underlying CDO. Investors should
take into account that the return on their investment will be reduced to the
extent of both levels of fees. In addition, the general partner or manager of a
CDO may receive the economic benefit of certain fees from its portfolio
companies for services and in connection with unconsummated transactions (e.g.,
topping, break-up, placement, monitoring, organizational and set-up fees, and
financial advisory fees).
Risks Associated with Foreign Investments - The CDOs in which the Fund may
invest may make investments outside of the United States. Investing outside the
United States may involve greater risks than investing in the United States. In
particular, the value of a CDOs investments in non-U.S. securities may be
significantly affected by changes in currency exchange rates. Additional risks
include: (i) risks of economic dislocations in the host country; (ii) less
publicly available information; (iii) less well-developed regulatory
institutions; and (iv) greater difficulty of enforcing legal rights in a foreign
jurisdiction. Moreover, non-U.S. companies may not be subject to uniform
accounting, auditing and financial reporting standards, practices and
requirements comparable to those that apply to U.S. companies. Additionally, in
some foreign countries, there is the possibility of expropriation of value,
including through confiscatory taxation, limitations on the repatriation or sale
of securities, property or other assets of the CDO, political or social
instability or diplomatic developments, each of which could have an adverse
effect on
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the CDO's investments in such foreign countries. While these factors will be
taken into consideration no assurance can be given that these risks will be
evaluated successfully by the CDOs.
Difficulty of Locating Suitable Investments - Identification of attractive
investment opportunities (in CDOs and by the CDOs in underlying investments) is
difficult and involves a high degree of uncertainty. Furthermore, the
availability of investment opportunities generally will be subject to market
conditions as well as, in some cases, the prevailing regulatory or political
climate. Competition for such opportunities is expected to be substantial. There
can be no assurance that the Fund will be able to invest all of its commitments
in opportunities that satisfy its investment objectives, or that such investment
opportunities will lead to completed investments by the CDOs.
General Risks of Debt Securities. Debt securities are subject to the risk
of an issuer's inability to meet principal and interest payments on its
obligations ("credit risk") and are subject to price volatility due to such
factors as interest rate sensitivity, market perception of the creditworthiness
of the issuer, and market liquidity ("market risk"). The value of debt
securities in which the Fund may invest is likely to decline in times of rising
market interest rates. Conversely, when rates fall, the value of the Fund's debt
investments is likely to rise. Foreign debt securities are subject to risks
similar to those of other foreign securities. Lower rated securities are more
likely to react to developments affecting market and credit risk than are more
highly rated securities, which react primarily to movements in the general level
of interest rates.
General Risks of Equity Securities. Common stocks represent shares of
ownership in a corporation. Common stocks rank after debt, bonds and preferred
stock in claims on assets of the corporation should it be dissolved. Increases
and decreases in earnings are usually reflected in a corporation's stock price.
Convertible securities are debt or preferred equity securities convertible into
common stock. To the extent the Fund invests in common stock, the value of the
Fund's portfolio will be affected by changes in the stock markets, which may be
the result of domestic or international political or economic news, changes in
interest rates or changing investor sentiment. At times, the stock markets can
be volatile and stock prices can change substantially. The equity securities of
smaller companies are more sensitive to these changes than those of larger
companies. This market risk will affect the Fund's net asset value per share,
which will fluctuate as the value of the securities held by the Fund changes.
Not all stock prices change uniformly or at the same time and not all stock
markets move in the same direction at the same time. Other factors affect a
particular stock's prices, such as poor earnings reports by an issuer, loss of
major customers, major litigation against an issuer, or changes in governmental
regulations affecting an industry. Adverse news affecting one company can
sometimes depress the stock prices of all companies in the same industry. Not
all factors can be predicted.
Securities Loans. All securities loans will be made pursuant to agreements
requiring the loans to be continuously secured by collateral in cash or high
grade debt obligations at least equal at all times to 102% of the current market
value of the loaned securities. The borrower pays to the Fund an amount equal to
any dividends or interest received on loaned securities. The Fund retains all or
a portion of the interest received on investment of cash collateral or receive a
fee from the borrower.
Securities loans are made to broker-dealers or institutional investors or
other persons, pursuant to agreements requiring that the loans be continuously
secured by collateral at least equal at all times to 102% of the current market
value of the loaned securities marked to market on a daily basis. The collateral
received will generally consist of cash, U.S. government securities, letters of
credit or such other collateral. While the securities are being loaned, the Fund
will continue to receive the equivalent of the interest or dividends paid by the
issuer on the loaned securities, as well as interest on the investment of the
collateral and/or a fee from the borrower or placing agent. However, the Fund
generally will pay certain administrative and custodial fees in connection with
each loan. The Fund has a right to call each loan and obtain the securities on,
at least, five business days' notice or, in connection with securities trading
on foreign markets, within such longer period for purchases and sales of such
securities in such foreign markets. The Fund will generally not have the right
to vote securities while they are being loaned, but it is expected that Scudder
Weisel will call a loan in anticipation of any important vote.
The risks in lending portfolio securities, as with other extensions of
secured credit, consist of possible delay in receiving additional collateral or
in the recovery of the loaned securities or the possible loss of rights in the
collateral should the borrower fail financially. In addition, the Fund is
responsible for any loss that might result from its investment of the borrower's
collateral. Loans will only be made to firms deemed by Scudder Weisel to be of
good standing and will not be made unless, in the judgment of Scudder Weisel,
the consideration to be earned from such loans would justify the risk.
Foreign Securities. The Fund may invest in commercial paper and
certificates of deposit issued by foreign banks and may invest either directly
or through American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs"), or Global Depositary Receipts ("GDRs") (collectively, "depositary
receipts") in other securities of foreign issuers. For a discussion of the risks
associated with investments in foreign securities, see "Principal Risk
Factors -- Investments in Foreign Securities and Depositary Receipts" in the
Prospectus.
Depositary receipts are instruments generally issued by domestic banks or
trust companies that represent the deposits of a security of a foreign issuer.
ADRs, which are traded in dollars on U.S. exchanges or over-the-counter, are
issued by domestic banks and evidence ownership of securities issued by foreign
corporations. EDRs are typically traded in Europe. GDRs are typically traded in
both Europe and the United States. Depositary receipts may be issued under
sponsored or unsponsored programs. In sponsored programs, the issuer has made
arrangements
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to have its securities traded in the form of a depositary receipt. In
unsponsored programs, the issuers may not be directly involved in the creation
of the program. Although regulatory requirements with respect to sponsored and
unsponsored depositary receipt programs are generally similar, the issuers of
securities represented by unsponsored depositary receipts are not obligated to
disclose material information in the United States, and therefore, the import of
such information may not be reflected in the market value of such receipts. The
Fund may invest up to 33% of the value of its total assets in direct investments
in foreign securities (which limitation may be changed without a shareholder
vote). This 33% limit on investment in foreign securities does not apply to
investments in foreign securities through depositary receipts that are traded in
the United States or to commercial paper and certificates of deposit issued by
foreign banks or through venture capital funds.
Investment income received by the Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of such taxes or exemption from taxes on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amounts of the Fund's assets to be invested within various
countries is not known.
Foreign Currency Transactions. A forward foreign currency exchange contract
("forward currency contract") is an agreement to purchase or sell a specific
currency at a future date and at a price set at the time the contract is entered
into. The Fund will generally enter into forward currency contracts to fix the
U.S. dollar value of a security it has agreed to buy or sell for the period
between the date the trade was entered into and the date the security is
delivered and paid for, or, to hedge the U.S. dollar value of securities it
owns.
