<PAGE> 1
Registration Nos. 333-47394
811-10169
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 2, 2001
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. 2 /X/
Post-Effective Amendment No. __ / /
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 2 /X/
(Check appropriate box or boxes)
SCUDDER WEISEL CAPITAL ENTREPRENEURS FUND
(Exact name of Registrant as specified in charter)
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/
------------------
<PAGE> 2
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
====================================================================================================================
TITLE OF SECURITIES AMOUNT BEING PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
BEING REGISTERED REGISTERED (1) OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE (2)
UNIT (1) 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
====================================================================================================================
</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> 3
CROSS REFERENCE SHEET
PARTS A AND B OF PROSPECTUS
<TABLE>
<CAPTION>
ITEM CAPTION LOCATION IN PROSPECTUS
NO.
<S> <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........................................... Not Applicable
6. Selling Shareholders........................................... Not Applicable
7. Use of Proceeds................................................ Use of Proceeds
8. General Description of the Registrant.......................... Outside Front Cover Page; Investment Objective and
Principal 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....................... Brokerage Commissions (SAI)
22. Tax Status..................................................... Taxes
23. Financial Statements........................................... Not Applicable
</TABLE>
<PAGE> 4
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. NO
PERSON MAY SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[Scudder Weisel Logo]
Subject to Completion, Dated January 2, 2001
SCUDDER WEISEL CAPITAL ENTREPRENEURS FUND
Class A 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
long-term capital appreciation. 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, basic industries, healthcare, or financial services sectors
(collectively, the "Target Sectors"), and companies that the Fund's investment
adviser considers to be growing and transforming companies. Up to 60% of the
Fund's assets may be invested in privately placed securities issued by companies
in the Target Sectors or by growing and transforming companies, which will
consist substantially of private equity securities, and will also include
special situation investments (collectively, "private securities").
(continued on following page)
------------------------
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 to
Scudder Weisel Capital LLC, PO Box 509072, San Diego, CA 92150-9072; or by
calling 1-866-SWC-EDGE (1-866-792-3343). The SAI is incorporated by reference
into this Prospectus in its entirety. The table of contents of the SAI appears
on page 66 of this Prospectus. The SAI, and other information about the Fund, is
also available on the SEC's website (http://www.sec.gov).
<TABLE>
<CAPTION>
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MAXIMUM OFFERING
PRICE TO PUBLIC(1) MAXIMUM SALES LOAD PROCEEDS TO FUND(2)
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PER CLASS A SHARE... $25.00 $1.19 $23.81
------------------------------------------------------------------------------------------
TOTAL............ $ $ $
------------------------------------------------------------------------------------------
</TABLE>
(The notes to this chart appear on the next page.)
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.
INVESTMENTS IN SECURITIES OF COMPANIES IN THE TARGET SECTORS AND OF GROWING
AND TRANSFORMING COMPANIES, AND, IN PARTICULAR, PRIVATE SECURITIES AND PRIVATE
INVESTMENT FUNDS (AS DEFINED BELOW), MAY BE SPECULATIVE AND POSE SPECIAL RISKS.
NO MARKET EXISTS FOR THE FUND'S SHARES. FURTHER, THE FUND'S SHARES ARE SUBJECT
TO SIGNIFICANT TRANSFER RESTRICTIONS. CONSEQUENTLY, YOU MAY NOT BE ABLE TO SELL
YOUR SHARES. THESE RISKS ARE MORE FULLY EXPLAINED BELOW UNDER THE HEADING
"PRINCIPAL RISK FACTORS AND INVESTMENT TECHNIQUES." THE FUND'S SHARES ARE
APPROPRIATE ONLY AS A LONG-TERM INVESTMENT.
The date of this Prospectus is , 2001
<PAGE> 5
(These notes pertain to the chart on the previous page.)
(1)Scudder Weisel Capital LLC will offer the Class A 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. The Fund's initial offering expenses, estimated to be $1,200,000,
will be borne by the Fund and charged against the capital of the Fund upon
commencement of operations. See "Use of Proceeds."
------------------------
(continued from previous page)
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 investment vehicles that are not publicly offered
("private investment funds"). 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."
Publicly traded securities in which the Fund may invest 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 funds and other investment funds that may be
affiliated with the Fund, Scudder Weisel Capital LLC, or the Fund's investment
adviser. The Fund is seeking exemptive relief from the SEC to the extent
<PAGE> 6
necessary to permit such investments. There can be no assurance that such relief
will be granted. 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.
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 shares of beneficial
interest of the Fund. Scudder Weisel and selected brokers and dealers
("broker-dealers") will offer Class A Shares of the Fund during the initial
offering period at a maximum 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. The Fund has registered
Class A 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 $1,250,000
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.
<PAGE> 7
INVESTMENT MANAGEMENT FEE. The Fund's investment management fee has two
components, an asset based management fee and a performance based (or
"incentive") fee. The Fund will pay Scudder Weisel an asset based management 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 AND TRANSFER RESTRICTIONS. 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, 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 Scudder Weisel or
intermediaries that have entered into selling group agreements with Scudder
Weisel or its delegate, or may hold their shares through the Fund if they
purchased the shares through such an intermediary. Applications to invest in the
Fund will be accepted only from investors who have established an account with
Scudder Weisel or with an intermediary that has entered into a selling group
agreement with Scudder Weisel or its delegate. Applications may be submitted by
such an intermediary on an investor's behalf. Shares of the Fund may only be
transferred to persons who are Qualified Clients and who hold their shares
through intermediaries that have entered into selling group agreements with
Scudder Weisel or its delegate or through Scudder Weisel directly. See "How to
Purchase Fund Shares -- Investor Qualifications and Transfer Restrictions."
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.
