Filed electronically with the Securities and Exchange Commission
on October 15, 1999.
File No. 2-36238
File No. 811-2021
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
Pre-Effective Amendment No.
----
Post-Effective Amendment No. 66
----
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 49
----
SCUDDER SECURITIES TRUST
------------------------
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
----------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
---------------
John Millette
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<S> <C>
/ / Immediately upon filing pursuant to paragraph (b) / / On (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1) / X / On January 1, 2000 pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a) (2) / / On (date) pursuant to paragraph (a) (2) of Rule 485.
</TABLE>
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
SCUDDER
- ------------------------
EQUITY/VALUE
- ------------------------
Scudder Micro Cap
Fund Fund #048
Prospectus
January 1, 2000
As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.
<PAGE>
Scudder Micro Cap Fund
How the fund works
2 Investment Approach
3 Main Risks to Investors
4 The Fund's Track Record
5 How Much Investors Pay
6 Other Policies and Risks
7 Who Manages and Oversees the Fund
9 Financial Highlights
How to invest in the fund
11 How to Buy Shares
12 How to Exchange or Sell Shares
13 Policies You Should Know About
18 Understanding Distributions and Taxes
The fund intends to close to new individual investors when its total
assets reach $150 million.
<PAGE>
How the fund works
On the next few pages, you'll find information about this
fund's investment goal, the main strategies it uses to pursue
that goal, and the main risks that could affect its
performance.
Whether you are considering investing in the fund or are
already a shareholder, you'll probably want to look this
information over carefully. You may want to keep it on hand
for reference as well.
Remember that mutual funds are investments, not bank deposits.
They're not insured or guaranteed by the FDIC or any other
government agency. Their share prices will go up and down, so
be aware that you could lose money.
You can access all Scudder fund prospectuses online at:
www.scudder.com
<PAGE>
- --------------------------------------------------------------------------------
ticker symbol | SCMCX fund number | 048
Scudder Micro Cap Fund
- --------------------------------------------------------------------------------
Investment Approach
The fund seeks long-term growth of capital by investing mainly in micro-cap
stocks (those with a market value of approximately $200 million or less). The
fund normally invests at least 80% of total assets in these stocks, and expects
that the median market value of the stocks it holds won't exceed $125 million.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Quantitative analysis. The managers use a proprietary computer model to analyze
the potential return and risk of individual companies in a universe of more than
4,000 publicly traded micro-cap stocks.
Value orientation. The managers look for companies that are undervalued, based
on measures such as earnings trends, book value, and financial strength.
Risk management. The managers diversify the fund's investments, with regard to
individual companies as well as industries and sectors. The managers expect that
the fund will typically own more than 200 micro-cap securities, and will limit a
given security to no more than 2% of total assets.
The fund will normally sell a stock when it reaches a target price, when the
company no longer qualifies as a micro-cap company, or if the managers believe
other investments offer better opportunities.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING TWO PARAGRAPHS.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's investments are common stocks, some may be other types
of equities, such as convertible securities, preferred stocks, and depositary
receipts. The fund may also invest up to 20% of assets in U.S. Treasury and
agency securities.
Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, commodities,
currencies, or securities), the managers don't intend to use them as principal
investments, and may not use them at all.
- --------------------------------------------------------------------------------
2 | Scudder Micro Cap Fund
<PAGE>
- --------------------------------------------------------------------------------
[ICON] This fund is designed for investors who want to gain exposure to
micro-cap stocks and are comfortable with potentially large swings in
the value of their investment.
- --------------------------------------------------------------------------------
Main Risks to Investors
There are several risk factors that could hurt the fund's performance, cause you
to lose money, or make the fund perform less well than other investments.
As with most stock funds, the most important factor with this fund is how stock
markets perform -- in this case, the micro-cap sector of the U.S. stock market.
When micro-cap stock prices fall, you should expect the value of your investment
to fall as well. Micro-cap stocks tend to be more volatile than stocks of larger
companies, in part because micro-cap companies tend to be less established than
larger companies and the valuation of their stocks often depends on future
expectations. Because a stock represents ownership in its issuer, stock prices
can be hurt by poor management, shrinking product demand, and other business
risks. These may affect single companies as well as groups of companies.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends, or other matters
o micro-cap or value stocks could become unpopular
o some derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some investments or
to get an attractive price for them
Scudder Micro Cap Fund | 3
<PAGE>
- --------------------------------------------------------------------------------
[ICON] While a fund's past performance isn't necessarily a sign of how it will
do in the future, it can be valuable for an investor to know. This page
looks at fund performance two different ways: year by year and over
time.
- --------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how much fund returns have varied from year to year, which
may give some idea of risk. The table shows how the fund's returns over
different periods average out. For context, the table also includes a
broad-based market index (which, unlike the fund, does not have any fees or
expenses). All figures on this page assume reinvestment of dividends and
distributions.
- ---------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year
- ---------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00 00.00
`89 `90 `91 `92 `93 `94 `95 `96 `97 `98
- --------------------------------------------------------------------------------
1999 Total Return as of September 30: 0.00%
Best Quarter: 0.00%, Q0 '90 Worst Quarter: -0.00%, Q0 '90
- ---------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/98
- ---------------------------------------------------------------
1 Year 5 Years 10 Years
- ---------------------------------------------------------------
Fund __ __ __
- ---------------------------------------------------------------
Index __ __ __
- ---------------------------------------------------------------
Index:
Total returns for _____ through ____ would have been lower if operating expenses
hadn't been maintained.
4 | Scudder Micro Cap Fund
<PAGE>
How Much Investors Pay
This fund has no sales charges or other shareholder fees. The fund does have
annual operating expenses, and as a shareholder you pay them directly.
- ---------------------------------------------------------------
Fee Table
- ---------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
- ---------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
- ---------------------------------------------------------------
Management Fee 0.00%
- ---------------------------------------------------------------
Distribution (12b-1) Fee None
- ---------------------------------------------------------------
Other Expenses* 0.00%
-------
- ---------------------------------------------------------------
Total Annual Operating Expenses 0.00%
- ---------------------------------------------------------------
* Includes costs of shareholder servicing, custody, accounting services, and
similar expenses, which may vary with fund size and other factors.
Based on the costs above, this example is designed to help you compare this
fund's expenses to those of other funds. The example assumes you invested
$10,000, earned 5% annual returns, reinvested all dividends and distributions,
and sold your shares at the end of each period. This is only an example; your
actual expenses will be different.
- ---------------------------------------------------------------
Expense Example
- ---------------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------
$00 $000 $000 $0,000
- ---------------------------------------------------------------
Scudder Micro Cap Fund | 5
<PAGE>
Other Policies and Risks
While the sections on the previous pages describe the main points of the fund's
strategy and risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, the fund's Board could change
the fund's investment goal without seeking shareholder approval.
o As a temporary defensive measure, the fund could shift up to 100% of assets
into investments such as money market securities. This could prevent losses,
but would mean that the fund was not pursuing its goal.
Year 2000 readiness
Like all mutual funds, this fund could be affected by the inability of some
computer systems to recognize the year 2000. The fund's investment adviser has
readiness programs designed to address these problems, and is also researching
the readiness of suppliers and business partners as well as issuers of
securities the fund owns. Still, there's some risk that one or both of these
problems could materially affect the fund's operations (such as its ability to
calculate net asset value and to handle purchases and redemptions), its
investments, or securities markets in general.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING TWO PARAGRAPHS.
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
This prospectus doesn't tell you about every policy or risk of investing in the
fund.
If you want more information on the fund's allowable securities and investment
practices and the characteristics and risks of each one, you may want to request
a copy of the SAI (the back cover has information on how to do this).
Keep in mind that there is no assurance that any neutral fund will achieve its
goal.
- --------------------------------------------------------------------------------
6| Other Policies And Risks
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Scudder Kemper, the company with overall responsibility for managing
the fund, takes a team approach to asset management.
- --------------------------------------------------------------------------------
Who Manages and Oversees the Fund
The investment adviser
The fund's investment adviser is Scudder Kemper
Investments, Inc., located at 345 Park Avenue, New York,
NY 10154-0010. Scudder Kemper has more than 80 years of
experience managing mutual funds, and currently has more
than $290 billion in assets under management.
The fund is managed by a team of investment professionals,
who individually represent different areas of expertise
and who together develop investment strategies and make
buy and sell decisions. Supporting the fund managers are
Scudder Kemper's many economists, research analysts,
traders, and other investment specialists, located in
offices across the United States and around the world.
As payment for serving as investment adviser, Scudder
Kemper receives a management fee from the fund. For the 12
months through the most recent fiscal year end, the actual
amount the fund paid in management fees was X.XX% of its
average daily net assets.
The portfolio managers
The following people handle the day-to-day management of
the fund.
<TABLE>
<S> <C> <C>
James M. Eysenbach Calvin S. Young
Lead Portfolio Manager o Began investment career
o Began investment career in 1990
in 1984 o Joined the adviser in 1990
o Joined the adviser in 1991 o Joined the fund team
o Joined the fund team in 1998
in 1996
</TABLE>
Who Manages and Oversees the Fund | 7
<PAGE>
The Board
A mutual fund's Board is responsible for the general
oversight of the fund's business. The majority of the
Board is not affiliated with Scudder Kemper. The
independent members have primary responsibility for
assuring that the fund is managed in the best interests of
its shareholders. The following people comprise the fund's
Board.