The Fund may enter into a forward currency contract to sell or buy the
amount of a foreign currency it believes may experience a substantial movement
against the U.S. dollar. In this case the forward currency contract would
approximate the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. Under normal circumstances, the Fund will
limit forward currency contracts to not greater than 75% of the Fund's portfolio
position in any one country as of the date the forward currency contract is
entered into. This limitation will be measured at the point the hedging
transaction is entered into by the Fund. Under extraordinary circumstances, the
Fund may enter into forward currency contracts in excess of 75% of the Fund's
portfolio position in any one country as of the date the contract is entered
into. The precise matching of the forward currency contract amounts and the
value of securities involved will not generally be possible since the future
value of such securities in foreign currencies will change as a consequence of
market involvement in the value of those securities between the date the forward
currency contract is entered into and the date it matures. The projection of
short-term currency market movement is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain. Under certain
circumstances, the Fund may commit up to the entire value of its assets which
are denominated in foreign currencies to the consummation of these foreign
currency contracts. Scudder Weisel will consider the effect a substantial
commitment of the Fund's assets to forward currency contracts would have on the
investment program of the Fund and its ability to purchase additional
securities.
Except as set forth above and immediately below, the Fund will not enter
into such forward currency contracts or maintain a net exposure to such
contracts where the consummation of the contracts would oblige the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency. The Fund, in
order to avoid excess transactions and transaction costs, may nonetheless
maintain a net exposure to forward currency contracts in excess of the value of
the Fund's portfolio securities or other assets denominated in that currency
provided the excess amount is "covered" by cash or liquid, high-grade debt
securities, denominated in any currency, at least equal at all times to the
amount of such excess. Under normal circumstances, consideration of the prospect
for currency parities will be incorporated into the longer-term investment
decisions made with regard to overall diversification strategies. However,
Scudder Weisel believes that it is important to have the flexibility to enter
into such forward currency contracts when it determines that the best interests
of the Fund will be served.
At the maturity of a forward currency contract, the Fund may either sell
the portfolio security and make delivery of the foreign currency, or it may
retain the security and terminate its contractual obligation to deliver the
foreign currency by purchasing an "offsetting" contract obligating it to
purchase, on the same maturity date, the same amount of the foreign currency.
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As indicated above, it is impossible to forecast with absolute precision
the market value of portfolio securities at the expiration of the forward
currency contract. Accordingly, it may be necessary for the Fund to purchase
additional foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount of foreign
currency the Fund is obligated to deliver and if a decision is made to sell the
security and make delivery of the foreign currency. Conversely, it may be
necessary to sell on the spot market some of the foreign currency received upon
the sale of the portfolio security if its market value exceeds the amount of
foreign currency the Fund is obligated to deliver. However, the Fund may use
liquid, high-grade debt securities, denominated in any currency, to cover the
amount by which the value of a forward contract exceeds the value of the
securities to which it relates.
If the Fund retains the portfolio security and engages in offsetting
transactions, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. If the Fund
engages in an offsetting transaction, it may subsequently enter into a new
forward contract to sell the foreign currency. Should forward prices decline
during the period between the Fund's entering into a forward currency contract
for the sale of a foreign currency and the date it enters into an offsetting
contract for the purchase of the foreign currency, the Fund will realize a gain
to the extent the price of the currency it has agreed to sell exceeds the price
of the currency it has agreed to purchase. Should forward prices increase, the
Fund will suffer a loss to the extent the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell.
The Fund's dealing in forward foreign currency exchange contracts will be
limited to the transactions described above. Of course, the Fund is not required
to enter into forward currency contracts with regard to its foreign currency-
denominated securities and will not do so unless deemed appropriate by Scudder
Weisel. It also should be realized that this method of hedging against a decline
in the value of a currency does not eliminate fluctuations in the underlying
prices of the securities. It simply establishes a rate of exchange at a future
date. Additionally, although such contracts tend to minimize the risk of loss
due to a decline in the value of a hedged currency, at the same time, they tend
to limit any potential gain which might result from an increase in the value of
that currency.
Shareholders 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 ("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 Fund at one rate, while offering a lesser rate of
exchange should the Fund desire to resell that currency to the dealer.
Repurchase Agreements. The Fund may enter into repurchase agreements with
commercial banks and broker-dealers as a short-term cash management tool. A
repurchase agreement is an agreement under which the Fund acquires a security,
generally a U.S. Government obligation, subject to resale at an agreed upon
price and date. The resale price reflects an agreed upon interest rate effective
for the period of time the Fund holds the security and is unrelated to the
interest rate on the security. The Fund's repurchase agreements will at all
times be fully collateralized.
Repurchase agreements could involve certain risks in the event of
bankruptcy or other default by the seller. If a seller under a repurchase
agreement were to default on the agreement and be unable to repurchase the
security subject to the repurchase agreement, the Fund would look to the
collateral underlying the seller's repurchase agreement, including the security
subject to the repurchase agreement, for satisfaction of the seller's obligation
to the Fund. In the event a repurchase agreement is considered a loan and the
seller defaults, the Fund might incur a loss if the value of the collateral
declines and may incur disposition costs in liquidating the collateral. In
addition, if bankruptcy proceedings are commenced with respect to the seller,
realization of the collateral may be delayed or limited and a loss may be
incurred. Repurchase agreements are typically entered into for periods of one
week or less. The Securities and Exchange Commission ("SEC") staff currently
takes the position that repurchase agreements maturing in more than seven days
are illiquid securities.
Illiquid Securities. The Fund may invest in illiquid securities, including
restricted securities (i.e., securities not readily marketable without
registration under the 1933 Act) and other securities that are not readily
marketable. These may include restricted securities that can be offered and sold
only to "qualified institutional buyers" under
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Rule 144A of the 1933 Act. There is no limit to the percentage of the Fund's net
assets that may be invested in illiquid securities.
Short Sales. The Fund may make short sales of securities. The Fund may
establish aggregate short positions equal to up to 25% of its net assets. A
short sale is a transaction in which the Fund sells a security it does not own
in anticipation that the market price of that security will decline. When the
Fund makes a short sale, it must borrow the security sold short and deliver it
to the broker-dealer through which it made the short sale as collateral for its
obligation to deliver the security upon conclusion of the sale. The Fund may
also sell securities that it owns or has the right to acquire at no additional
cost but does not intend to deliver to the buyer, a practice known as selling
short "against-the-box." The Fund may have to pay a fee to borrow particular
securities and is often obligated to pay over any payments received on such
borrowed securities. The Fund's obligation to replace the borrowed security will
be secured by collateral deposited with the broker-dealers, usually cash, U.S.
Government securities or other highly liquid securities similar to those
borrowed. The Fund will also be required to deposit similar collateral with its
custodian to the extent necessary so that the value of both collateral deposits
in the aggregate is at all times equal to as least 100% of the current market
value of the security sold short. Depending on arrangements made with the
broker-dealer from which it borrowed the security regarding payment over any
received by the Fund on such security, the Fund may not received any payments
(including interest) on its collateral deposited with such broker-dealer. The
Fund will incur transaction costs, including interest expenses, in connection
with opening, maintaining, and closing short sales.