BECAUSE THE FUND IS A CLOSED-END INVESTMENT COMPANY, SHARES OF THE FUND WILL NOT
BE REDEEMABLE ON A DAILY BASIS NOR WILL THEY BE EXCHANGEABLE FOR SHARES OF ANY
OTHER FUND. YOU MAY NOT BE ABLE TO SELL YOUR SHARES.
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.
<PAGE> 8
[Corporate Logo]
i
<PAGE> 9
[PAGE INTENTIONALLY LEFT BLANK]
ii
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.......................................... 1
SUMMARY OF FUND EXPENSES.................................... 12
PRINCIPAL RISK FACTORS AND INVESTMENT TECHNIQUES............ 14
USE OF PROCEEDS............................................. 34
INVESTMENT OBJECTIVE AND STRATEGIES......................... 35
MANAGEMENT OF THE FUND...................................... 42
REPURCHASE OFFERS........................................... 48
CALCULATION OF NET ASSET VALUE.............................. 52
SHARES OF BENEFICIAL INTEREST............................... 54
DISTRIBUTION POLICY......................................... 54
TAXES....................................................... 56
HOW TO PURCHASE FUND SHARES................................. 58
GENERAL INFORMATION......................................... 63
TABLE OF CONTENTS OF SAI.................................... 66
APPENDIX A -- FORM OF INVESTOR CERTIFICATION................ A-1
</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.
iii
<PAGE> 11
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 Strategies.... The Fund's investment objective is long-term
capital appreciation. 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, basic
industries, healthcare, financial services
sectors (collectively, the "Target Sectors"),
and companies that the Investment Adviser
considers to be growing and transforming
companies. Up to 60% of the Fund's assets may
be invested in privately placed securities
issued by companies in the Target Sectors or by
growing and transforming companies, 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 funds.
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 funds and other investment
funds that may be affiliated with the Fund,
Scudder Weisel or the Investment Adviser. The
Fund is seeking exemptive relief from the SEC
to the extent necessary to permit such
investments. There can be no assurance that
such relief will be granted.
1
<PAGE> 12
Publicly traded securities in which the Fund
may invest 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 the company.
In addition to other investment opportunities,
the Fund intends to invest in special situation
investments. Special Situation investments
include mezzanine debt securities, PIK
preferred securities, collateralized debt
obligation ("CDOs") and distressed securities
(collectively, "Special Situation"
investments). Specific Special Situation
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 funds that are affiliated with
Scudder Weisel or the Investment Adviser. The
Fund is seeking exemptive relief from the SEC
to the extent necessary to permit such
investments. There can be no assurance that
such relief will be granted. Special Situation
investments are included in the portion of the
Fund's portfolio invested in private
securities.
2
<PAGE> 13
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 of Fund
shares, 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 invest in private companies
at a point in their development when the
Investment Adviser believes the company is
poised for growth. The Investment Adviser
attempts to identify unique investment
opportunities through an investment sourcing
approach referred to as "top down/bottom up".
The Investment Adviser first applies a
macro-economic analysis to the investment
market place to attempt to identify the most
promising areas of opportunity ("top-down") and
then attempts to identify the best private
companies within these areas ("bottom-up").
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 financing activities.
In the public securities portion of its
portfolio, the Fund will typically invest in
companies that have a market capitalization of
below $10 billion and in some cases less than
$2 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 re-
3
<PAGE> 14
turn-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 Adviser and
Distributor............. Scudder Weisel Capital LLC ("Scudder
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 to Scudder Weisel 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."
4
<PAGE> 15
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
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 will not borrow money until
the proceeds of the initial 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 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.
5
<PAGE> 16
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 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
6
<PAGE> 17
provide services and facilities for their
customers or clients who are investors in the
Fund.
Investor Qualifications... Shares are offered only to investors who have a
net worth of more than $1,500,000, including
any amount invested in the Fund, 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 must hold
your shares through Scudder Weisel or a broker-
dealer that has entered into a selling group
agreement with Scudder Weisel or its delegate,
or you may hold your shares through the Fund if
you purchased the shares through such a
broker-dealer. Applications to invest in the
Fund will be accepted only from investors who
have established an account with Scudder Weisel
or with an intermediary that has entered into a
selling group agreement with Scudder Weisel or
its delegate. Applications may be submitted by
such an intermediary on an investor's behalf.
Before you may invest in the Fund, your
financial advisor or brokerage representative
will 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, or through Scudder Weisel
directly. (The form of investor certification
that you will 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 an
entity other than Scudder Weisel 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. The
Fund may also offer shares to certain
knowledgeable employees who participate in the
investment activities of Scudder Weisel or the
Investment Adviser. See "How to Purchase Fund
Shares -- Investor Qualifications and Transfer
Restrictions."
7
<PAGE> 18
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
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;
Limited Liquidity;
Shares Not Listed....... The Fund has been organized as a 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 investments in the Target Sectors
and in private funds that participate in such
investments. However, these investments are
often illiquid, and an open-end fund's ability
to make such investments is limited. For this
reason, among others,
8
<PAGE> 19
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. You must hold your
shares through Scudder Weisel or a broker-
dealer that has entered into a selling group
agreement with Scudder Weisel or its delegate,
or you may hold your shares through the Fund if
you purchased the shares through such a
broker-dealer. The existence of transfer
restrictions may 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 an entity other than Scudder
Weisel 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
9
<PAGE> 20
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 as
provided for under applicable SEC regulations,
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 companies that the Investment
Adviser considers growing and transforming
companies;
- Investing in private securities, including
Special Situation investments, and private
investment funds;
- A focus on a small number of sectors and
maintaining a "non-diversified" portfolio;
- Investing in smaller companies;
- 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;
10
<PAGE> 21
- 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 in excess of that amount. 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 enhanced
liquidity feature will be implemented. In any
event, the Fund will continue to engage in
repurchase offers as required pursuant to the
Fund's fundamental policy on repurchases and
the requirements of applicable SEC regulations.