<TABLE>
<CAPTION>
Trustees Honorary Trustees
<S> <C> <C>
Lynn S. Birdsong Thomas J. Devine
o Managing Director of o Consultant
Scudder Kemper
Investments, Inc. Wilson Nolen
o Chairman of the Board o Consultant
Paul Bancroft III Robert G. Stone, Jr.
o Venture capitalist and o Chairman Emeritus and
consultant Director, Kirby Corporation
Sheryle J. Bolton Edmund R. Swanberg
o Chief Executive Officer, o Managing Director,
Scientific Learning Scudder Kemper
Corporation Investments, Inc.
William T. Burgin
o General Partner, Bessemer
Venture Partners
Keith R. Fox
o Private equity investor
William H. Luers
o Chairman and President,
United Nations
Association of America
Kathryn L. Quirk
o Managing Director,
Scudder Kemper
Investments, Inc.
Joan E. Spero
o President, The Doris Duke
Charitable Foundation
</TABLE>
8 | Who Manages and Oversees the Fund
<PAGE>
Financial Highlights
This table is designed to help you understand the fund's financial performance
in recent years. The figures in the first part of the table are for a single
share. The total return figures represent the percentage that an investor in the
fund would have earned (or lost), assuming all dividends and distributions were
reinvested. This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the fund's financial statements, is included in the
annual report (see "Shareholder reports" on the back cover).
Scudder Micro Cap Fund
Table to be inserted.
Financial Highlights | 9
<PAGE>
How to invest in the fund
The following pages tell you how to invest in the fund and
what to expect as a shareholder. If you're investing
directly with Scudder, all of this information applies to
you.
If you're investing through a "third party provider" --
for example, a workplace retirement plan, financial
supermarket or financial adviser -- your provider may have
its own policies or instructions, and you should follow
those.
<PAGE>
How to Buy Shares
Use these instructions to invest directly with Scudder. Make out your check to
"The Scudder Funds."
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
First investment Additional investments
- --------------------------------------------------------------------------------------
<S> <C> <C>
$2,500 or more for regular $100 or more for regular
accounts accounts
$1,000 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
- --------------------------------------------------------------------------------------
By mail or o Fill out and sign an o Send a check and a Scudder
express application investment slip to us at the
(see below) appropriate address below
o Send it to us at the
appropriate address, along o If you don't have an
with an investment check investment slip, simply
include a letter with your
name, account number, the
full name of the fund, and
your investment instructions
- --------------------------------------------------------------------------------------
By wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
- --------------------------------------------------------------------------------------
By phone -- o Call 1-800-SCUDDER for
instructions
- --------------------------------------------------------------------------------------
With an -- o To set up regular investments
automatic from a bank checking account,
investment call 1-800-SCUDDER
plan
- --------------------------------------------------------------------------------------
Using QuickBuy -- o Call 1-800-SCUDDER
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[ICON] Regular mail:
The Scudder Funds, PO Box 2291, Boston, MA 02107-2291
Express, registered or certified mail:
The Scudder Funds, 66 Brooks Drive, Braintree, MA 02184-3839
Fax number: 1-800-821-6234 (for exchanging and selling only)
- --------------------------------------------------------------------------------
</TABLE>
How to Buy Shares | 11
<PAGE>
How to Exchange or Sell Shares
Use these instructions to exchange or sell shares in an account opened directly
with Scudder.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Exchanging into another fund Selling shares
- ----------------------------------------------------------------------------------------
<S> <C> <C>
$2,500 or more to open a new Some transactions, including most
account ($1,000 for IRAs) for over $100,000, can only be
ordered in writing; if you're in
$100 or more for exchanges doubt, see page __
between existing accounts
- ----------------------------------------------------------------------------------------
By phone or o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
wire instructions instructions
- ----------------------------------------------------------------------------------------
Using SAIL(TM) o Call 1-800-343-2890 and o Call 1-800-343-2890 and
follow the instructions follow the instructions
- ----------------------------------------------------------------------------------------
By mail, express, Write a letter that includes: Write a letter that includes:
or fax (see
previous page) o the fund, class, and account o the fund, class, and account
number you're exchanging out number from which you want to
of sell shares
o the dollar amount or number o the dollar amount or number
of shares you want to exchange of shares you want to sell
o the name and class of the o your name(s), signature(s),
fund you want to exchange into and address, as they appear
on your account
o your name(s), signature(s),
and address, as they appear o a daytime telephone number
on your account
o a daytime telephone number
- ----------------------------------------------------------------------------------------
With an -- o To set up regular cash
automatic payments from a Scudder fund
withdrawal account, call 1-800-SCUDDER
plan
- ----------------------------------------------------------------------------------------
Using QuickSell -- o Call 1-800-SCUDDER
- ----------------------------------------------------------------------------------------
</TABLE>
12 | How to Exchange or Sell Shares
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Questions? You can speak to a Scudder representative between 8 a.m. and
8 p.m. eastern time on any fund business day by calling 1-800-SCUDDER.
- --------------------------------------------------------------------------------
Policies You Should Know About
Along with the instructions on the previous pages, the
policies below may affect you as a shareholder. Some of
this information, such as the section on dividends and
taxes, applies to all investors, including those investing
through investment providers.
If you are investing through an investment provider, check
the materials you got from them. As a general rule, you
should follow the information in those materials wherever
it contradicts the information given here. Please note
that an investment provider may charge its own fees.
Policies about transactions
The fund is open for business each day the New York Stock
Exchange is open. The fund calculates its share price
every business day, as of the close of regular trading on
the Exchange (typically 4 p.m. eastern time, but sometimes
earlier, as in the case of scheduled half-day trading or
unscheduled suspensions of trading).
You can place an order to buy or sell shares at any time.
Once your order is received by Scudder Service
Corporation, and they have determined that it is a "good
order," it will be processed at the next share price
calculated.
Because orders placed through investment providers must be
forwarded to Scudder Service Corporation before they can
be processed, you'll need to allow extra time. A
representative of your investment provider should be able
to tell you when your order will be processed.
Policies You Should Know About | 13
<PAGE>
- --------------------------------------------------------------------------------
[ICON] The Scudder Web site can be a valuable resource for shareholders with
Internet access. Go to www.scudder.com to get up-to-date information,
review balances or even place orders for exchanges.
- --------------------------------------------------------------------------------
SAIL(TM), the Scudder Automated Information Line, is
available 24 hours a day by calling 1-800-343-2890. You
can use SAIL to get information on Scudder funds generally
and on accounts held directly at Scudder. You can also use
it to make exchanges and sell shares.
QuickBuy and QuickSell let you set up a link between a
Scudder account and a bank account. Once this link is in
place, you can move money between the two with a phone
call. You'll need to make sure your bank has Automated
Clearing House (ACH) services. To set up QuickBuy or
QuickSell on a new account, see the account application;
to add it to an existing account, call 1-800-SCUDDER.
When you call us to sell shares, we may record the call,
ask you for certain information, or take other steps
designed to prevent fraudulent orders. It's important to
understand that as long as we take reasonable steps to
ensure that an order appears genuine, we are not
responsible for any losses that may occur.
When you ask us to send or receive a wire, please note
that while we don't charge a fee to receive wires, we will
deduct a $5 fee from all wires sent from us to your bank.
Your bank may charge its own fees for handling wires. The
fund can only accept wires of $100 or more.
14 | Policies You Should Know About
<PAGE>
Exchanges among Scudder funds are an option for
shareholders who bought their fund shares directly from
Scudder and many other investors as well. Exchanges are a
shareholder privilege, not a right: we may reject any
exchange order, particularly when there appears to be a
pattern of "market timing" or other frequent purchases and
sales. We may also reject purchase orders, for these or
other reasons.
When you want to sell more than $100,000 worth of shares,
you'll usually need to place your order in writing and
include a signature guarantee. The only exception is if
you want money wired to a bank account that is already on
file with us; in that case, you don't need a signature
guarantee. Also, you don't need a signature guarantee for
an exchange, although we may require one in certain other
circumstances.
A signature guarantee is simply a certification of your
signature -- a valuable safeguard against fraud. You can
get a signature guarantee from most brokers and most
banks, savings institutions, and credit unions. Note that
you can't get a signature guarantee from a notary public.
Money from shares you sell is normally sent out within one
business day of when your order is processed (not when it
is received), although it could be delayed for up to seven
days. There are also two circumstances when it could be
longer: when you are selling shares you bought recently by
check and that check hasn't cleared yet (maximum delay: 15
days) or when unusual circumstances prompt the SEC to
allow further delays.
Policies You Should Know About | 15
<PAGE>
- --------------------------------------------------------------------------------
[ICON] If you ever have difficulty placing an order by phone or fax, you can
always send us your order in writing.