If the price of the security sold short increases between the time of the
short sale and the time the Fund replaces the borrowed security, the Fund will
incur a loss; conversely, if the price declines, the Fund will realize a capital
gain. Any gain is limited to the price at which it sold the security short; its
potential loss is theoretically unlimited.
Rights and Warrants. The Fund may invest in common stock rights and
warrants believed by the Investment Adviser to provide capital appreciation
opportunities. Common stock rights and warrants may be purchased separately or
may be received as part of a unit or attached to securities purchased. Warrants
are securities that give the holder the right, but not the obligation to
purchase equity issues of the company issuing the warrants, or a related
company, at a fixed price either on a date certain or during a set period. At
the time of issue, the cost of a warrant is substantially less than the cost of
the underlying security itself, and price movements in the underlying security
are generally magnified in the price movements of the warrant. This effect
enables the investor to gain exposure to the underlying security with a
relatively low capital investment but increases an investor's risk in the event
of a decline in the value of the underlying security and can result in a
complete loss of the amount invested in the warrant. In addition, the price of a
warrant tends to be more volatile than, and may not correlate exactly to, the
price of the underlying security. If the market price of the underlying security
is below the exercise price of the warrant on its expiration date, the warrant
will generally expire without value.
The equity security underlying a warrant is authorized at the time the
warrant is issued or is issued together with the warrant. Investing in warrants
can provide a greater potential for profit or loss than an equivalent investment
in the underlying security, and, thus, can be a speculative investment. The
value of a warrant may decline because of a decline in the value of the
underlying security, the passage of time, changes in interest rates or in the
dividend or other policies of the company whose equity underlies the warrant or
a change in the perception as to the future price of the underlying security, or
any combination thereof. Warrants generally pay no dividends and confer no
voting or other rights other than to purchase the underlying security.
Derivatives. The Fund may, but is not required to, use financial
instruments known as derivatives. A derivative is generally defined as an
instrument whose value is derived from, or based upon, some underlying index,
reference rate (such as interest rates or currency exchange rates), security,
commodity or other asset. The Fund will use a specific type of derivative only
after consideration of, among other things, how the derivative instrument serves
the Fund's investment objective and the risk associated with the instrument.
Scudder Weisel or the Investment Adviser may decide not to employ any of these
strategies and there is no assurance that any derivatives strategy used by the
Fund will succeed, or that a particular hedging instrument will be available for
use by the Fund.
The Fund may buy or sell put or call options on securities or indices of
securities to hedge against adverse movements in the prices of securities held
in the Fund's portfolio. The Fund's options strategies may include the
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purchase of puts and the simultaneous writing of calls having different strike
prices to place a "collar" on a portion of the Fund's asset value (this
strategy, which involves the sale of call options to help reduce the price of
the put options, is viewed as a hedge even though the writing of a call without
the purchase of a put would not be considered hedging). The Fund may buy or sell
put and call options if they are traded on options exchanges or over-the-counter
markets. However, the Fund will only enter into transactions with broker-dealers
that are reputable financial institutions which (i) specialize in these types of
transactions, (ii) make markets in these options, or (iii) are participants in
over-the-counter markets.
Purchasing a put option gives the Fund the right to sell, and obligates the
writer to buy, the underlying security at the exercise price at any time during
the option period. Purchasing a call option gives the Fund the right to buy, and
obligates the writer of the call option to sell, the underlying security at a
stated exercise price at any time prior to the expiration of the option. Because
an option gives the purchaser a right and not an obligation, the purchaser is
not required to exercise the option. The option right is available during the
life of the option.
When the Fund purchases an option, it is required to pay a premium to the
party writing the option and a commission to the broker selling the option. The
Fund's maximum financial exposure will be limited to these costs. In order for a
put option to be profitable, the market price of the underlying security must
decline sufficiently below the exercise price to cover the premium and
transaction costs. Conversely, a call option will be profitable if the market
price of the underlying security rises sufficiently above the exercise price to
cover the premium and transactions costs. If an option is exercised by the Fund,
the premium and the commission paid may be greater than the amount of the
brokerage commission charged if the security were to be purchased or sold
directly.
The Fund may purchase both listed and over-the-counter options. The Fund
will be exposed to the risk of counterparty nonperformance in the case of over-
the-counter options.
Options on securities may not be available to the Fund on reasonable terms
in many situations and the Fund may frequently choose not to purchase options
even when they are available. The Fund's ability to engage in option
transactions may be limited by tax considerations.
Put options on securities may not be available to the Fund on reasonable
terms in many situations and the Fund may frequently choose not to purchase
options even when they are available. The Fund's ability to engage in option
transactions may be limited by tax considerations.
Temporary Defensive Position. In an attempt to respond to adverse market,
economic, political, or other conditions, the Fund may invest up to 100% of its
assets in cash or cash equivalents including, but not limited to, prime
commercial paper, bank certificates of deposit, bankers' acceptances or
repurchase agreements for such securities, and securities of the U.S. Government
and its agencies and instrumentalities, as well as cash and cash equivalents
denominated in foreign currencies. The Fund's investments in foreign cash
equivalents will be limited to those that, in the opinion of Scudder Weisel,
equate generally to the standards established for U.S. cash equivalents.
Investments in bank obligations will be limited at the time of investment to the
obligations of the 100 largest domestic banks in terms of assets which are
subject to regulatory supervision by the U.S. Government or state governments,
and the obligations of the 100 largest foreign banks in terms of assets with
branches or agencies in the United States. These investments may result in a
lower return than would have been obtained had the Fund adhered to its standard
investment policies.
SHARE REPURCHASES
The Fund may not suspend or postpone a repurchase offer except pursuant to
a vote of a majority of the Trustees, including a majority of the Trustees who
are not interested persons of the Fund, as defined in the 1940 Act, and only:
. If the repurchase would cause the Fund to lose its status as a
regulated investment company under Subchapter M of the Internal Revenue Code;
15
<PAGE>
. For any period during which the New York Stock Exchange or any other
market in which the securities owned by the Fund are principally
traded is closed, other than customary weekend and holiday closings,
or during which trading in such market is restricted;
. For any period during which an emergency exists as a result of which
disposal by the Fund of securities owned by it is not reasonably
practicable, or during which it is not reasonably practicable for the
Fund fairly to determine the value of its net assets; or
. For such other periods as the SEC may by order permit for the
protection of shareholders of the Fund.
TRUSTEES AND OFFICERS
The Board of Trustees has the responsibility for the overall management of
the Fund, including general supervision and review of its investment activities
and conformity with Delaware law and the stated policies of the Fund. A listing
of the Trustees and officers of the Fund and their business experience for the
past five years follows. An asterisk (*) indicates Trustees who are "interested
persons" of the Fund (as defined in Section 2(a)(19) of the 1940 Act).
<TABLE>
<CAPTION> Principal Occupation(s)
Name, Address, Date of Birth Position(s) Held with Fund During the Past 5 Years
---------------------------- -------------------------- -----------------------
<S> <C> <C>
Peter H. Mattoon* Trustee and President President, Scudder Weisel Capital
10/21/61 LLC; formerly, Chief Operating
Officer, Global Mutual Fund Group,
Scudder Kemper Investments, Inc.
Boyd Fellows* Trustee Chief Executive Officer, Scudder
11/03/60 Weisel Capital LLC; formerly,
Partner, Thomas Weisel Partners, LLC;
Co-Chief Executive Officer, Capital
America.