11
<PAGE> 22
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 shares of the Fund. Because the Fund has not yet completed a full year of
operations, many of these expenses are estimated.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge (Load) Imposed on Purchases (as a
percentage of public offering price)................... 4.75%
Estimated Offering Expenses(1)........................... 0.24%
Maximum Sales Charge on Reinvested Dividends............. NONE
Maximum Early Withdrawal Charge.......................... NONE
ANNUAL EXPENSES (as a percentage of net assets
attributable to shares of beneficial interest)
Management fees(2)....................................... 2.0%
Other Expenses(3)........................................ 0.85%
Shareholder servicing fees............................. 0.50%
Other.................................................. 0.35%
Total Annual Expenses(4)................................. 2.85%
</TABLE>
---------------
(1) Offering expenses, estimated to be $1,200,000, will be charged to the Fund's
capital at the commencement of operations and are not included in "Other
Expenses" or "Total Annual Expenses" above. This figure assumes net assets
of $500 million.
(2)The Fund incurs an asset based management fee of 2.0% of average daily net
assets and an annual performance based management fee of 20% of the Fund's
net realized capital gains or losses, net investment income or loss, and net
unrealized appreciation or depreciation. To the extent the Fund incurs a
performance-based management fee in any year, the Fund's management fee will
be greater than 2.0% for that year. See "Management of the Fund -- Management
Fee."
(3) "Other Expenses" are based on estimated amounts for the current fiscal year,
assuming net assets of $500 million. "Other Expenses" may be higher if net
assets are less than $500 million.
(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 and any extraordinary expenses) would
otherwise exceed 2.85% of its average daily net assets with respect to the
Fund's Class A shares during the first fiscal year of the Fund's operations.
This contractual undertaking expires on December 31, 2001. The gross
estimated total annual expense ratio for the Fund for the current fiscal
year is 2.85%.
12
<PAGE> 23
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>
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)............ $79 $144 $211 $388
</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%.
13
<PAGE> 24
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
14
<PAGE> 25
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 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. Persons
considering investing in the Fund through an employee benefit plan or qualified
retirement account should consider the relative illiquidity of the Fund in light
of their cash flow needs. In particular, it may not be possible to liquidate a
position in the Fund even if necessary to meet distribution requirements of an
employee benefit plan or qualified retirement account imposed under the Internal
Revenue Code of 1986, as amended.
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
15
<PAGE> 26
shareholder tenders, with limited exceptions as provided for under applicable
SEC regulations. 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. You must hold your shares
through Scudder Weisel or a broker-dealer that has entered into a selling group
agreement with Scudder Weisel or its delegate, or you may hold your shares
through the Fund if you purchased the shares through such a broker-dealer. The
existence of transfer restrictions may 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 an entity other
than Scudder Weisel 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. 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 AND IN GROWING AND TRANSFORMING COMPANIES
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, basic industries, healthcare, or financial services
sectors (collectively, the "Target Sectors"), and companies that the Investment
Adviser considers to be growing and transforming companies. While the Fund may
focus more of its investment activities in the information technology sector,
the Fund will pursue attractive investments in all Target Sectors. In
16
<PAGE> 27
addition to the general risks of equity investments, these investments 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 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
17
<PAGE> 28
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.
Basic Industries Sector
The Investment Adviser may invest the Fund's assets in what the Investment
Adviser identifies as growing and transforming companies in the basic industries
sector. The Investment Adviser considers companies in the basic industries to be
traditional or "old-line" companies in industries including, but not limited to,
chemicals, manufacturing, steel products, mining, fibers, and forest products,
and intends to invest in those that it believes have an established operating
history but nonetheless are experiencing growth and generating positive cash
flows. In addition to the potentially increased risk that such companies may be
subject to litigation, changing regulations, or industry obsolescence, there can
be no assurance that the Investment Adviser will be able to successfully
identify or obtain securities issued by companies in the basic industries sector
with positive financial results.
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
focus 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.
Growing and Transforming Companies
The Investment Adviser considers growing and transforming companies to be
those that operate in markets, including mature markets, where change
18
<PAGE> 29
is occurring, triggered by new technologies or production processes,
consolidation, outsourcing of non-critical business functions, new management
techniques, deregulation or privatization. The Investment Adviser focuses on
investing in transforming businesses that are serving high growth end markets
that would allow such businesses to benefit from that growth. 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 below $10
billion and in some cases less than $2 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 or by growing and
transforming companies, 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 funds.
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 and of growing and
transforming companies present all of the risks described above of investment in
small companies, companies in the Target Sectors, and growing and transforming
companies, plus certain additional risks. Certain of the private securi-
19
<PAGE> 30
ties 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 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") 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 manu-
20
<PAGE> 31
facturing 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
that a late stage company will ever conduct an IPO.
The Investment Adviser's other clients, including private investment 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
Investments in investment vehicles that are not publicly offered, or
"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 addi-
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tion 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.
Because the Fund may invest in securities issues by other investment funds,
the Fund (and indirectly, its shareholders) will bear its proportionate share of
investment management and other fees and expenses incurred at the underlying
investment fund level.
The Fund may invest in private investment funds that employ Scudder Weisel
or the Investment Adviser, or their affiliates, as investment adviser 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.
The Fund is seeking exemptive relief from the SEC to the extent necessary to
permit such investments. There can be no assurance that such relief will be
granted.