- --------------------------------------------------------------------------------
How the fund calculates share price
The fund's share price is its net asset value per share,
or NAV. To calculate NAV, the fund uses the following
equation:
TOTAL ASSETS - TOTAL LIABILITIES
---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
We typically use market prices to value securities.
However, when a market price isn't available, or when we
have reason to believe it doesn't represent market
realities, we may use fair value methods approved by the
fund's Board. In such a case, the fund's value for a
security is likely to be different from quoted market
prices.
16 | Policies You Should Know About
<PAGE>
Other rights we reserve
You should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income
tax if you have been notified by the IRS that you are
subject to backup withholding, or if you fail to
provide us with a correct taxpayer ID number or
certification that you are exempt from backup
withholding
o charge you $10 a year if your account balance falls below
$2,500, and close your account and send you the proceeds
if your balance falls below $1,000; in either case, we
will give you 60 days' notice so you can either increase
your balance or close your account (these policies don't
apply to retirement accounts, to investors with $100,000
or more in Scudder fund shares, or in any case where a
fall in share price created the low balance)
o reject a new account application if you don't provide a
correct Social Security or other tax ID number; if the
account has already been opened, we may give you 30
days' notice to provide the correct number
o pay you for shares you sell by "redeeming in kind,"
that is, by giving you marketable securities (which
typically will involve brokerage costs for you to
liquidate) rather than cash; in most cases, the fund
won't make a redemption in kind unless your requests
over a 90-day period total more than $250,000 or 1% of
the fund's assets, whichever is less
o change, add, or withdraw various services, fees, and
account policies (for example, we may change or
terminate the exchange privilege at any time)
Policies You Should Know About | 17
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Because each shareholder's tax situation is is unique, it's always a
good idea to ask your tax professional about the tax consequences of
your investments, including any state and local tax consequences.
- --------------------------------------------------------------------------------
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its
shareholders virtually all of its net earnings. A fund can
earn money in two ways: by receiving interest, dividends
or other income from securities it holds, and by selling
securities for more than it paid for them. (A fund's
earnings are separate from any gains or losses stemming
from your own purchases and sales of shares.) A fund may
not always pay a distribution for a given period.
The fund intends to pay dividends and distributions to its
shareholders in December, and if necessary may do so at
other times as well.
You can choose how to receive your dividends and
distributions. You can have them all automatically
reinvested in fund shares or all sent to you by check.
Tell us your preference on your application. If you don't
indicate a preference, your dividends and distributions
will all be reinvested. For retirement plans, reinvestment
is the only option.
Buying and selling fund shares will usually have tax
consequences for you (except in an IRA or other
tax-advantaged account). Your sales of shares may result
in a capital gain or loss for you; whether long-term or
short-term depends on how long you owned the shares. For
tax purposes, an exchange is the same as a sale.
18 | Understanding Distributions and Taxes
<PAGE>
The tax status of the fund earnings you receive, and your
own fund transactions, generally depends on their type:
Generally taxed at ordinary income rates
------------------------------------------------------------
o short-term capital gains from selling fund shares
------------------------------------------------------------
o taxable income dividends you receive from the fund
------------------------------------------------------------
o short-term capital gains distributions you receive from
the fund
------------------------------------------------------------
Generally taxed at capital gains rates
------------------------------------------------------------
o long-term capital gains from selling fund shares
------------------------------------------------------------
o long-term capital gains distributions you receive from the
fund
------------------------------------------------------------
The fund will send you detailed tax information every
January. These statements tell you the amount and the tax
category of any dividends or distributions you received.
They also have certain details on your purchases and sales
of shares. The tax status of dividends and distributions
is the same whether you reinvest them or not. Dividends or
distributions declared in the last quarter of a given year
are taxed in that year, even though you may not receive
the money until the following January.
If you invest right before the fund pays a dividend,
you'll be getting some of your investment back as a
taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In
tax-advantaged retirement accounts you don't need to worry
about this.
Corporations may be able to take a dividends-received
deduction for a portion of income dividends they receive.
Understanding Distributions and Taxes | 19
<PAGE>
NOTES
<PAGE>
NOTES
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from the
fund's management team about recent market conditions and
the effect of the fund's strategies on its performance.
They also have detailed performance figures, a list of
everything the fund owns, and the fund's financial
statements. Shareholders get these reports automatically.
To reduce costs, we mail one copy per household. For more
copies, call 1-800-SCUDDER.
Statement of Additional Information (SAI) -- This tells
you more about the fund's features and policies, including
additional risk information. The SAI is incorporated by
reference into this document (meaning that its legally
part of this prospectus).
If you'd like to ask for copies of these documents, or if
you're a shareholder and have questions, please contact
Scudder or the SEC (see below). Materials you get from
Scudder are free; those from the SEC involve a copying
fee. If you like, you can look over these materials in
person at the SEC's Public Reference Room in Washington,
DC.
Scudder Funds SEC
PO Box 2291 450 Fifth Street, N.W.
Boston, MA 02107-2291 Washington, DC 20549-6009
1-800-SCUDDER 1-800-SEC-0330
www.scudder.com www.sec.gov
SEC File Number 811-2021
<PAGE>
SCUDDER MICRO CAP FUND
A series of Scudder Securities Trust
A Mutual Fund Seeking Long-Term Growth of
Capital Through Investment Primarily in a Diversified
Portfolio of U.S. Micro-cap Stocks
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
January 1, 2000
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus. The
prospectus of Scudder Micro Cap Fund dated January 1, 2000, as amended from time
to time, may be obtained without charge by writing to Scudder Investor Services,
Inc., Two International Place, Boston, Massachusetts 02110-4103.
The Annual Report to Shareholders of the Scudder Micro Cap Fund, dated
August 31, 1999, is incorporated by reference and is hereby deemed to be part of
this Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
THE FUND'S INVESTMENT OBJECTIVES AND POLICIES............................................................1
General Investment Objective and Policies.......................................................1
Investments.....................................................................................1
Systematic Investment Approach..................................................................1
Master/Feeder Structure.........................................................................2
Special Considerations..........................................................................2
Specialized Investment Techniques...............................................................5
Investment Restrictions........................................................................13
PURCHASES...............................................................................................14
Additional Information About Opening An Account................................................14
Minimum balances...............................................................................15
Additional Information About Making Subsequent Investments.....................................15
Additional Information About Making Subsequent Investments by QuickBuy.........................15
Checks.........................................................................................16
Wire Transfer of Federal Funds.................................................................16
Share Price....................................................................................16
Share Certificates.............................................................................16
Other Information..............................................................................17
EXCHANGES AND REDEMPTIONS...............................................................................17
Exchanges......................................................................................17
Special Redemption and Exchange Information....................................................18
Redemption by Telephone........................................................................19
Redemption by QuickSell........................................................................19
Redemption by Mail or Fax......................................................................20
Redemption-in-Kind.............................................................................20
Other Information..............................................................................20
FEATURES AND SERVICES OFFERED BY THE FUND...............................................................21
The No-Load Concept............................................................................21
Internet access................................................................................21
Dividends and Capital Gains Distribution Options...............................................22
Scudder Investor Centers.......................................................................22
Reports to Shareholders........................................................................22
Transaction Summaries..........................................................................23
THE SCUDDER FAMILY OF FUNDS.............................................................................23
SPECIAL PLAN ACCOUNTS...................................................................................25
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for
Corporations and Self-Employed Individuals...................................................25
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed
Individuals..................................................................................25
Scudder IRA: Individual Retirement Account....................................................26
Scudder Roth IRA: Individual Retirement Account...............................................26
Scudder 403(b) Plan............................................................................26
Automatic Withdrawal Plan......................................................................27
Group or Salary Deduction Plan.................................................................27
Automatic Investment Plan......................................................................27
Uniform Transfers/Gifts to Minors Act..........................................................27
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS...............................................................28
PERFORMANCE INFORMATION.................................................................................28
Average Annual Total Return....................................................................28
Cumulative Total Return........................................................................29
Total Return...................................................................................29
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
Comparison of Fund Performance.................................................................29
ORGANIZATION OF THE FUND................................................................................33
INVESTMENT ADVISER......................................................................................33
AMA InvestmentLink(SM) Program.................................................................36
Personal Investments by Employees of the Adviser...............................................37
TRUSTEES AND OFFICERS...................................................................................37
REMUNERATION............................................................................................40
Responsibilities of the Board -- Board and Committee Meetings..................................40
Compensation of Officers and Trustees..........................................................40
DISTRIBUTOR.............................................................................................41
TAXES...................................................................................................42
PORTFOLIO TRANSACTIONS..................................................................................45
Brokerage Commissions..........................................................................45
Portfolio Turnover.............................................................................47
NET ASSET VALUE.........................................................................................47
ADDITIONAL INFORMATION..................................................................................48
Experts........................................................................................48
Shareholder Indemnification....................................................................48
Other Information..............................................................................48
FINANCIAL STATEMENTS....................................................................................49
</TABLE>
ii
<PAGE>
THE FUND'S INVESTMENT OBJECTIVES AND POLICIES
Scudder Micro Cap Fund (the "Fund") is a series of Scudder Securities
Trust (the "Trust"). The Fund is a diversified, open-end management investment
company which continuously offers and redeems shares at net asset value. Scudder
Micro Cap Fund is a company of the type commonly known as a mutual fund.