__________________________ Trustee
[ ]
__________________________ Trustee
[ ]
__________________________ Trustee
[ ]
__________________________ Trustee
[ ]
Joseph McCuine* Principal Financial Officer and Chief Financial Officer, Scudder
04/09/67 Treasurer Weisel Capital LLC; formerly,
Strategic Planning and Finance
Officer, Scudder Kemper Investments,
Inc.
Christopher E. Nordquist* Vice President and Secretary Chief Counsel, Scudder Weisel Capital
07/26/65 LLC; formerly, General Counsel, WR
Hambrecht and Company; General
Counsel, Esprit de Corp; Senior
Counsel, Barclays Global Investors.
Kenneth Bochat* Assistant Secretary Director of Compliance and Counsel,
07/29/52 Scudder Weisel Capital LLC; formerly,
Compliance Director and Counsel, WR
Hambrecht and Company; Compliance
Director and Counsel, Wells Fargo
Securities;
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Name, Address, Date of Birth Position(s) Held with Fund Principal Occupation(s)
---------------------------- -------------------------- During the Past 5 years
------------------------
<S> <C> <C>
Compliance Director and Counsel,
Bank of America
Benjamin Slavet* Assistant Secretary Controller, Scudder Weisel Capital
07/03/70 LLC; formerly, Senior Manager, KPMG LLC.
</TABLE>
* 88 Kearny Street, 21/st/ Floor, San Francisco, CA 94104
----------------------------------------------------------
<TABLE>
<CAPTION>
PENSION OR TOTAL COMPENSATION FROM
AGGREGATE RETIREMENT BENEFITS ESTIMATED ANNUAL REGISTRANT AND FUND
COMPENSATION FROM ACCRUED AS PART BENEFITS UPON COMPLEX PAID TO
NAME, POSITION FUND (1) OF FUND EXPENSES (1) RETIREMENT (1) TRUSTEES (1)
-------------- ----------------- -------------------- -------------- ------------
<S> <C> <C> <C> <C>
Peter H. Mattoon $ 0 $0 $0 $ 0
Trustee
Boyd Fellows $ 0 $0 $0 $ 0
Trustee
________________ $24,000 $0 $0 $24,000
Trustee
________________ $24,000 $0 $0 $24,000
Trustee
______________ $24,000 $0 $0 $24,000
Trustee
______________ $24,000 $0 $0 $24,000
Trustee
</TABLE>
------------------------
(1) Based on remuneration expected to be paid to the Trustees of the Fund for
the fiscal year ended December 31, 2001.
The Fund pays each Trustee who is not an interested person of Scudder
Weisel or the Investment Adviser ("non-affiliated Trustees") a fee of $1,000 per
Board and Committee meeting, plus an annual retainer of $15,000. In addition,
the Fund reimburses each of the non-affiliated Trustees for travel and other
expenses incurred in connection with attendance at such meetings. Non-
affiliated Trustees who are members of the Audit Committee, Contract Review
Committee, Executive Committee and/or Nominating Committee also receive a fee
for each meeting of the committee attended. Other officers and Trustees of the
Fund receive no compensation or expense reimbursement.
Trustees and officers of the Fund also may be trustees/directors and
officers of some or all of the other investment companies managed by Scudder
Weisel.
The Executive Committee of the Board of Trustees has the power to: (a)
determine the value of securities and assets owned by the Fund; (b) elect or
appoint officers of the Fund to serve until the next meeting of the Board of
Trustees succeeding such action; and (c) determine the public offering price at
which shares of the Fund will be issued and sold. All actions taken by the
Executive Committee will be recorded and reported to the full Board of Trustees
at their next meeting succeeding such action. The members of the Executive
Committee will consist of: ______________.
17
<PAGE>
LIQUIDITY REQUIREMENTS
From the time that the Fund sends a notification to shareholders with
respect to a quarterly repurchase offer until the date that the offer is priced,
the Fund will maintain a percentage of the Fund's assets equal to at least 100%
of the amount of the repurchase offer in assets: (a) that can be sold or
disposed of in the ordinary course of business at approximately the price at
which the Fund has valued the asset within the time period between the
repurchase request deadline and the repurchase payment deadline; or (b) that
mature by the next repurchase payment deadline.
CODE OF ETHICS
The Fund, Scudder Weisel and the Investment Adviser each has adopted a code
of ethics as required by applicable law, which is designed to prevent affiliated
persons of the Fund, Scudder Weisel and the Investment Adviser from engaging in
deceptive, manipulative or fraudulent activities in connection with securities
held or to be acquired by the Fund (which may also be held by persons subject to
a code of ethics). There can be no assurance that the codes of ethics will be
effective in preventing such activities. Each code of ethics may be examined on
the Internet from the SEC's website at http:/www.sec.gov. In addition, each
code of ethics can be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public reference Room may
be obtained by calling the SEC at 1-202-942-8090. Copies of these codes of
ethics may be obtained, after paying a duplicating fee, by electronic request at
the following e-mail address: [email protected], or by writing the SEC's
Public Reference Section, Washington, DC 20549-0102.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Manager and Investment Adviser. Under an investment management
agreement ("Investment Management Agreement") with the Fund, Scudder Weisel, a
registered investment adviser, provides supervisory and administrative services
to the Fund, including supervision of the Fund's investment program. Scudder
Weisel was formed as a joint venture among Thomas Weisel Partners Group LLC
("Thomas Weisel Partners"), Scudder Kemper Investments, Inc. and Zurich On-Line
Financing Ltd. Currently, Scudder Kemper Investments, Inc. and Zurich On-Line
Financing Ltd., each a majority- or wholly-owned subsidiary of Zurich Financial
Services Group, together hold ___% of the outstanding units of Scudder Weisel,
and Thomas Weisel Partners holds ___% of the outstanding units of Scudder
Weisel. The remaining units are held by management and employees of Scudder
Weisel. Scudder Weisel has no prior experience as an investment manager.
Subject to general supervision of the Board of Trustees and in accordance
with the investment objective, policies and restrictions of the fund, Scudder
Weisel provides the Fund with ongoing investment guidance, policy direction and
monitoring of the Fund and the Investment Adviser pursuant to the Investment
Management Agreement.
The Investment Management Agreement provides that Scudder Weisel will
provide (either directly or through its delegate) portfolio management services,
place portfolio transactions in accordance with policies expressed in the Fund's
Registration Statement, to assist the Fund generally in the conduct of its
business, maintain or cause to be maintained necessary books and records of the
Fund, furnish office space for the Fund's officers and employees, and render
significant administrative services on behalf of the Fund (not otherwise
provided by third parties) necessary for the Fund's operating as a closed-end
investment company.
Under the Investment Management Agreement, the Fund is responsible for
other expenses, including organizational and offering expenses of the Fund; fees
payable to Scudder Weisel and to any consultants, including an advisory board,
if applicable; legal expenses; auditing and accounting expenses; telephone,
telex, facsimile, postage and other communications expenses; taxes and
governmental fees; fees, dues and expenses incurred by the Fund or with respect
to the Fund in connection with membership in investment company trade
organizations; costs of insurance relating to fidelity coverage for the Fund's
officers and employees; fees and expenses of the Fund's administrator and any
custodian, subcustodian, transfer agent and registrar or dividend disbursing
agent or any other agent of the Fund; payment for portfolio pricing or valuation
services to pricing agents, accountants, bankers and other specialists, if any;
expenses of preparing share certificates and other expenses in connection with
the issuance, offering, distribution, sale or underwriting of shares issued by
the Fund; expenses of registering or qualifying shares
18
<PAGE>
of the Fund for sale; expenses relating to investor and public relations;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; brokerage commissions or other costs of acquiring
or disposing of any portfolio securities of the Fund or of entering into other
transactions or engaging in any investment practices with respect to the Fund;
expenses of preparing and distributing prospectuses, statements of additional
information, reports, notices and dividends to shareholders; costs of
stationery; costs of shareholders' and other meetings; litigation expenses; or
expenses relating to the Fund's dividend reinvestment and cash purchase plan
(except for brokerage expenses paid by participants in such plan), and other
expenses.