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%. An "equity kicker" is an addition to a
fixed income security that permits the investor to participate in increases (if
any) in the value of equity ownership. Typically, issuers of mezzanine debt
securities use the proceeds to finance internal
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<PAGE> 33
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.
The Fund may invest in any of these Special Situations investments directly
or indirectly by investing in private investment funds that, in turn, make such
direct investments. Any other private investment fund in which the Fund may
invest also impose management and incentive fees on their investors. If the Fund
were to invest in another private investment 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 pro-
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<PAGE> 34
vided, 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 the Fund's 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 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
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<PAGE> 35
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.
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 of 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 comprised of 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 that the Investment Adviser considers to participate in
the Target Sectors or to be growing and transforming companies. 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
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<PAGE> 36
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 focused 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 may pay up to 100% 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 under the supervision of the Board of Trustees by using fair value
policies and procedures approved by the Fund's Board of Trustees (see
"Calculation of Net Asset Value"). The valuations assigned to such investments
will have a direct effect on the investment management fees payable to Scudder
Weisel and the Investment Adviser. The value ascribed to these secu-
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<PAGE> 37
rities 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.
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
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<PAGE> 38
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.
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 or of foreign growing and transforming companies. 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;
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- 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), 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.
The Fund will seek to repay borrowings used to meet repurchase requests and
for cash management purposes generally within one year of incurring them. The
use of borrowings for financial leverage involves a high degree of risk.
The Fund will not borrow money until the proceeds of the initial 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
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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
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turnover rate will increase, which may result in an increase to the Fund's
expense ratio.
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 ex-
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change 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.
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
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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 limited its transactions
to a single or small group of counterparties. The Fund is not restricted from
dealing with any particular counterparty or from limiting 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".
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
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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 after termination of
the initial offering, 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 Investment Adviser 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 may be prevented from achieving its objective
during any time in which the Fund's assets are not substantially invested in
accordance with its principal investment strategies. The Fund will pay
organizational and offering expenses estimated to be $1,250,000 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.
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INVESTMENT OBJECTIVE AND STRATEGIES
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital appreciation. There
can be no assurance that the Fund will achieve its investment objective or avoid
substantial losses. The Fund's investment objective may be changed by the Board
of Trustees without the vote of a majority of the Fund's outstanding voting
securities.
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 long-term capital appreciation. 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, basic industries, healthcare, or
financial services sectors (collectively, the "Target Sectors"), and companies
that the Investment Adviser considers to be growing and transforming companies.
The Fund may focus its Target Sector investments in the information technology
sector more so than in any other sector. Up to 60% of the Fund's assets may be
invested in privately placed securities issued by companies in the Target
Sectors or by growing and transforming companies, 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 funds. Publicly traded securities in which the Fund may invest 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.
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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 of companies in the
Target Sectors and companies that the Investment Adviser considers to be growing
and transforming companies. The Investment Adviser's approach in making these
selections is described below.
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General
Sector Expertise. The Investment Adviser's investment teams are focused on
areas 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, basic industries, health care, and financial services. In
addition, the Investment Adviser believes that growing and transforming
companies present highly attractive opportunities. The Fund may focus its Target
Sector investments in the information technology sector more so than the other
sectors. The Investment Adviser believes that its investing insights are
improved significantly by the overlapping and highly complementary nature of
these areas.
[CHART CONTAINING: INFORMATION TECHNOLOGY; COMMUNICATIONS; HEALTHCARE; BASIC
INDUSTRIES; FINANCIAL SERVICES]
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 interna-
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tional 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 when the Investment Adviser believes the company is poised for
growth. Growth capital investing borrows from the traditional venture capital
and leveraged buyout sectors, but is a distinct style of investing. The
Investment Adviser believes that 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 area of private equity.
Unique "Top-Down/Bottom-Up" Approach. The Investment Adviser attempts to
identify unique investment opportunities through an investment sourcing approach
referred to as "top down/bottom up". The Investment Adviser first applies a
macro-economic analysis to the investment market place to attempt to identify
the most promising areas of opportunity ("top-down") and then attempts to
identify the best private companies within these areas ("bottom-up"). 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.
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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 in some cases less than $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
may invest in a relatively small number of securities. The portfolio will
represent a short list of investments that the Investment Adviser believes
presents a promising investment opportunity, 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 Investment Adviser will frequently
attempt to utilize its experience in equity and debt
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investing and its expertise in the Target Sectors and in growing and
transforming companies in making investment decisions for the Fund.
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.
Mezzanine Debt Investing
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.
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.
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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 long-term capital appreciation. The Fund's investment objective is
not a fundamental policy and may be changed by the Board of Trustees without the
approval of shareholders.
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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,
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.
As of November 30, 2000, Scudder Kemper Investments, Inc. and Zurich On-Line
Financing Ltd., each a majority- or wholly-owned subsidiary of Zurich Financial
Services Group, together held indirectly through a holding company structure
59.24% of the outstanding units of Scudder Weisel, and Thomas Weisel Partners
held indirectly through a holding company structure 32.31% of the outstanding
units of Scudder Weisel. Thomas Weisel Partners provides investment banking and
related services. Zurich Financial Services Group is a global provider of
financial services, including insurance and asset management services.
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 became registered as an investment
adviser in 1999. It is privately held, is an affiliate of, and is owned by the
same persons as, Whitney & Co. Noted industrialist, financier and philanthropist
John Hay "Jock" Whitney founded Whitney & Co. in 1946. Whitney & Co., as of
August 1, 2000, managed over $5 billion in assets for institutional and high-net
worth investors. The Investment Adviser's address is 177 Broad Street, Stamford
CT 06901. 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.
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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 shares during the first fiscal year of the Fund's
operations. This contractual undertaking expires on December 31, 2001.