General Investment Objective and Policies
Scudder Micro Cap Fund seeks long-term growth of capital. The Fund
pursues its investment objective by investing primarily in a diversified
portfolio of U.S. micro-capitalization ("micro-cap") common stocks. These
domestic securities provide little or no current income but, in the opinion of
the Fund's investment adviser, Scudder Kemper Investments, Inc. (the "Adviser"),
offer substantial long-term appreciation potential as well as the opportunity to
enhance the overall diversification of an investor's portfolio. Due to the
inherent business characteristics and risks of small companies, along with the
relatively limited trading market for micro-cap stocks, the Fund's share price
can experience periods of significant volatility. As a result, the Fund should
be considered a long-term investment and only one part of a well-diversified
personal investment portfolio. To encourage a long-term investment holding
period and to facilitate portfolio management, a 1% redemption and exchange fee,
described in greater detail below, is payable to the Fund for the benefit of
remaining shareholders on shares held less than one year.
When total assets reach $150 million, the Fund intends to close to new
individual investors. The Fund believes that by limiting its assets it will be
in a position to react quickly to new investment opportunities and remain
focused on only the most promising micro-cap stocks. It is expected that shares
of the Fund will continue to be available to existing shareholders, as well as
certain retirement plans and investors of Personal Counsel from Scudder.
Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
If there is a change in investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. There can be no assurance that the Fund's
objective will be met.
Investments
The Fund seeks to provide long-term growth of capital by investing,
under normal market conditions, at least 80% of its assets in common stocks
issued by U.S. micro-cap companies. The Fund will typically invest in companies
that, at the time of purchase, are smaller than the 3,000 largest
publicly-traded U.S. companies. The median market capitalization (i.e., current
stock price times shares outstanding) of the portfolio is not expected to exceed
$125 million.
While the Fund invests predominantly in common stocks, it can purchase
other types of securities, including preferred stocks, convertible or
non-convertible securities, rights, warrants, and restricted and illiquid
securities. Securities may be listed on national exchanges or traded
over-the-counter. The Fund may invest up to 20% of its assets in U.S. Treasury
securities, agency and instrumentality obligations, may enter into repurchase
agreements and reverse repurchase agreements and may engage in strategic
transactions to increase stock market participation, enhance liquidity and
manage transaction costs. The Fund currently intends to borrow only for
temporary or emergency purposes, such as providing for redemptions or
distributions and not for investment leverage purposes.
For temporary defensive purposes, the Fund may invest without limit in
cash and cash equivalents when the Adviser deems such a position advisable in
light of economic or market conditions. It is impossible to accurately predict
how long such alternate strategies may be utilized.
Systematic Investment Approach
The Fund is actively managed using a quantitative, value-oriented
investment approach. The Adviser selects investments from among the more than
4,000 publicly-traded U.S. micro-cap stocks based on a proprietary, quantitative
investment strategy. Using this approach, the Adviser looks for companies
selling at prices that, in the opinion of the
<PAGE>
Adviser, do not reflect adequately their long-term business potential. Because
of their small size, and less frequent trading activity, the companies
represented in the Fund are often overlooked or not closely followed by
investors. Accordingly, their prices can rise either as a result of improved
business fundamentals, particularly when earnings grow faster than general
expectations, or as more investors appreciate the full extent of a company's
underlying business potential. The Fund seeks to avoid what are judged in the
opinion of the Adviser to be overpriced companies with high investment risk and
deteriorating fundamentals.
Portfolio diversification is an important component of the investment
management process. To help manage the Fund's above-average investment risk and
improve liquidity, the Adviser expects to invest in hundreds of small,
publicly-traded companies, representing a broad cross-section of U.S.
industries. The Fund's systematic, value-oriented approach to investing is
designed to mitigate volatility of the Fund's share price relative to the
micro-capitalization sector of the U.S. stock market. Risk is further managed by
employing specialized portfolio management and trading techniques. Despite these
techniques, the Fund's share price can move up and down significantly, even over
short periods of time.
Master/Feeder Structure
The Board of Trustees has the discretion to retain the current
distribution arrangement for the Fund while investing in a master fund in a
master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Special Considerations
While, historically, micro-capitalization company stocks have
outperformed the stocks of large companies, the former have customarily involved
more investment risk as well. Micro-capitalization companies may have limited
product lines, markets or financial resources; may lack management depth or
experience; and may be more vulnerable to adverse general market or economic
developments than large companies. The prices of micro-capitalization company
securities are often more volatile than prices associated with large company
issues, and can display abrupt or erratic movements at times, due to limited
trading volumes and less publicly available information.
Also, because micro-capitalization companies normally have fewer shares
outstanding and these shares trade less frequently than large companies, it may
be more difficult for the Fund to buy and sell significant amounts of such
shares without an unfavorable impact on prevailing market prices.
Some of the companies in which the Fund may invest may distribute, sell
or produce products which have recently been brought to market and may be
dependent on key personnel.
The securities of micro-capitalization companies are often traded
over-the-counter and may not be traded in the volumes typical on a national
securities exchange. Consequently, in order to sell this type of holding, the
Fund may need to discount the securities from recent prices or dispose of the
securities over a long period of time.
2
<PAGE>
US Equity Market Size Profile
o US Companies on NYSE, The Nasdaq Stock Market, AMEX
[GRAPHIC OMITTED]
Large Cap
(1000 Stocks)
> $1.3 Billion Market Cap
Small Cap
(2000 Stocks)
> $200 Million Market Cap
Micro Cap
(4000+ Stocks)
Source: FactSet Research Systems, Scudder Kemper Investments, 12/97.
3
<PAGE>
THE ORIGINAL DOCUMENT CONTAINS A LINE CHART HERE
LINE CHART DATA:
Value of $1 Invested in 1926
Ibbotson
"Small" Stocks S&P 500 T-Bills Inflation
-------------- ------- ------- ---------
Dec 1925 1 1 1 1
Dec 1926 1.002767 1.116239 1.032665 0.985103
Dec 1927 1.224347 1.534701 1.064932 0.96462
Dec 1928 1.710344 2.20396 1.102822 0.955309
Dec 1929 0.831923 2.018489 1.155184 0.957172
Dec 1930 0.514574 1.515946 1.183028 0.899445
Dec 1931 0.258553 0.858988 1.195722 0.813782
Dec 1932 0.244618 0.788613 1.207221 0.729983
Dec 1933 0.594095 1.214386 1.210812 0.733707
Dec 1934 0.738003 1.196866 1.212784 0.748606
Dec 1935 1.034634 1.767397 1.214829 0.770952
Dec 1936 1.705066 2.366921 1.216984 0.780264
Dec 1937 0.715996 1.537871 1.220732 0.804473
Dec 1938 0.950833 2.016482 1.220534 0.782127
Dec 1939 0.954128 2.008198 1.220784 0.778402
Dec 1940 0.90494 1.811708 1.220843 0.785852
Dec 1941 0.823495 1.601693 1.221572 0.862203
Dec 1942 1.190012 1.927482 1.224846 0.942275
Dec 1943 2.241665 2.426695 1.229098 0.972069
Dec 1944 3.445939 2.906029 1.23316 0.992553
Dec 1945 5.982521 3.964873 1.237224 1.0149
Dec 1946 5.287035 3.644855 1.241593 1.199256
Dec 1947 5.335413 3.852903 1.247843 1.307266
Dec 1948 5.222728 4.064857 1.257965 1.342647
Dec 1949 6.254129 4.828745 1.271836 1.318438
Dec 1950 8.677417 6.360083 1.287042 1.394788
Dec 1951 9.354568 7.887547 1.306255 1.476725
Dec 1952 9.637729 9.336288 1.327887 1.489761
Dec 1953 9.012508 9.243936 1.352104 1.499072
Dec 1954 14.47254 14.10843 1.363785 1.491624
Dec 1955 17.43084 18.56143 1.385246 1.49721
Dec 1956 18.17739 19.77831 1.419312 1.540039
Dec 1957 15.52892 17.64572 1.463865 1.586594
Dec 1958 25.60512 25.29755 1.48643 1.614528
Dec 1959 29.80392 28.3219 1.530309 1.638734
Dec 1960 28.82297 28.45491 1.571058 1.662943
Dec 1961 38.07163 36.106 1.604466 1.674116
Dec 1962 33.5401 32.95448 1.648327 1.694602
Dec 1963 41.44395 40.4685 1.699697 1.722536
Dec 1964 51.19267 47.13881 1.759794 1.743024
Dec 1965 72.56739 53.00808 1.828905 1.776543
Dec 1966 67.47913 47.67373 1.915948 1.836132
Dec 1967 123.8704 59.10382 1.99661 1.891996
Dec 1968 168.4285 65.64154 2.100549 1.981385
Dec 1969 126.2332 60.05902 2.238845 2.102428
Dec 1970 104.2259 62.46532 2.384929 2.217886
Dec 1971 121.4228 71.40581 2.489535 2.292376
Dec 1972 126.8069 84.95586 2.585132 2.370591
Dec 1973 87.61794 72.50028 2.76429 2.579162
Dec 1974 70.14243 53.31099 2.985518 2.893878
Dec 1975 107.1887 73.14431 3.158785 3.096859
Dec 1976 168.6909 90.58422 3.319331 3.245838
Dec 1977 211.4997 84.07665 3.489288 3.465579
Dec 1978 261.1199 89.59223 3.739847 3.778429
Dec 1979 374.6139 106.1126 4.127902 4.281222
Dec 1980 523.9922 140.5137 4.591693 4.811953
Dec 1981 596.7169 133.6161 5.267079 5.242126
Dec 1982 763.829 162.2226 5.822392 5.445094
Dec 1983 1066.828 198.7451 6.334665 5.651801
Dec 1984 995.6805 211.1991 6.95859 5.875267
Dec 1985 1241.234 279.1166 7.496023 6.096805
Dec 1986 1326.275 330.6709 7.95796 6.16569
Dec 1987 1202.966 347.9675 8.39291 6.437567
Dec 1988 1478.135 406.4583 8.925676 6.722069
Dec 1989 1628.59 534.4555 9.672793 7.034463
Dec 1990 1277.449 517.499 10.42857 7.464006
Dec 1991 1847.629 675.5922 11.01208 7.692725
Dec 1992 2279.039 727.4115 11.3982 7.915865
Dec 1993 2757.147 800.0785 11.7284 8.133425
Dec 1994 2842.773 810.5379 12.18621 8.35099
Dec 1995 3822.398 1113.918 12.86808 8.562973
Dec 1996 5520 1828 14.25 9
THE ORIGINAL DOCUMENT CONTAINS A CHART HERE
CHART DATA:
Volatility Annualized Returns
(Standard Deviation) 12/26 - 12/96
-------------------- -------------
T-Bills 3.26 3.8
S&P 500 20.32 11
Micro-Cap 34.13 12.7
4
<PAGE>
Specialized Investment Techniques
Common stocks Under normal circumstances, the Fund invests primarily in common
stocks. Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, the
Fund participates in the success or failure of any company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve the Fund's objective of long-term capital appreciation, the
Fund may invest in debt securities, including bonds of private issuers.