Scudder Weisel is responsible for the payment of the compensation and
expenses of all Trustees, officers and executive employees of the Fund
(including the Fund's share of payroll taxes, if any) affiliated with Scudder
Weisel and making available, without expense to the Fund, the services of such
Trustees, officers and employees as may duly be elected officers of the Fund,
subject to their individual consent to serve and to any limitations imposed by
law. The Fund is responsible for the fees and expenses (specifically including
travel expenses relating to Fund business) of its Trustees, including those
affiliated with Scudder Weisel.
The Investment Management Agreement further provides that Scudder Weisel
shall not be liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with matters to which such agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of Scudder Weisel in the performance of its duties or from reckless
disregard by Scudder Weisel of its obligations and duties under such agreement.
The Investment Management Agreement also provides that purchase and sale
opportunities, which are suitable for more than one client of the Adviser, will
be allocated by the Adviser in an equitable manner.
Th Investment Management Agreement remains in effect until January __,
2002, and will continue in effect from year to year thereafter, but only so long
as such continuance is specifically approved at least annually by the
affirmative vote of (i) a majority of the members of the Fund's Board of
Trustees who are not parties to the Agreement or interested persons of any party
to the Agreement, or of any entity regularly furnishing investment advisory
services with respect to the Fund pursuant to an agreement with any party to the
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, and (ii) a majority of the Fund's Board of Trustees or the holders of
a majority of the outstanding voting securities of the Fund. The Agreement may
nevertheless be terminated at any time without penalty, on 60 days' written
notice, by the Fund's Board of Trustees, by vote of holders of a majority of the
outstanding voting securities of the Fund, or by Scudder Weisel. The Agreement
will automatically be terminated in the event of its assignment, as defined in
the 1940 Act, provided that an assignment to a corporate successor to all or
substantially all of Scudder Weisel's business or to a wholly-owned subsidiary
of such corporate successor which does not result in a change of actual control
or management of Scudder Weisel's business will not be deemed to be an
assignment for the purposes of the Agreement.
Pursuant to authority granted to it in the Investment Management Agreement,
Scudder Weisel has entered into an advisory agreement (the "Advisory Agreement")
with Whitney Holdings LLC (the "Investment Adviser") to delegate the day-to-day
discretionary management of the Fund's assets, subject to the supervision of
Scudder Weisel. The Investment Adviser, located at 177 Broad Street, Stamford,
CT 06901, has provided asset management, administration and advisory services
for over fifty years. As of December 31, 2000, the Investment Adviser and its
affiliates provided investment advisory services for $__ billion of assets. The
Investment Adviser is not compensated directly by the Fund. The Advisory
Agreement may be terminated by the Board of Trustees, the Fund's shareholders,
or by Scudder Weisel.
To compensate the Investment Adviser, Scudder Weisel pays a fee out of its
investment management fee at an annual rate equal to ____% of the Fund's average
daily net assets and ___% of any annual incentive fee paid to Scudder Weisel by
the Fund. The Investment Adviser is not compensated directly by the Fund. The
Sub-Advisory Agreement may be terminated by the Board, the Fund's shareholders,
or by Scudder Weisel.
Scudder Weisel has agreed to compensate the Investment Adviser under
certain circumstances for the expenses incurred by the Investment Adviser in
preparation for the Investment Adviser's service to the Fund under the Advisory
Agreement, and Scudder Weisel may retain the Investment Adviser in the future to
perform consulting services for Scudder Weisel with respect to the private
equity and debt markets.
19
<PAGE>
The Fund and Scudder Weisel are seeking an exemptive order from the SEC
that will permit Scudder Weisel, subject to approval by the Board, to add or
substitute investment sub-advisers for any fund managed by Scudder Weisel in
Scudder Weisel's sole discretion without approval by the Fund's shareholders. If
granted, such relief would require shareholder notification in the event of any
change in investment sub-adviser. There is no assurance the exemptive order will
be granted.
MANAGEMENT FEE
--------------
The Fund's investment management fee has two components, an asset based
fee and a performance based ("incentive") fee.
Asset Based Management Fee. The Fund will pay an asset based fee to
Scudder Weisel for its management services at an annual rate of 2.0% of the
Fund's average daily net assets. The fee is calculated daily and payable
monthly. In addition, the Fund will pay an incentive fee to Scudder Weisel as
described below. Very few registered investment companies pay an incentive fee
similar to that paid by the Fund.
Incentive Fee. In addition to the asset based management fee, the Fund
will pay an annual incentive fee to Scudder Weisel, calculated as described
below. The Fund will accrue a liability for the incentive fee that may be
greater than the amount payable by the Fund to Scudder Weisel. The amount of
incentive fees paid to Scudder Weisel will not exceed the incentive fees accrued
by the Fund.
The incentive fee that will be paid to Scudder Weisel at the end of a
calendar year will equal 20% of the cumulative incentive fee base. The
cumulative incentive fee base is equal to the sum of the Fund's: (i) net
realized capital gains or losses; (ii) net investment income or loss; and (iii)
net unrealized appreciation or depreciation of securities. All amounts referred
to in clauses (i) and (ii) are determined on a cumulative basis and, therefore,
include amounts for all periods since the inception of the Fund. Amounts
referred to in clause (iii) are determined as of the end of the calendar year
for which the incentive fee calculation is being made. The cumulative incentive
fee base is subject to adjustment as described in the last paragraph of this
section. The initial incentive fee payable (if any) will be for the period from
commencement of the Fund's operations through December 31, 2000, and subsequent
incentive fees (if any) will be payable for each subsequent calendar year (and,
if the Fund is liquidated during a calendar year, for the period from January 1
of that year to the date of liquidation). Scudder Weisel is under no obligation
to repay any incentive fees previously paid by the Fund.
The Fund will accrue on each day its net asset value is calculated a
liability for incentive fees payable equal to 20% of the net increase in the
value of the Fund's net assets from investment operations. If applicable, this
liability will be reduced (but not below zero) on any such day by 20% of the net
decrease in the value of the Fund's net assets from investment operations. The
increase or decrease in the value of the Fund's net assets from investment
operations with respect to any period is equal to the sum of the Fund's: (i)
net realized capital gains or losses; (ii) net investment income or loss; and
(iii) net change in unrealized appreciation or depreciation of securities for
that day. The Fund's net asset value will be reduced or increased by the amount
of the change in the accrual each day that net asset value is calculated. At
the end of each year, if an incentive fee is paid to Scudder Weisel, the amount
of the incentive fee accrual will be reduced by the amount paid to Scudder
Weisel. The incentive fee accrual will be calculated on a "high water mark"
basis. This means no incentive fee will be accrued on any day unless the Fund
has offset all prior net realized losses, net investment losses, and net
unrealized depreciation against net realized capital gains, net investment
income, and net unrealized appreciation, subject to adjustment as described in
the last paragraph of this section.