MANAGEMENT FEE
The Fund's investment management fee has two components, an asset based
management fee and a performance based (or "incentive") fee. 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. Scudder Weisel compensates the Investment Adviser
for providing its investment advisory services to the Fund.
ASSET BASED MANAGEMENT FEE. The Fund will pay an asset based management
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. Scudder Weisel pays to the Investment Adviser an asset based management
fee equal to 1.0% of the Fund's average daily net assets.
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 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. Scudder
Weisel pays to the Investment Adviser a performance based manage-
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<PAGE> 54
ment fee equal to 100% of the incentive fee paid by the Fund to Scudder Weisel.
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 if
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.
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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 by $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).
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 Company, 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 issues and repurchases shares of the
Fund, 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, maintains shareholder accounts,
responds to correspondence by shareholders of the Fund, and 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. For
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services provided under the Transfer Agency Agreement, the Fund pays Kemper
Service Company .
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 pursuant to a custodial services agreement with
the Fund, under which State Street maintains a separate account in the name of
the Fund, holds and transfers portfolio securities on account of the Fund,
accepts receipts and makes disbursements of money on behalf of the Fund,
collects and receives all income and other payments and distributions on account
of the Fund's securities and makes periodic reports to the Board of Trustees
concerning the Fund's operations. For services provided by State Street as
custodian, the Fund pays State Street .
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. For
services provided under the Administration Agreement, the Fund pays State Street
.
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.
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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 Class A 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, determined the eligibility of
investors; 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.
BROKERAGE TRANSACTIONS
The Fund will incur expenses in connection with effecting its portfolio
transactions, including the payment of brokerage commissions. Portfolio
transaction orders may be directed to any broker, including, to the extent and
in the manner permitted by applicable law, Scudder Weisel, the Investment
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<PAGE> 58
Adviser, or their affiliates, and other affiliates of the Fund. See "Portfolio
Transactions and Brokerage Commissions" in the SAI.
CONTROL PERSONS
As of January , 2001, Class A 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. 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.
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<PAGE> 59
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;
- a minimum 5% of the Fund's outstanding shares of beneficial interest will
be subject to the repurchase offer, unless the Board of Trustees
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<PAGE> 60
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 proration is necessary, the Fund will send a notice of proration 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 proration, 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 PRORATION, SOME
SHAREHOLDERS MAY TENDER MORE SHARES THAN THEY WISH TO HAVE REPURCHASED IN A
PARTICULAR QUARTER, THEREBY INCREASING THE LIKELIHOOD OF PRORATION. 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
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<PAGE> 61
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.
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
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<PAGE> 62
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."
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
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
52
<PAGE> 63
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 1-866-SWC-EDGE (1-866-792-3343).
The Fund also intends to publish its net asset value daily on Scudder Weisel's
website (www. .com).
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<PAGE> 64
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 may be purchased only through
Scudder Weisel or a broker-dealer that has entered into a selling group
agreement with Scudder Weisel or its delegate.
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 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 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
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<PAGE> 65
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- .
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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
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<PAGE> 67
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.
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
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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
The Fund will sell 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 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 will require you to
complete and sign an investor certification before you may invest. The form of
investor certification that you may be asked to sign is included as Appendix A
to this Prospectus.
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<PAGE> 69
Shares may be transferred only to another Qualified Client. In addition,
you must hold your shares through Scudder Weisel or a broker-dealer that has
entered into a selling group agreement with Scudder Weisel or its delegate, or
you may hold your shares through the Fund if you purchased the shares through
such a broker-dealer. Applications to invest in the Fund will be accepted only
from investors who have established an account with Scudder Weisel or with an
intermediary that has entered into a selling group agreement with Scudder Weisel
or its delegate. Applications may be submitted by such an intermediary on an
investor's behalf. The existence of transfer restrictions may 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. 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 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. 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, 88 Kearny St., San Francisco, CA 94108, is the distributor
of the Fund's shares pursuant to a Distribution Agreement between the Fund and
Scudder Weisel. Scudder Weisel also serves as the Fund's investment manager and
provides services to the Fund's shareholders under the Shareholder Services
Agreement. See "Management of the Fund." 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 maximum offering
price of $25.00 per share, including any applicable front-end sales charge.
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. Scudder Weisel will distribute the shares on a best-efforts basis.
Customers of Scudder Weisel or of broker-dealers that have entered into
selling group agreements with Scudder Weisel or its delegate may open an account
and buy shares by mailing a completed application along with a check to: Scudder
Weisel Capital Entrepreneurs Fund, P.O. Box 219035, Kansas City, MO 64121-9035.
You may be charged for any check that does not clear. Cash, travelers checks,
third party checks, starter checks, money orders, or checks drawn on non-U.S.
banks (even if payment may be effected through a U.S. bank) will not be
accepted.
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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.
Class A shares of the Fund are sold with a front-end sales charge and are
subject to an ongoing shareholder services charge, as summarized in the table
below. See also, "Fund Expenses."
<TABLE>
<CAPTION>
ANNUAL DISTRIBUTION FEES
(AS A % OF AVERAGE DAILY
SALES CHARGE NET ASSETS) OTHER INFORMATION
------------ ------------------------ -----------------
<S> <C> <C> <C>
Class A Up to 4.75% None Shareholder service
of the fee of 0.50% of
public average daily net
offering assets
price
</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, or directly through Scudder Weisel.
<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% 5.0%
$100,000 but less than
$750,000.............. 3.75% 3.9%
$750,000 but less than
$1.5 million.......... 2.75% 2.8%
$1.5 million or more.... 1.0% 1.0%
</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.
60
<PAGE> 71
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. Scudder Weisel is authorized to delegate
authority to enter into selling group agreements with respect to Class A shares
to other broker-dealers. Scudder Weisel will compensate such broker-dealers for
performing this service.