Portfolio debt investments will be selected on the basis of, among other things,
credit quality, and the fundamental outlooks for currency, economic and interest
rate trends, taking into account the ability to hedge a degree of currency or
local bond price risk. The Fund may purchase "investment-grade" bonds, rated
Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's") or AAA, AA, A
or BBB by Standard & Poor's Ratings Services, a Division of The McGraw-Hill
Companies, Inc. ("S&P") or, if unrated, judged to be of equivalent quality as
determined by the Adviser.
The principal risks involved with investments in bonds include interest rate
risk, credit risk and pre-payment risk. Interest rate risk refers to the likely
decline in the value of bonds as interest rates rise. Generally, longer-term
securities are more susceptible to changes in value as a result of interest-rate
changes than are shorter-term securities. Credit risk refers to the risk that an
issuer of a bond may default with respect to the payment of principal and
interest. The lower a bond is rated, the more it is considered to be a
speculative or risky investment. Pre-payment risk is commonly associated with
pooled debt securities, such as mortgage-backed securities and asset backed
securities, but may affect other debt securities as well. When the underlying
debt obligations are prepaid ahead of schedule, the return on the security will
be lower than expected. Pre-payment rates usually increase when interest rates
are falling.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of the fixed-income securities in the Fund's portfolio, or
to enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic
5
<PAGE>
Transactions"). Strategic Transactions may be used without limit to attempt to
protect against possible changes in the market value of securities held in or to
be purchased for the Fund's portfolio resulting from securities markets or
currency exchange rate fluctuations, to protect the Fund's unrealized gains in
the value of its portfolio securities, to facilitate the sale of such securities
for investment purposes, to manage the effective maturity or duration of the
fixed-income securities in the Fund's portfolio, or to establish a position in
the derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not to create leveraged exposure in the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as
6
<PAGE>
the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or are determined to be of equivalent
credit quality by the Adviser. The staff of the Securities and Exchange
Commission (the "SEC") currently takes the position that OTC options purchased
by the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 15% of its net assets in illiquid
securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
7
<PAGE>
The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. The Fund will not purchase call options unless the aggregate premiums
paid on all options held by the Fund at any time do not exceed 20% of its total
assets. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes the Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities), and on
securities indices and futures contracts other than futures on individual
corporate debt and individual equity securities. The Fund will not purchase put
options unless the aggregate premiums paid on all options held by the Fund at
any time do not exceed 20% of its total assets. The Fund will not sell put
options if, as a result, more than 50% of the Fund's assets would be required to
be segregated to cover its potential obligations under such put options other
than those with respect to futures and options thereon. In selling put options,
there is a risk that the Fund may be required to buy the underlying security at
a disadvantageous price above the market price.
General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate or equity market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The sale of a futures contract creates
a firm obligation by the Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures, the net cash
amount). Options on futures contracts are similar to options on securities
except that an option on a futures contract gives the purchaser the right in
return for the premium paid to assume a position in a futures contract and
obligates the seller to deliver such position.
The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
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upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, and multiple
interest rate transactions and any combination of futures, options, and interest
rate transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, and index swaps and the purchase or sale of
related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where
they do not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. The purchase of a cap entitles
the purchaser to receive payments on a notional principal amount from the party
selling such cap to the extent that a specified index exceeds a predetermined
interest rate or amount. The purchase of a floor entitles the purchaser to
receive payments on a notional principal amount from the party selling such
floor to the extent that a specified index falls below a predetermined interest
rate or amount. A collar is a combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believes such obligations do not constitute senior securities under
the Investment Company Act of 1940 (the "1940 Act") and, accordingly, will not
treat them as being subject to its borrowing restrictions. The Fund will not
enter into any swap, cap, floor or collar transaction unless, at the time of
entering into such transaction, the unsecured long-term debt of the
Counterparty, combined with any credit enhancements, is rated at least A by S&P
or Moody's or has an equivalent rating from a NRSRO or is determined to be of
equivalent credit quality by the Adviser. If there is a default by the
Counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
developed and, accordingly, they are less liquid than swaps.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
securities with its custodian, State Street Bank and Trust Company (the
"Custodian") to the extent Fund obligations are not otherwise "covered" through
ownership of the underlying security, financial instrument or currency. In
general, either the full amount of any obligation by the Fund to pay or deliver
securities or assets must be covered at all times by the securities, instruments
or currency required to be delivered, or, subject to any regulatory
restrictions, an amount of cash or liquid high grade securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into
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the needed securities without additional consideration) or to segregate cash or
liquid securities sufficient to purchase and deliver the securities if the call
is exercised. A call option sold by the Fund on an index will require the Fund
to own portfolio securities which correlate with the index or to segregate cash
or liquid assets equal to the excess of the index value over the exercise price
on a current basis. A put option written by the Fund requires the Fund to
segregate cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate liquid assets equal to the amount of the Fund's obligation.
OTC options entered into by the Fund, including those on securities,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, and the Fund will segregate
an amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid securities
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating cash or liquid assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
Convertible Securities. The Fund may invest in convertible securities which are
bonds, notes, debentures, preferred stocks, and other securities which are
convertible into common stocks. Investments in convertible securities can
provide income through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any particular
convertible security may be adjusted from time to time due to stock splits,
dividends, spin-offs, other corporate distributions, or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities generally, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion or exchange feature, the market value
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of convertible securities typically changes as the market value of the
underlying common stocks changes, and, therefore, also tends to follow movements
in the general market for equity securities. A unique feature of convertible
securities is that as the market price of the underlying common stock declines,
convertible securities tend to trade increasingly on a yield basis and so may
not experience market value declines to the same extent as the underlying common
stock. When the market price of the underlying common stock increases, the
prices of the convertible securities tend to rise as a reflection of the value
of the underlying common stock, although typically not as much as the underlying
common stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
As fixed income securities, convertible securities are investments
which provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all fixed income securities, there can be no assurance of income or
principal payments because the issuers of the convertible securities may default
on their obligations. Convertible securities generally offer lower yields than
non-convertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the subordination feature, convertible bonds
and convertible preferred stock typically have lower ratings than similar
non-convertible securities.
Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid Yield
Option Notes (LYONs). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the purchase price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
Repurchase Agreements. The Fund may enter into repurchase agreements with member
banks of the Federal Reserve System, any foreign bank or with any domestic or
foreign broker-dealer which is recognized as a reporting government securities
dealer if the creditworthiness of the bank or broker-dealer has been determined
by the Adviser to be at least as high as that of other obligations the Fund may
purchase.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price upon repurchase. In either case, the income to the
Fund is unrelated to the interest rate on the Obligation itself. Obligations
will be held by the Custodian or in the Federal Reserve Book Entry system. Some
repurchase commitment transactions may not provide the Fund with collateral
marked-to-market during the term of the commitment.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to the Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delay and incur costs
before being able to sell the security. Delays may involve loss of interest or
decline in price of the Obligation. If the court characterizes the transaction
as a loan and the Fund has not perfected a security interest in the Obligation,
the Fund may be required to return the Obligation to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured creditor,
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the Fund would be at risk of losing some or all of the principal and income
involved in the transaction. As with any unsecured debt instrument purchased for
the Fund, the Adviser seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
Obligation, in which case the Fund may incur a loss if the proceeds to the Fund
of the sale to a third party are less than the repurchase price. However, if the
market value of the Obligation subject to the repurchase agreement becomes less
than the repurchase price (including interest), the Fund will direct the seller
of the Obligation to deliver additional securities so that the market value of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
A repurchase agreement with foreign banks may be available with respect to
government securities of the particular foreign jurisdiction, and such
repurchase agreements involve risks similar to repurchase agreements with U.S.
entities.