The incentive fee accrual is designed so that investors whose shares are
repurchased in a quarterly repurchase offer bear an appropriate share of the
annual incentive fee. If the incentive fee accrual was not made, the entire
incentive fee would be paid by shareholders who remain in the Fund at the end of
the year, and none of it would have been borne by the investor whose shares were
repurchased. Of course, it is possible that any incentive fee accrual could
subsequently be reversed because of a decline in the value of the assets held by
the Fund. In that case, some or all of the incentive fee accrual borne by the
investor whose shares were repurchased would be retained by the Fund. No
adjustment to a repurchase price will be made after the repurchase price has
been determined.
20
<PAGE>
If, at the time the Fund completes any quarterly repurchase of its shares,
the sum of the Fund's cumulative realized losses, net investment losses and net
unrealized depreciation exceeds the sum of the Fund's cumulative net realized
capital gains, net unrealized appreciation and net investment income, then the
amount of the excess (which is referred to as the "Cumulative Loss") will, for
purposes of calculating the incentive fee accrual, be reduced in proportion to
the percentage of shares repurchased. Each time additional shares of the Fund
are sold (other than upon the reinvestment of dividends and distributions), the
Fund will adjust the amount of any Cumulative Loss upward in proportion to the
number of shares issued (but not to an amount larger than the Cumulative Loss
would be if no shares had previously been repurchased), and a similar
proportional adjustment will be made for purposes of calculating the incentive
fee, if any, actually payable to Scudder Weisel at the end of the year. All
incentive fee computations take into account the cumulative amount of
adjustments previously made under the Cumulative Loss provision and, except as
otherwise noted, exclude the effect of any incentive fees previously accrued or
paid.
INDEPENDENT AUDITORS
____________________________, whose principal business address is
______________, has been selected as independent auditors for the Fund and in
such capacity will audit the Fund's annual financial statements and financial
highlights.
When available, the Fund will furnish, without charge, a copy of its Annual
and Semi-Annual Reports to Shareholders upon request to the Fund, 88 Kearny
Street, San Francisco, CA 94108 or call 1-800-____________.
CUSTODIAN AND ADMINISTRATOR
State Street Bank and Trust Company ("State Street"), whose principal
business address is 225 Franklin Street, Boston, Massachusetts, 02110, has been
selected to serve as the Fund's custodian and administrator. The
responsibilities of State Street as custodian include safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities, determining income and collecting interest on the Fund's
investments, and maintaining the required books and accounts in connection with
such activity.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Kemper Service Corporation, whose principal business address is 811 Main
Street, Kansas City, MO 64105-2005, has been selected to serve as the Fund's
transfer agent and dividend paying agent (the "Transfer Agent"). The Transfer
Agent may delegate some or all of these responsibilities to a sub-transfer agent
at its discretion from time to time.
DISTRIBUTOR AND SHAREHOLDER SERVICES AGENT
Scudder Weisel, 88 Kearny Street, San Francisco, CA 94108, will act as
general distributor of the shares of the Fund during the initial offering and
any continuous offering of the Fund's shares following the initial offering
pursuant to a Distribution Agreement.
Scudder Weisel bears all of its expenses of providing services pursuant to
the Distribution Agreement. The Fund pays the cost for the prospectus and
shareholder reports to be set in type and printed for existing shareholders, and
the Distributor pays for the printing and distribution of copies thereof used in
connection with the offering of shares to prospective investors. The
Distributor also pays for supplementary sales literature and advertising costs.
The Distribution Agreement continues in effect from year to year so long as
such continuance is approved for each class at least annually by a vote of the
Board of Trustees of the Fund, including the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
Distribution Agreement. The Distribution Agreement automatically terminates in
the event of its assignment and may be terminated for a class at any time
without penalty by the Fund or by Scudder Weisel upon 60 days' notice.
Termination by the Fund with respect to a class may be by vote of a majority of
the Board of Trustees, and a majority of the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
Distribution
21
<PAGE>
Agreement, or a "majority of the outstanding voting securities" of the class of
the Fund, as defined under the 1940 Act.
Shareholder services are provided to the Fund under a Shareholder Services
Agreement ("Services Agreement") with Scudder Weisel. Scudder Weisel bears all
its expenses of providing services pursuant to the Services Agreement, including
the payment of service fees to financial intermediaries. For the services under
the Services Agreement, the Fund pays Scudder Weisel a shareholder services fee,
payable monthly, at an annual rate of up to 0.50% of average daily net assets of
the shares of the Fund.
Scudder Weisel enters into related arrangements with various broker-dealer
firms and other service or administrative firms ("intermediaries") that provide
services and facilities for their customers or clients who are investors in the
Fund. The intermediaries provide such office space and equipment, telephone
facilities and personnel as is necessary or beneficial for providing information
and services to their clients. Such services and assistance may include, but
are not limited to, the provision of personal, continuing services to investors
in the Fund; receiving, aggregating and processing purchase and redemption
orders; maintaining retirement plan accounts and providing and maintaining
retirement plan records; communicating periodically with shareholders and
providing information and responding to questions about the Fund, the shares,
the availability of shares in any continuous offering, and repurchase offers,
and handling correspondence from shareholders about their accounts; acting as
the sole shareholder of record and nominee for shareholders; maintaining account
records and providing beneficial owners with account statements; processing
dividend payments; issuing shareholder reports and transaction confirmations;
providing subaccounting services for shares held beneficially; forwarding
shareholder communications to beneficial owners; receiving, tabulating and
transmitting proxies executed by beneficial owners; general account
administration activities; and providing such other similar services as the Fund
may reasonably request to the extent the intermediary is permitted to do so
under applicable statutes, rules, or regulations.
Scudder Weisel pays each intermediary a service fee, normally payable
quarterly, at an annual rate of up to 0.50% of the net assets in Fund accounts
that the intermediary maintains and services, commencing with the month after
investment. Services to which service fees may be paid may include affiliates
of Scudder Weisel.
Scudder Weisel also may provide some of the above services and may retain
any portion of the fee under the Services Agreement not paid to intermediaries
to compensate itself for administrative functions and services it performs in
assisting with and coordinating shareholder servicing, including the provision
of services with respect to customers of Scudder Weisel who are shareholders of
the Fund. In addition, Scudder Weisel may, from time to time, from its own
resources, pay certain intermediaries additional amounts for ongoing
administrative services and assistance provided to their customers and clients
who are shareholders of the Fund.
Certain Trustees or officers of the Fund are also directors or officers of
Scudder Weisel, as indicated under "Trustees and Officers."
LEGAL COUNSEL
Dechert, 1775 Eye Street, N.W., Washington, D.C. 20006, has been selected
as the Fund's legal counsel.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Fund has no obligation to deal with any dealer or group of dealers in
the execution of transactions in portfolio securities. Pursuant to the Sub-
Advisory Agreement and subject to policies established by the Board of Trustees
and the supervision of Scudder Weisel, the Investment Adviser is responsible for
the Fund's investment portfolio decisions and the placing of portfolio
transactions. In placing orders, it is the policy of the Fund to obtain the
best results taking into account the broker-dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the broker-dealer's risk in positioning the securities involved. While the
Investment Adviser generally seeks reasonably competitive spreads or
commissions, the Fund will not necessarily be paying the lowest spread or
commission available.