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 by Scudder Weisel can sell you
Class A shares of the Fund. Please note that broker-dealers may establish
higher minimum investment requirements than the Fund, and may
61
<PAGE> 72
independently charge you transaction fees and additional amounts (which
may vary) in return for their services in addition to receiving a portion
of the front-end sales charge, which will reduce your return.
- To make direct investments, you must open an account with Scudder Weisel.
Contact Scudder Weisel at 1-866-SWC-EDGE (1-866-792-3343). In addition,
investment advisory clients of Scudder Weisel can purchase 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:
<TABLE>
<S> <C>
For your initial investment in the Fund................... $25,000
To buy additional shares of the Fund...................... $ 1,000
</TABLE>
OPENING AN ACCOUNT WITH THE FUND
To make an investment in the Fund, contact your broker-dealer, other
financial intermediary or Scudder Weisel at 1-866-SWC-EDGE (1-866-792-3343).
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 Qualified Clients who hold an account with Scudder Weisel, or an
account with 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 proceeds
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
62
<PAGE> 73
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. The Fund's prospectus and SAI are available upon request and without
charge by writing to Scudder Weisel Capital Entrepreneurs Fund, Scudder Weisel
Capital LLC, PO Box 509072, San Diego, CA 92150-9072. The telephone number of
the Fund is 1-866-SWC-EDGE (1-866-792-3343). 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, 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.
Class A shares are entitled to one vote per share on all matters submitted
for the vote of such shares. The Fund does not intend to hold annual meetings of
shareholders. Class A shareholders do not have preemptive, subscription or
conversion rights, and are not liable for further calls or assessments. Class A
shareholders are entitled to receive dividends only if and to the extent
declared by the board of directors and only after the board has made provision
for working capital and reserves as it in its sole discretion deems advisable.
Shares are not available in certificated form.
63
<PAGE> 74
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
shareholders are entitled to share ratably in all the remaining assets of the
Fund.
Under the Fund's Declaration of Trust, the Trustees have the power, without
shareholder approval, to, among other things, cause the Trust to merge or
consolidate with another entity to reorganize the Fund as another kin of entity,
as to liquidate the Fund.
The following table sets forth information about the Fund's Class A shares,
as of the date of this Prospectus. As of that date Class A shares are the only
shares authorized and issued by the Fund.
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
EXCLUSIVE OF
AMOUNT HELD AMOUNT SHOWN
BY REGISTRANT OR UNDER PREVIOUS
TITLE OF CLASS AMOUNT AUTHORIZED FOR ITS ACCOUNT COLUMN
-------------- ----------------- ---------------- ------------------
<S> <C> <C> <C>
Class A 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 in
excess of that amount. Actions taken to enhance liquidity may cause recognition
of taxable gain by the Fund and its shareholders. 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
enhanced liquidity feature will be implemented. In any event, the Fund will
continue to engage in repurchase offers as required pursuant to the Fund's
fundamental policy on repurchases and the requirements of applicable SEC
regulations.
64
<PAGE> 75
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.
65
<PAGE> 76
TABLE OF CONTENTS OF SAI
<TABLE>
<S> <C>
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.................................................. A-1
</TABLE>
66
<PAGE> 77
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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
------------------------
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.
<TABLE>
<S> <C>
INVESTMENT MANAGER INDEPENDENT AUDITORS
AND DISTRIBUTOR
SCUDDER WEISEL CAPITAL LLC KPMG LLP
INVESTMENT ADVISER TRANSFER AGENT
WHITNEY HOLDINGS LLC KEMPER SERVICE COMPANY
ADMINISTRATOR/CUSTODIAN LEGAL COUNSEL
STATE STREET BANK AND TRUST DECHERT
COMPANY
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 78
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 must be held 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, or
directly through an account opened with Scudder Weisel, or may be held
with the Fund if the shares were purchased through a broker or dealer
or other financial services intermediary that has entered into a
selling group agreement with Scudder Weisel; 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 Scudder Weisel or 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.
A-1
<PAGE> 79
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 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).
A-2
<PAGE> 80
[PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 81
SWEF-1
SWC-RED-ENF-074-0101
<PAGE> 82
DECHERT DRAFT - 12/29/00 - NOT FOR DISTRIBUTION
The information in this SAI is not complete and may be changed. The
Fund may not sell these securities until the registration statement filed with
the Securities and Exchange Commission (the "Commission") is effective. This SAI
is not an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
Subject to Completion, Dated December __, 2000
STATEMENT OF ADDITIONAL INFORMATION
SCUDDER WEISEL CAPITAL ENTREPRENEURS FUND
_________ Class A Shares of Beneficial Interest
88 Kearny Street
San Francisco, CA 94108
1-866-SWC-EDGE (792-3343)
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> 83
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ADDITIONAL INVESTMENT POLICIES..................................... 3
ADDITIONAL INFORMATION ON INVESTMENT TECHNIQUES.................... 4
SHARE REPURCHASES.................................................. 15
TRUSTEES AND OFFICERS.............................................. 16
LIQUIDITY REQUIREMENTS............................................. 18
CODE OF ETHICS..................................................... 18
INVESTMENT MANAGEMENT AND OTHER SERVICES........................... 18
INDEPENDENT AUDITORS............................................... 21
CUSTODIAN AND ADMINISTRATOR........................................ 22
TRANSFER AGENT AND DIVIDEND PAYING AGENT........................... 22
DISTRIBUTOR AND SHAREHOLDER SERVICES AGENT......................... 22
LEGAL COUNSEL...................................................... 23
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS................... 23
APPENDIX A......................................................... A-1
</TABLE>
2
<PAGE> 84
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
3
<PAGE> 85
local governments or related agencies and instrumentalities
are not considered to be an industry for these purposes.