Borrowing. As a matter of fundamental policy, the Fund will not borrow money,
except as permitted under the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. While
the Trustees do not currently intend to borrow for investment leverage purposes,
if such a strategy were implemented in the future it would increase the Fund's
volatility and the risk of loss in a declining market. Borrowing by the Fund
will involve special risk considerations. Although the principal of the Fund's
borrowings will be fixed, the Fund's assets may change in value during the time
a borrowing is outstanding, thus increasing exposure to capital risk.
Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933 or the availability of an exemption from registration
(such as Rules 144 or 144A) or because they are subject to other legal or
contractual delays in or restrictions on resale.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the Securities Act of 1933. The Fund may be deemed to be an
"underwriter" for purposes of the Securities Act of 1933 when selling restricted
securities to the public, and in such event the Fund may be liable to purchasers
of such securities if such sale is made in violation of the 1933 Act or if the
registration statement prepared by the issuer, or the prospectus forming a part
of it, is materially inaccurate or misleading.
When-Issued Securities. The Fund may from time to time purchase equity and debt
securities on a "when-issued" or "forward delivery" basis. The price of such
securities, which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued or
forward delivery securities takes place at a later date. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. To the extent that assets of the Fund are
held in cash pending the settlement of a purchase of securities, the Fund would
earn no income; however, it is the Fund's intention to be fully invested to the
extent practicable and subject to the policies stated above. While when-issued
or forward delivery securities may be sold prior to the settlement date, the
Fund intends to purchase such securities with the purpose of actually acquiring
them unless a sale appears desirable for investment reasons. At the time the
Fund makes the commitment to purchase a security on a when-issued or forward
delivery basis, it will record the transaction and reflect the value of the
security in determining its net asset value. The market value of the when-issued
or forward delivery securities may be more or less than the purchase price. The
Fund does not believe that its net asset value or income will be adversely
affected by its purchase of securities on a when-issued or forward delivery
basis.
Warrants. The Fund may invest in warrants up to 5% of the value of its total
assets. The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered speculative investments. Warrants pay
no dividends and confer no rights other than a purchase option. Thus, if a
warrant held by the Fund were not exercised by the date of its expiration, the
Fund would lose the entire purchase price of the warrant.
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Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. The Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. The Fund will enter into reverse repurchase agreements only when the
Adviser believes that the interest income to be earned from the investment of
the proceeds of the transaction will be greater than the interest expense of the
transaction.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms deemed by the Adviser to be in good standing.
The value of the securities loaned will not exceed 5% of the value of the Fund's
total assets at the time any loan is made.
Investment Restrictions
Unless specified to the contrary, the following fundamental
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund involved which, under the 1940 Act and
the rules thereunder and as used in this Statement of Additional Information,
means the lesser of (1) 67% or more of the voting securities present at such
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy, or (2) more than 50% of the
outstanding voting securities of the Fund.
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after and is caused by an acquisition or
encumbrance of securities or assets of, or borrowings by, the Fund.
The Fund has elected to be classified as a diversified series of an
open-end investment company. In addition, as a matter of fundamental policy, the
Fund will not:
(1) borrow money, except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the
Investment Company Act of 1940, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
(3) concentrate its investments in a particular industry, as that
term is used in the Investment Company Act of 1940 as amended,
and as interpreted or modified by regulatory authority having
jurisdiction from time to time;
(4) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
(6) purchase physical commodities or contracts relating to
physical commodities; or
(7) make loans except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
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Nonfundamental policies may be changed by the Trustees of the Trust and
without shareholder approval. As a matter of nonfundamental policy, the Fund
does not currently intend to:
(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(3) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
(4) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(5) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit;
(6) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
(7) lend portfolio securities in an amount greater than 5% of its
total assets.
PURCHASES
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, TWX, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have a certified Tax Identification Number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-SCUDDER
to get an account number. During the call, the investor will be asked to
indicate the Fund name, amount to be wired ($2,500 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the taxpayer identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, State Street Bank and Trust Company, Boston, MA
02110, ABA Number 011000028, DDA Account Number: 9903-5552. The investor must
give the Scudder fund name, account name and the new account number. Finally,
the investor must send the completed and signed application to the Fund
promptly.
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The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500
($1,000 for fiduciary accounts such as IRAs, and custodial accounts such as
Uniform Gift to Minor Act, and Uniform Trust to Minor Act accounts), which
amount may be changed by the Board of Trustees. A shareholder may open an
account with at least $1,000 ($500 for fiduciary/custodial accounts), if an
automatic investment plan (AIP) of $100/month ($50/month for fiduciary/custodial
accounts) is established. Scudder group retirement plans and certain other
accounts have similar or lower minimum share balance requirements.
The Fund reserves the right, following 60 days' written notice to
applicable shareholders, to:
o assess an annual $10 per fund charge (with the fee to be paid
to the fund) for any non-fiduciary/non-custodial account
without an automatic investment plan (AIP) in place and a
balance of less than $2,500; and
o redeem all shares in Fund accounts below $1,000 where a
reduction in value has occurred due to a redemption, exchange
or transfer out of the account. The Fund will mail the
proceeds of the redeemed account to the shareholder.
Reductions in value that result solely from market activity will not
trigger an involuntary redemption. Shareholders with a combined household
account balance in any of the Scudder Funds of $100,000 or more, as well as
group retirement and certain other accounts will not be subject to a fee or
automatic redemption.
Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or
UTMA) with balances below $100 are subject to automatic redemption following 60
days' written notice to applicable shareholders.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD, and banks. Orders placed in this manner may be directed to any
office of the Distributor listed in the Fund's prospectus. A confirmation of the
purchase will be mailed out promptly following receipt of a request to buy.
Federal regulations require that payment be received within three business days.
If payment is not received within that time, the order is subject to
cancellation. In the event of such cancellation or cancellation at the
purchaser's request, the purchaser will be responsible for any loss incurred by
the Fund or the principal underwriter by reason of such cancellation. If the
purchaser is a shareholder, the Trust shall have the authority, as agent of the
shareholder, to redeem shares in the account in order to reimburse the Fund or
the principal underwriter for the loss incurred. Net losses on such transactions
which are not recovered from the purchaser will be absorbed by the principal
underwriter. Any net profit on the liquidation of unpaid shares will accrue to
the Fund.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
New York Stock Exchange, Inc. (the "Exchange"), normally 4 p.m. eastern time.
Proceeds in the amount of your purchase will be transferred from your bank
checking account two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
purchased at the net asset value per share calculated at the close of trading on
the day of your call. QuickBuy requests received after the close of regular
trading on the Exchange will begin their processing and be purchased at the net
asset value calculated the following business day. If you purchase shares by
QuickBuy and redeem them within seven days of the purchase, the Fund may hold
the redemption proceeds for a period of up to seven business days. If you
purchase shares and there are insufficient funds in your bank account the
purchase will be canceled and you
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will be subject to any losses or fees incurred in the transaction. QuickBuy
transactions are not available for most retirement plan accounts. However,
QuickBuy transactions are available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing a QuickBuy Enrollment Form. After sending in an enrollment form,
shareholders should allow 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares of the Fund are purchased by a check which proves to be
uncollectible, the Trust reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Trust or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Trust will have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from, or restricted in, placing future orders in any of the
Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the close of regular trading on the Exchange
(normally 4 p.m.
eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by State
Street Bank and Trust Company (the "Custodian") of "wired funds," but the right
to charge investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on each day during
which the Exchange is open for trading. Orders received after the close of
regular trading on the Exchange will receive the next business day's net asset
value. If the order has been placed by a member of the NASD, other than the
Distributor, it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to Scudder Service Corporation (the
"Transfer Agent") by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of the Trust's management to afford ease of
redemption, certificates will not be issued to indicate ownership in the Fund.
Share certificates now in a shareholder's possession may be sent to the Transfer
Agent
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for cancellation and credit to such shareholder's account. Shareholders
who prefer may hold the certificates in their possession until they wish to
exchange or redeem such shares.
Other Information
The Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Fund's shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on the Fund's behalf. Orders for purchase or redemption will be deemed to
have been received by the Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between the Fund and the
broker, ordinarily orders will be priced at the Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of the Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Trustees and the Distributor, also the Fund's principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Trustees and the Distributor may suspend or terminate the
offering of shares of the Fund at any time for any reason.