Purchase and sale orders of the securities held by the Fund may be combined
with those of other accounts that the Investment Adviser manages, and for which
the Investment Adviser has brokerage placement authority, in
22
<PAGE>
the interest of seeking the most favorable overall net results. When the
Investment Adviser determines that a particular security should be bought or
sold for the Fund and other accounts managed by the Investment Adviser, the
Investment Adviser undertakes to allocate those transactions among the
participants equitably in accordance with procedures established by the Board of
Trustees.
Under the 1940 Act, persons affiliated with the Fund, Scudder Weisel, the
Investment Adviser and their affiliates are prohibited from dealing with the
Fund as a principal in the purchase and sale of securities unless an exemptive
order allowing such transactions is obtained from the SEC or an exemption is
otherwise available.
Except for exchange-traded securities purchased by the Fund, purchases and
sales of securities usually will be principal transactions. Such portfolio
securities normally will be purchased or sold from or to dealers serving as
market makers for the securities at a net price. The Fund also will purchase
portfolio securities in underwritten offerings and may purchase securities
directly from the issuer. Generally, money market securities are traded on a
net basis and do not involve brokerage commissions. The cost of executing the
Fund's investment portfolio securities transactions will consist primarily of
dealer spreads and underwriting commissions.
Purchases and sales of equity securities on a securities exchange are
effected through brokers who charge a negotiated commission for their services.
Orders may be directed to any broker including, to the extent and in the manner
permitted by applicable law, affiliates of Scudder Weisel, including Thomas
Weisel Partners Group LLC ("Thomas Weisel Partners"), and affiliates of the
Investment Adviser (collectively, the "Affiliated Brokers"). Absent an SEC
exemption or other relief, the Fund generally is precluded from effecting
principal transactions with the Affiliated Brokers, and its ability to purchase
securities being underwritten by an Affiliated Broker or to utilize the
Affiliated Brokers for agency transactions is subject to restrictions. Thomas
Weisel Partners frequently acts as an underwriter in connection with initial
public offerings of companies in the information technology sector. The Fund's
ability to purchase securities in an underwriting in which Thomas Weisel
Partners or another Affiliated Broker participates is limited pursuant to Rule
10f-3 under the 1940 Act. The limitations imposed under this Rule may impact
the Fund's ability to take advantage of market opportunities and the Fund's
overall performance.
In placing orders for portfolio securities of the Fund, the Investment
Adviser is required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that the Investment Adviser
seeks to execute each transaction at a price and commission, if any, that
provide the most favorable total cost or proceeds reasonably attainable in the
circumstances. While the Investment Adviser generally seeks reasonably
competitive spreads or commissions, the Fund will not necessarily be paying the
lowest spread or commission available. In executing portfolio transactions and
selecting brokers or dealers, the Investment Adviser seeks to obtain the best
overall terms available for the Fund. In assessing the best overall terms
available for any transaction, the Investment Adviser considers factors deemed
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. Rates are established pursuant to
negotiations with the broker based on the quality and quantity of execution
services provided by the broker in the light of generally prevailing rates. The
allocation of orders among brokers and the commission rates paid are reviewed
periodically by the Fund's Board of Trustees.
When it can be done consistent with the policy of obtaining the most
favorable net results, it is the practice of the Investment Adviser to place
orders with broker-dealers who supply research, market and statistical
information to the Fund, Scudder Weisel or the Investment 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; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Investment Adviser is authorized when placing portfolio transactions for the
Fund to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction on account of the receipt of research,
market or statistical information. The Investment Adviser may entered into
arrangements with certain broker-dealers pursuant to which a broker-dealer will
provide research, market or statistical information to the Investment Adviser or
the Fund in exchange for the direction by the Investment Adviser of brokerage
transactions to the broker-dealer. The Investment Adviser may give
consideration to those firms that have sold or are selling shares of a fund
managed by the Investment Adviser. In effecting transactions in over-the-
counter securities, orders are
23
<PAGE>
placed with the principal market makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
elsewhere.
Although certain research, market and statistical information from broker-
dealers may be useful to the Fund, Scudder Weisel and to the Investment Adviser,
it is the opinion of the Investment Adviser that such information only
supplements its own research effort since the information must still be
analyzed, weighed and reviewed by the Investment Adviser's staff. Such
information may be useful to the Investment Adviser in providing services to
clients other than the Fund and not all such information is used by the
Investment Adviser in connection with the Fund. Conversely, such information
provided to the Investment Adviser by broker-dealers with whom other clients of
the Investment Adviser effect securities transactions may be useful to the
Investment Adviser in providing services to the Fund.
Certain of the brokers or dealers with whom the Fund may transact business
offer commission rebates to the Fund. The Investment Adviser considers such
rebates in assessing the best overall terms available for any transaction. The
overall reasonableness of brokerage commissions paid is evaluated by the
Investment Adviser based upon its knowledge of available information as to the
general level of commission paid by other institutional investors for comparable
services.
24
<PAGE>
APPENDIX A: RATINGS OF CORPORATE BONDS AND COMMERCIAL PAPER
S&P corporate bond ratings
--------------------------
AAA - Bonds rated AAA have the highest rating assigned by S&P. Capacity to
---
pay interest and repay principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
--
principal and differ from the higher rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
-
principal, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
---
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB, B, CCC, CC, C - Bonds rated BB, B, CCC, CC, and C are regarded, on
-----------------
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB indicates
the lowest degree of speculation and C the highest degree of speculation. While
such bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
CI - The rating CI is reserved for income bonds on which no interest is
--
being paid.
D - Bonds rated D are in default, and payment of interest and/or repayment
-
of principal is in arrears.
Plus (+) or Minus (-) - The ratings above may be modified by the addition
---------------------
of a plus or minus sign to show relative standing within the major categories.
Moody's corporate bond ratings
------------------------------
Aaa - Bonds 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 an exceptionally stable margin,
and principal is secure. Although the various protective elements are likely to
change, the changes that can be visualized are most unlikely to impair the
fundamentally strong position of the issuer.
Aa - Bonds 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-rated securities, fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present that make the long-term risks appear somewhat larger than in Aaa-rated
securities.
A - Bonds rated A possess many favorable investment attributes and are to
-
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present that
suggest a susceptibility to impairment sometime in the future.
Baa - 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. These bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
A-1
<PAGE>
Ba - Bonds 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
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B - Bonds 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 time may be small.
Caa - Bonds 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.
Ca - Bonds rated Ca represent obligations that are speculative in a high
--
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds 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.
Modifiers - Moody's may apply numerical modifiers 1, 2, and 3 in each
---------
generic rating classification described above. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the issuer
ranks in the lower end of its generic rating category.
S&P commercial paper ratings
----------------------------
A-1 - This highest category indicates that the degree of safety regarding
---
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+).
Moody's commercial paper ratings
--------------------------------
Issuers rated Prime-1 (or related supporting institutions), also known as
-------
P-1, have a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be evidenced by the
following characteristics:
-Leading market positions in well-established industries;
-High rates of return on funds employed;
-Conservative capitalization structures with moderate reliance on debt and
ample asset protection;
-Broad margins in earnings coverage of fixed financial charges and high
internal cash generation; and
-Well-established access to a range of financial markets and assured
sources of alternate liquidity.