(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
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
4
<PAGE> 86
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.
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.
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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
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fundamental 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
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
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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.
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
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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 market 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 Situations 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 CDO's
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, because potential losses
from derivative transactions and short sales may be unlimited, whereas losses
from purchases of securities cannot exceed the total amount invested.
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
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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 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 CDO's 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 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
objective, 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.
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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 price, 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 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
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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.
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
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<PAGE> 94
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 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 ____% 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
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<PAGE> 95
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. 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
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
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<PAGE> 96
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;
- 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;
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<PAGE> 97
- 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.
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.
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>
Name, Address, Date of Birth Position(s) Held with Fund Principal Occupation(s)
---------------------------- -------------------------- During the Past 5 Years
-----------------------
<S> <C> <C>
Peter H. Mattoon* Trustee and President President, Scudder Weisel Capital LLC. Mr.
10/21/61 Mattoon has 18 years of experience focused
on asset and mutual fund management at
Scudder Kemper Investments and Drexel
Brunham. Most recently Mr. Mattoon served
as a Managing Director and a member of the
Management Committee at Scudder Kemper
Investments.
Boyd Fellows* Trustee Chief Executive Officer, Scudder Weisel
11/03/60 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 Weisel
04/09/67 Treasurer Capital LLC; formerly, Strategic Planning
and Finance Officer, Scudder Kemper
Investments, Inc.
Christopher E. Nordquist* Vice President and Secretary Chief Counsel, Scudder Weisel Capital LLC;
07/26/65 formerly, General Counsel, WR Hambrecht and
Company; General Counsel, Esprit de Corp;
Senior Counsel, Barclays Global Investors.
</TABLE>
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<PAGE> 98
<TABLE>
Name, Address, Date of Birth Position(s) Held with Fund Principal Occupation(s)
---------------------------- -------------------------- During the Past 5 Years
-----------------------
<S> <C> <C>
Kenneth Bochat* Assistant Secretary Director of Compliance and Counsel, Scudder
07/29/52 Weisel Capital LLC; formerly, Compliance
Director and Counsel, WR Hambrecht and
Company; Compliance Director and Counsel,
Wells Fargo Securities; Compliance Director
and Counsel, Bank of America.
Benjamin Slavet* Assistant Secretary Controller, Scudder Weisel Capital
07/03/70 LLC; formerly, Senior Manager, KPMG LLC.
Robert W. Helm Assistant Secretary Partner, Dechert (law firm).
1775 Eye Street, NW
Washington, DC 20006
02/06/57
</TABLE>
* 88 Kearny Street, 21st Floor, San Francisco, CA 94104
<TABLE>
<CAPTION>
AGGREGATE PENSION OR ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION RETIREMENT BENEFITS UPON FROM REGISTRANT AND
NAME, POSITION FROM FUND(1) BENEFITS RETIREMENT(1) FUND COMPLEX PAID TO
-------------- --------- ACCRUED AS PART --------------- TRUSTEES(1)
OF FUND EXPENSES(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
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<PAGE> 99
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, the Pricing Committee, and/or the Nominating and Corporate Governance
Committee also receive a fee for each meeting of the committee attended. Other
officers and Trustees of the Fund receive no compensation. The Fund pays travel
and related expenses of all trustees and officers of the Fund.
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 Pricing Committee of the Board of Trustees has the power to
determine the value of securities and assets owned by the Fund and determine the
public offering price at which shares of the Fund will be issued and sold. The
Corporate Governance and Nominating Committee of the Board has the power to
nominate trustees of the Fund whose are not "interested persons" of the Fund, as
that term is defined in the 1940 Act, and to nominate officers of the Fund and
appoint officers of the Fund to serve until the next meeting of the Board of
Trustees succeeding such action. The Audit Committee is responsible for
overseeing the Fund's accounting and financial reporting policies and practices
and internal controls and to recommend the selection, retention or termination
of the Fund's auditors. The Contract Review Committee is responsible for
reviewing contracts and arrangements between the Fund and its service providers.
All actions taken by a Committee of the Board will be recorded and reported to
the full Board of Trustees at their next meeting succeeding such action. The
members of each Committee will consist of: ______________.
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 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.
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<PAGE> 100
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. As of November 30, 2000, Scudder Kemper Investments, Inc.
and Zurich On-Line Financing Ltd., each a majority- or wholly-owned subsidiary
of Zurich Financial Services Group, together held indirectly through a holding
company structure 59.24% of the outstanding units of Scudder Weisel, and Thomas
Weisel Partners held indirectly through a holding company structure 32.31% of
the outstanding units of Scudder Weisel. Thomas Weisel Partners provides
investment banking and related services. Zurich Financial Services Group is a
global provider of financial services, including insurance and asset management
services. 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.
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 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
19
<PAGE> 101
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.
The 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, became registered as an investment adviser in 1999.
The Investment Adviser is an affiliate of, and owned by the same persons as,
Whitney & Co. Noted industrialist, financier and philanthropist John Hay "Jock"
Whitney founded Whitney & Co. in 1946. Whitney & Co., as of August 1, 2000,
managed over $5 billion in assets for institutional and high-net worth
investors. Peter M. Castleman, Jeffrey R. Jay, William Laverack, Daniel J.
O'Brien, and Michael R. Stone are the members and owners of Whitney & Co. and
the Investment Adviser. The Advisory 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 approved by the Board of Trustees in the manner
described in the previous paragraph. The Advisory Agreement may be terminated by
the Board of Trustees, the Fund's shareholders, or by Scudder Weisel at any time
on 60 days' written notice.