The Board of Trustees and the Distributor each has the right to limit,
for any reason, the amount of purchases by, and to refuse to, sell to any
person, and each may suspend or terminate the offering of shares of the Fund at
any time for any reasons.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g. from exempt organizations, certification of exempt status)
will be returned to the investor. The Fund also reserves the right, following 30
days' notice, to redeem all shares in accounts without a correct certified
Social Security or tax identification number. A shareholder may avoid
involuntary redemption by providing the Fund with a tax identification number
during the 30-day notice period.
The Trust may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
EXCHANGES AND REDEMPTIONS
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange either may
be an additional investment into an existing account or may involve opening a
new account in the other fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request must
be in writing and must contain an original signature guarantee as described
under "Transaction Information -- Signature guarantees" in the Fund's
prospectus.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the net asset value
determined on that day. Exchange orders received after the close of regular
trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund at current net asset value through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free
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feature over the phone or in writing. Automatic exchanges will continue until
the shareholder requests by phone or in writing to have the feature removed, or
until the originating account is depleted. The Trust and the Transfer Agent each
reserve the right to suspend or terminate the privilege of the Automatic
Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
However, shares that are exchanged from the Fund may be subject to the Fund's 1%
redemption fee. (See "Special Redemption and Exchange Information") An exchange
into another Scudder fund is a redemption of shares, and therefore may result in
tax consequences (gain or loss) to the shareholder, and the proceeds of such an
exchange may be subject to backup withholding. (See "TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Fund employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
and the Transfer Agent each reserve the right to suspend or terminate the
privilege of exchanging by telephone or fax at any time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder funds or classes thereof. For more information,
please call 1-800-SCUDDER.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Special Redemption and Exchange Information
In general, shares of the Fund may be exchanged or redeemed at net
asset value. However, shares of the Fund held for less than one year are
redeemable at a price equal to 99% of the Fund's then current net asset value
per share. This 1% discount, referred to in the prospectus and this Statement of
Additional Information as a redemption fee, directly affects the amount a
shareholder who is subject to the discount receives upon exchange or redemption.
It is intended to encourage long-term investment in the Fund, to avoid
transaction and other expenses caused by early redemptions and to facilitate
portfolio management. The fee is not a deferred sales charge, is not a
commission paid to the Adviser or its subsidiaries, and does not benefit the
Adviser in any way. The Fund reserves the right to modify the terms of or
terminate this fee at any time.
The redemption fee will not be applied to (a) a redemption of shares
held in certain retirement plans, including 401(k) plans, 403(b) plans, 457
plans, Keogh accounts, and profit sharing and money purchase pension plans
(however, this fee waiver does not apply to IRA and SEP-IRA accounts), (b) a
redemption of any shares of the Fund outstanding for one year or more, (c) a
redemption of reinvestment shares (i.e., shares purchased through the
reinvestment of dividends or capital gains distributions paid by the Fund), (d)
a redemption of shares by the Fund upon exercise of its right to liquidate
accounts (i) falling below the minimum account size by reason of shareholder
redemptions or (ii) when the shareholder has failed to provide tax
identification information or (e) a redemption of shares due to the death of the
registered shareholder of a Fund account or due to the death of all registered
shareholders of a Fund account with more than one registered shareholder, (i.e.
joint tenant account), upon receipt from Scudder Service Corporation of
appropriate written instructions and documentation satisfactory to Scudder
Service Corporation. However, if shares are purchased for a retirement plan
account through a broker, financial institution or recordkeeper maintaining an
omnibus account for the shares, such waiver may not apply. For this purpose and
without regard to the shares actually redeemed, shares will be redeemed as
follows: first, reinvestment shares; second, purchased shares held one year or
more; and third, purchased shares held for less than one year. Finally, if a
shareholder enters into a transaction in Fund shares which, although it may
technically be treated as a redemption and purchase for recordkeeping purposes,
does not involve the termination of economic interest in the Fund, no redemption
fee will apply and applicability of the redemption fee, if any, on any
subsequent redemption or exchange will be determined by reference to the date
the shares were originally purchased, and not the date of the transaction.
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Redemption by Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $100,000 and have the proceeds mailed
to their address of record. Shareholders may request to have the proceeds mailed
or wired to their predesignated bank account. In order to request redemptions by
telephone, shareholders must have completed and returned to the Transfer Agent
the application, including the designation of a bank account to which the
redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate
section on the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA,
Scudder Pension and Profit-Sharing, Scudder 401(k) and Scudder
403(b) Planholders) who wish to establish telephone redemption
to a predesignated bank account or who want to change the bank
account previously designated to receive redemption proceeds
should either return a Telephone Redemption Option Form
(available upon request) or send a letter identifying the
account and specifying the exact information to be changed.
The letter must be signed exactly as the shareholder's name(s)
appears on the account. An original signature and an original
signature guarantee are required for each person in whose name
the account is registered.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone redemption
proceeds are advised that if the savings bank is not a participant in the
Federal Reserve System, redemption proceeds must be wired through a commercial
bank which is a correspondent of the savings bank. As this may delay receipt by
the shareholder's account, it is suggested that investors wishing to use a
savings bank discuss wire procedures with their bank and submit any special wire
transfer information with the telephone redemption authorization. If appropriate
wire information is not supplied, redemption proceeds will be mailed to the
designated bank.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption requests by telephone (technically a repurchase by agreement
between the Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Redemption by QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickSell program may sell shares of the Fund by telephone. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, normally 4:00 p.m. eastern time, shares will be redeemed at the net
asset value per share calculated at the close of trading on the day of your
call. QuickSell requests received after the close of regular trading on the
Exchange will begin their processing and be redeemed at the net asset value
calculated the following business day. QuickSell transactions are not available
for Scudder IRA accounts and most other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which redemption proceeds will be credited. New
investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add
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QuickSell to their account may do so by completing a QuickSell Enrollment Form.
After sending in an enrollment form, shareholders should allow 15 days for this
service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption by Mail or Fax
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request documents such as, but not restricted to, stock
powers, trust instruments, certificates of death, appointments as executor,
certificates of corporate authority and waivers of tax required in some states
when settling estates.
It is suggested that shareholders holding shares registered in other
than individual names contact the Transfer Agent prior to any redemptions to
ensure that all necessary documents accompany the request. When shares are held
in the name of a corporation, trust, fiduciary agent, attorney or partnership,
the Transfer Agent requires, in addition to the stock power, certified evidence
of authority to sign. These procedures are for the protection of shareholders
and should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within seven business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays of more
than seven days of payment for shares tendered for repurchase or redemption may
result, but only until the purchase check has cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information call 1-800-SCUDDER.
Redemption-in-Kind
The Trust reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Fund and valued as they are for purposes of computing the Fund's net asset
value (a redemption-in-kind). If payment is made in securities, a shareholder
may incur transaction expenses in converting these securities into cash. The
Trust has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90 day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
Other Information
Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct repurchase requests to the
Fund through Scudder Investor Services, Inc. at Two International Place, Boston,
Massachusetts 02110-4103 by letter, fax, TWX, or telephone. A two-part
confirmation will be mailed out promptly after receipt of the repurchase
request. A written request in good order with a proper original signature
guarantee, as described in the Fund's prospectus under "Transaction information
- -- Signature guarantees," should be sent with a copy of the invoice to Scudder
Funds, c/o Scudder Confirmed Processing, Two International Place, Boston,
Massachusetts 02110-4103. Failure to deliver shares or required documents (see
above) by the settlement date may result in cancellation of the trade and the
shareholder will be responsible for any loss incurred by the Fund or the
principal underwriter by reason of such cancellation. Net losses on such
transactions which are not recovered from the shareholder will be absorbed by
the principal underwriter. Any net gains so resulting will accrue to the Fund.
For this group, repurchases will be carried out at the net asset value next
computed after such repurchase requests have been received. The arrangements
described in this paragraph for repurchasing shares are discretionary and may be
discontinued at any time.
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder receives in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
or repurchased may be more or less than the shareholder's cost depending on the
net asset value at the time of redemption
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or repurchase. The Fund does not impose a repurchase charge, although a wire
charge may be applicable for redemption proceeds wired to an investor's bank
account. Redemption of shares, including redemptions undertaken to effect an
exchange for shares of another Scudder fund, may result in tax consequences
(gain or loss) to the shareholder and the proceeds of such redemptions may be
subject to backup withholding. (See "TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The determination of net asset value and a shareholder's right to
redeem shares and to receive payment may be suspended at times (a) during which
the Exchange is closed, other than customary weekend and holiday closings, (b)
during which trading on the Exchange is restricted for any reason, (c) during
which an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or (d)
during which the SEC by order permits a suspension of the right of redemption or
a postponement of the date of payment or of redemption; provided that applicable
rules and regulations of the SEC (or any succeeding governmental authority)
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.
FEATURES AND SERVICES OFFERED BY THE FUND
The No-Load Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
Because funds and classes in the Scudder Family of Funds do not pay any
asset-based sales charges or service fees, Scudder uses the phrase no-load to
distinguish Scudder funds and classes from other no-load funds. Scudder
pioneered the no-load concept when it created the nation's first no-load fund in
1928, and later developed the nation's first family of no-load mutual funds.