A-2
<PAGE>
PART C:
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(1) Financial Statements:
As Registrant has no assets, financial statements are omitted.
(2) Exhibits
(a)(1) Amended and Restated Declaration of Trust./1/
(2) Amended and Restated Certificate of Trust. Filed herewith.
(b) Amended and Restated By-laws./1/
(c) Not applicable.
(d) Certificates for Shares will not be issued. Articles III, IV and
V of the Declaration of Trust, filed as Exhibit (a) hereof, define the
rights of holders of the Shares.
(e) Form of Dividend Reinvestment Plan./1/
(f) Not applicable.
(g)(i) Investment Management Agreement between Scudder Weisel Capital
LLC, and the Registrant./1/
(g)(ii) Investment Advisory Agreement between Scudder Weisel Capital
LLC and Whitney Holdings LLC./1/
(h)(i) Distribution Agreement between Scudder Weisel Capital LLC and
the Registrant./1/
(h)(ii) Form of Selling Group Agreement between Scudder Weisel
Capital LLC and dealers./1/
(i) Not applicable.
(j) Custody Agreement between State Street Bank and Trust Company and
the Registrant./1/
(k)(1) Form of Administrative Services Agreement between State Street
Bank and Trust Company and the Registrant./1/
(k)(2) Form of Transfer Agency Services Agreement between Kemper
Service Company and Registrant./1/
(k)(3) Form of Shareholder Services Agreement between Scudder Weisel
Capital LLC and the Registrant./1/
(k)(4) Form of Shareholder Servicing Plan with respect to Class A and
Class O shares./1/
(k)(5) Form of Shareholder Servicing Agreement between Scudder Weisel
Capital LLC and financial intermediaries./1/
C-1
<PAGE>
(l) Opinion and Consent of Dechert with respect to the Registrant./1/
(m) Not applicable.
(n) Consent of auditors./1/
(o) Not applicable.
(p) Subscription Agreement for Initial Capital./1/
(q) Not applicable.
(r) Code of Ethics./1/
(s) Power of Attorney for the Registrant (incorporated by reference to
the initial Registration Statement of the Registrant filed on October 5,
2000.
______________
/1/ To be filed by amendment.
Item 25. Marketing Arrangements
See the Distribution Agreement to be filed as exhibit (h) to this
Registration Statement.
Item 26. Other Expenses of Issuance and Distribution*
All figures are estimates:
Registration Fees $________
Printing and Engraving Expenses $________
Rating Agency Fees and Expenses $________
Legal Fees and Expenses $________
National Association of Securities Dealers, Inc. fees $0
Accounting Fees and Expenses $________
Transfer agents' fees $________
Accounting fees $________
Miscellaneous Expenses $________
Total $________
* To be completed by amendment.
Item 27. Persons Controlled by or Under Common Control With Registrant
Not applicable.
C-2
<PAGE>
Item 28. Number of Holders of Securities
Registrant currently has no securities outstanding.
Item 29. Indemnification
A policy of insurance covering Scudder Weisel Capital LLC, its affiliates,
and all of the registered investment companies advised by Scudder Weisel Capital
LLC will be obtained that insures the Registrant's trustees and officers and
others against liability arising by reason of an alleged breach of duty caused
by any negligent act, error or accidental omission in the scope of their duties.
Article VII, Sections 2 through 4 of the Registrant's Declaration of Trust
states as follows:
Section 2. Indemnification.
(a) Subject to the exceptions and limitations contained in
Subsection 3(b) of this Article:
(i) every person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be indemnified
by the Trust to the fullest extent permitted by law against liability and
against all expenses reasonably incurred or paid by him in connection with any
claim, action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in office or thereafter, and the
words "liability" and "expenses" shall include, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office or (B)
not to have acted in good faith in the reasonable belief that his action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office: (A) by the court or other body approving
the settlement; (B) by at least a majority of those Trustees who are neither
Interested Persons of the Trust nor are parties to the matter based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type
C-3
<PAGE>
inquiry); provided, however, that any Shareholder may, by appropriate legal
proceedings, challenge any such determination by the Trustees or by independent
counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be a
Covered Person and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Covered Persons,
and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character described in
Subsection 2(a) of this Article may be paid by the Trust or Series from time to
time prior to final disposition thereof upon receipt of an undertaking by or on
behalf of such Covered Person that such amount will be paid over by him to the
Trust or Series if it is ultimately determined that he is not entitled to
indemnification under this Section 3; provided, however, that either (i) such
Covered Person shall have provided appropriate security for such undertaking,
(ii) the Trust is insured against losses arising out of any such advance
payments, or (iii) either a majority of the Trustees who are neither Interested
Persons of the Trust nor parties to the matter, or independent legal counsel in
a written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a trial-type inquiry or full investigation), that
there is reason to believe that such Covered Person will be found entitled to
indemnification under Section 3.
Section 3. Trustee's Good Faith Action, Expert Advice, No Bond or Surety.
The exercise by the Trustees of their powers and discretions hereunder shall be
binding upon everyone interested. A Trustee shall be liable to the Trust and to
any Shareholder solely for his or her own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of the
office of Trustee, and shall not be liable for errors of judgment or mistakes of
fact or law. The Trustees may take advice of counsel or other experts with
respect to the meaning and operation of this Declaration of Trust, and shall be
under no liability for any act or omission in accordance with such advice nor
for failing to follow such advice. The Trustees shall not be required to give
any bond as such, nor any surety if a bond is required.
Section 4. Insurance. The Trustees shall be entitled and empowered to the
fullest extent permitted by law to purchase with Trust assets insurance for
liability and for all expenses reasonably incurred or paid or expected to be
paid by a Trustee, officer, employee, or agent of the Trust in connection with
any claim, action, suit, or proceeding in which he or she may become involved by
virtue of his or her capacity or former capacity as a Trustee of the Trust.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to trustees,
officers and controlling persons of the Registrant by the Registrant pursuant to
the foregoing provisions or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than
C-4
<PAGE>
the payment by the Registrant of expenses incurred or paid by a trustee, officer
or controlling person of the Registrant in connection with the successful
defense of any act, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the shares being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Item 30. Business and Other Connections of Investment Adviser
To be provided by amendment.
Item 31. Location of Accounts and Records
Accounts and records of the Fund are maintained at the Fund's office at 88
Kearny Street, San Francisco, CA 94108.
Item 32. Management Services
Not applicable.
C-5
<PAGE>
Item 33. Undertakings
1........Not Applicable.
2........Not Applicable.
3........Not Applicable.
4........The Registrant undertakes:
a. To file during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the
Prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information
set forth in the registration statement; and (iii) to include
any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
b. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
c. To remove from registration by means of post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
5. Not applicable.
6. The Registrant undertakes to send by first class mail or other means
designed to ensure equally prompt delivery, within two business days of receipt
of a written or oral request, any Statement of Additional Information.
C-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Francisco in the State of
California, on the 22/nd/ day of November, 2000.
Scudder Weisel Capital Entrepreneurs Fund
(Registrant)
By: /s/ Peter H. Mattoon
------------------------------------------
Name: Peter H. Mattoon
Title: President and Trustee
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
Signature Title Date
--------- ----- ----
/s/ Peter H. Mattoon President and Trustee November 22, 2000
------------------------- (principal executive officer)
Peter H. Mattoon
/s/ Joseph McCuine Treasurer (principal financial November 22, 2000
------------------------- and accounting officer)
Joseph McCuine
C-7