Subject to the supervision of the Fund's Board of Trustees and Scudder
Weisel, the Investment Adviser will, in coordination with Scudder Weisel: (i)
provide a program of continuous investment management for the Fund in accordance
with the Fund's investment objective, policies and limitations; (ii) make
investment decisions for the Fund; and (iii) place orders to purchase and sell
securities for the Fund. In particular, the Investment Adviser will be
responsible for the market timing of purchases and sales and for strategies used
in managing the Fund's investment portfolio.
In performing its investment advisory services for the Fund, the
Investment Adviser will provide the Fund with ongoing investment guidance and
policy direction, including oral and written research, analysis, advice,
statistical and economic data and judgments regarding individual investments,
general economic conditions and trends and long-range investment policy. The
Investment Adviser will determine the securities, private equity and debt
interests, instruments, repurchase agreements, options, futures and other
investments and techniques that the Fund will purchase, sell, enter into or use,
and will provide an ongoing evaluation of the Fund's portfolio. The Investment
Adviser will determine what portion of the Fund's portfolio shall be invested in
securities and other assets.
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
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<PAGE> 102
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.
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. Very few registered investment companies pay an incentive fee similar to
that paid by the Fund. 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.
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
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<PAGE> 103
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.
COMPENSATION OF INVESTMENT ADVISER. To compensate the Investment
Adviser, Scudder Weisel pays a fee out of its investment management fee at an
annual rate equal to 1.0% of the Fund's average daily net assets and 100% 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.
INDEPENDENT AUDITORS
KPMG LLP, whose principal business address is 99 High Street, Boston,
MA 02110, 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. Write
to Scudder Weisel Capital LLC, PO Box 509072, San Diego, CA 92150-9072, or call
1-866-792-3343.
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.
As custodian, State Street maintains a separate account in the name of
the Fund, holds and transfers portfolio securities on account of the Fund, holds
and transfers portfolio securities on account of the Fund, accepts receipts and
makes disbursements of money on behalf of the Fund, collects and receives all
income and other payments and distributions on account of the Fund's securities
and makes periodic reports to the Board of Trustees concerning the Fund's
operations. As administrator, State Street oversees the computation of the
Fund's net asset value, net income and realized and unrealized capital gains, if
any, performs recordkeeping services for the Fund, assists in administration of
the Fund's quarterly repurchase offers, furnishes statistical and research data,
clerical services, and stationery and office supplies, prepares and files
various reports, notices and filings with the appropriate federal and state
regulatory agencies, prepares materials in connection with the meetings of the
Fund's Board of Trustees, and prepare various materials required by the SEC,
among providing other services.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
Kemper Service Company, 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 issues and repurchases shares of the Fund, 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, maintains shareholder accounts, responds to
correspondence of the Fund, and makes periodic reports to the Board of Trustees
concerning the operations of the Fund as requested. The Transfer Agent may
delegate some or all of these responsibilities to a sub-transfer agent at its
discretion from time to time. The Transfer Agent is affiliated with Scudder
Weisel. It is anticipated that an affiliate of Scudder Weisel will succeed the
Transfer Agent upon completion of the transfer agency organizational process,
although the Transfer Agent may continue to perform transfer agency services for
the Fund.
22
<PAGE> 104
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 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."
23
<PAGE> 105
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
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. The Fund
will bear the commissions or spreads in connection with its portfolio
transactions. 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 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
24
<PAGE> 106
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 Scudder
Weisel. In effecting transactions in over-the-counter securities, orders are
placed with the principal market makers for the security being traded unless,
after exercising care, it appears that more favorable results are available
elsewhere.
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.
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<PAGE> 107
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> 108
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.
157098.16.03
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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) Amended and Restated Declaration of Trust. Filed herewith.
(b) Amended and Restated By-laws. Filed herewith.
(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.(1)
(i) Not applicable.
(j) Custody Agreement between State Street Bank and Trust Company and the
Registrant.(1)
(k)(1) Form of Administration 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)
C-1
<PAGE> 110
(k)(3) Form of Administrative Services Agreement between Scudder Weisel
Capital LLC and Registrant.(1)
(k)(4) Form of Multi-Distribution System Plan of Registrant.(1)
(k)(5) Service Plan for Class A Shares.(1)
(l) Opinion and Consent of Dechert with respect to the Registrant.(1)
(m) Not applicable.
(n) Consent of auditors. Filed herewith.
(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)(i) to this
Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
All figures are estimates:
Registration Fees $___________
Printing and Engraving 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 $___________
C-2
<PAGE> 111
* To be completed by amendment.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
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
C-3
<PAGE> 112
(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 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
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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 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
The description of Scudder Weisel Capital LLC and Whitney Holdings LLC is
set forth in the Prospectus under the heading "Management," forming a part of
this Registration Statement. The information as to the Directors and officers of
Scudder Weisel Capital LLC and Whitney Holdings LLC set forth in their
respective Forms ADV filed with the Securities and Exchange Commission (File
Nos. 801-58113 and 801-56941, respectively), as amended, through the date
hereof, is incorporated herein by reference.
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, or at the offices of State Street Bank
and Trust Company ("State Street"), at 225 Franklin Street, Boston, MA 02110, in
State Street's capacity as custodian and administrator of the Fund.
Kemper Service Company, 811 Main Street, Kansas City, MO 64105, maintains
all the required records in its capacity as transfer and dividend paying agent.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
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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.
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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 29th day of December, 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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Peter H. Mattoon President and Trustee (principal December 29, 2000
------------------------------------ executive officer)
Peter H. Mattoon
/s/ Joseph McCuine Treasurer (principal financial and December 29, 2000
------------------------------------ accounting officer)
Joseph McCuine
</TABLE>
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