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://www.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links
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between summary information in Profiles and details in the Prospectus. Users can
fill out new account forms on-line, order free software, and request literature
on funds.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
Dividends and Capital Gains Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of a Fund. A change of instructions for the method of
payment must be received by the Transfer Agent at least five days prior to a
dividend record date. Shareholders also may change their dividend option either
by calling 1-800-SCUDDER or by sending written instructions to the Transfer
Agent. Please include your account number with your written request. See "How to
Buy Shares" in the Funds' prospectuses for the address.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of a Fund.
Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-SCUDDER. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Scudder Investor Centers
Investors may visit any of the Investor Centers (located in Boca Raton,
Boston, Chicago, New York and San Francisco) maintained by the Distributor. The
Centers are designed to provide individuals with services during any business
day. Investors may pick up literature or obtain assistance with opening an
account, adding monies or special options to existing accounts, making exchanges
within the Scudder Family of Funds, redeeming shares or opening retirement
plans. Checks should not be mailed to the Centers but should be mailed to "The
Scudder Funds" at the address listed under "Purchases" in the prospectus.
Reports to Shareholders
The Trust issues shareholders unaudited semiannual financial statements
and annual financial statements audited by independent accountants, including a
list of investments held and statements of assets and liabilities,
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operations, changes in net assets and financial highlights. The Trust presently
intends to distribute to shareholders informal quarterly reports during the
intervening quarters, containing a statement of the investments of the Funds.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-SCUDDER.
THE SCUDDER FAMILY OF FUNDS
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds; a list of Scudder's
funds follows.
MONEY MARKET
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series+
Scudder Government Money Market Series+
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series+
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
TAX FREE
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
U.S. INCOME
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
GLOBAL INCOME
Scudder Global Bond Fund
Scudder International Bond Fund
- ------------------------------------
+ The institutional class of shares is not part of the Scudder Family of
Funds.
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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Scudder Emerging Markets Income Fund
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
Scudder Pathway Series: Growth Portfolio
Scudder Pathway Series: International Portfolio
U.S. GROWTH AND INCOME
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder 500 Index Fund
Scudder Real Estate Investment Fund
U.S. GROWTH
Value
Scudder Large Company Value Fund
Scudder Value Fund**
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund**
Scudder Large Company Growth Fund
Scudder Select 1000 Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
GLOBAL EQUITY
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund***
Scudder International Growth Fund
Scudder Global Discovery Fund**
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
- ------------------------------------
** Only the Scudder Shares are part of the Scudder Family of Funds.
*** Only the International Shares are part of the Scudder Family of Funds.
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INDUSTRY SECTOR FUNDS
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
SCUDDER PREFERRED SERIES
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890.
Certain Scudder funds or classes thereof may not be available for
purchase or exchange. For more information, please call 1-800-SCUDDER.
SPECIAL PLAN ACCOUNTS
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRAs other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
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Scudder IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples, even if only one spouse
has earned income). All income and capital gains derived from IRA investments
are reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
Scudder Roth IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for a
Roth Individual Retirement Account which meets the requirements of Section 408A
of the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, certain medical expenses, the
purchase of health insurance for an unemployed individual and qualified higher
education expenses.
An individual with an income of $100,000 or less (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
26
<PAGE>
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information -- Redeeming shares -- Signature
guarantees" in the Fund's prospectus. Any such requests must be received by the
Fund's transfer agent ten days prior to the date of the first automatic
withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the
shareholder, the Trust or its agent on written notice, and will be terminated
when all shares of the Fund under the Plan have been liquidated or upon receipt
by the Trust of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-SCUDDER.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Trust and its agents reserve the right to establish a maintenance
charge in the future depending on the services required by the investor.
The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
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<PAGE>
The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund intends to follow the practice of distributing all of its
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The Fund
may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Fund may retain all or part of such gain for reinvestment after paying the
related federal income taxes for which the shareholders may then be asked to
claim a credit against their federal income tax liability. (See "TAXES.")
If the Fund does not distribute an amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, it may be subject to such tax. (See "TAXES.") In certain circumstances,
the Fund may determine that it is in the interest of shareholders to distribute
less than such an amount.
Earnings and profits distributed to shareholders on redemptions of Fund
shares may be utilized by the Fund, to the extent permissible, as part of the
Fund's dividend paid deduction on its federal tax return.
The Trust intends to distribute the Fund's investment company taxable
income and any net realized capital gains in November or December, although an
additional distribution may be made if necessary. Both types of distributions
will be made in shares of the Fund and confirmations will be mailed to each
shareholder unless a shareholder has elected to receive cash, in which case a
check will be sent. Distributions of investment company taxable income and net
realized capital gains are taxable (See "TAXES"), whether made in shares or
cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Fund issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
PERFORMANCE INFORMATION
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures will be calculated in the following manner:
Average Annual Total Return
Average annual total return is the average annual compound rate of
return for the periods of one year and the life of the Fund, ended on the last
day of a recent calendar quarter. Average annual total return quotations reflect
changes in the price of the Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by finding the average
annual compound rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
T = Average Annual Total Return
P = a hypothetical initial payment of $1,000
n = Number of years
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<PAGE>
ERV = Ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
[To Be Updated]
Average Annual Total Return for periods ended August 31, 1999
One Year Life of Fund(1)
% %
----- ---- -----
(1) For the period August 12, 1996 (commencement of operations) to
August 31, 1999
Cumulative Total Return
Cumulative total return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of the Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by finding the
cumulative rate of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
C = (ERV/P) -1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = Ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
[To Be Updated]
Cumulative Total Return for periods ended August 31, 1999
One Year Life of Fund(1)
% %
----- ----------
(1) For the period August 12, 1996 (commencement of operations) to August
31, 1999
Total Return
Total return is the rate of return on an investment for a specified
period of time calculated in the same manner as cumulative total return.
Quotations of the Fund's Performance are historical and are not
intended to indicate future performance. An investor's share when redeemed may
be worth more or less than the original cost. Performance of the Fund will vary
based on changes in market conditions and the level of Fund's expenses.
There may be quarterly periods following the periods reflected in the
performance bar chart in the fund's prospectus which may be higher or lower than
those included in the bar chart.
Comparison of Fund Performance
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<PAGE>
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs.
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.
From time to time, in marketing and other Fund literature, Trustees and
officers of the Fund, the Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.
The Fund may be advertised as an investment choice in Scudder's college
planning program.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer
30
<PAGE>
the potential for less return than longer-term bond funds. The same is true of
domestic bond funds relative to international bond funds, and bond funds that
purchase higher quality securities relative to bond funds that purchase lower
quality securities. Growth and income equity funds are generally considered to
be less risky and offer the potential for less return than growth funds. In
addition, international equity funds usually are considered more risky than
domestic equity funds but generally offer the potential for greater return.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about the Fund.
31
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32
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ORGANIZATION OF THE FUND
The Fund is a series of Scudder Securities Trust, formerly Scudder
Development Fund, a Massachusetts business trust established under a Declaration
of Trust dated October 16, 1985. The Trust's predecessor was organized as a
Delaware corporation in 1970. The Trust's authorized capital consists of an
unlimited number of shares of beneficial interest of $0.01 par value, all of
which are of one class and have equal rights as to voting, dividends and
liquidation. The Trust's shares are currently divided into seven series, Scudder
Development Fund, Scudder Financial Services Fund, Scudder Health Care Fund,
Scudder Micro Cap Fund, Scudder Small Company Value Fund, Scudder Technology
Fund and Scudder 21st Century Growth Fund. The Trustees have the authority to
issue additional series of shares and to designate the relative rights and
preferences as between the different series. Each share of each Fund has equal
rights with each other share of that Fund as to voting, dividends and
liquidations. All shares issued and outstanding will be fully paid and
nonassessable by the Trust, and redeemable as described in this Statement of
Additional Information and in each Fund's prospectus.
The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Trust entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting that
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series.
The Trustees, in their discretion, may authorize the division of shares
of the Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution. The Trustees have no present
intention of taking the action necessary to effect the division of shares into
separate classes, nor of changing the method of distribution of shares of the
Fund.
The Declaration of Trust provides that obligations of the Fund are not
binding upon the Trustees individually but only upon the property of the Fund,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Fund will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Fund. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
INVESTMENT ADVISER
Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Fund. This organization, the predecessor
of which is Scudder, Stevens & Clark, Inc., is one of the most experienced
33
<PAGE>
investment counsel firms in the U.S. It was established as a partnership in 1919
and pioneered the practice of providing investment counsel to individual clients
on a fee basis. In 1928 it introduced the first no-load mutual fund to the
public. In 1953 the Adviser introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On December 31, 1997, Zurich
Insurance Company ("Zurich") acquired a majority interest in the Adviser, and
Zurich Kemper Investments, Inc., a Zurich subsidiary, became part of the
Adviser. The Adviser's name changed to Scudder Kemper Investments, Inc. On
September 7, 1998, the businesses of Zurich (including Zurich's 70% interest in
Scudder Kemper) and the financial services businesses of B.A.T Industries p.l.c.
("B.A.T") were combined to form a new global insurance and financial services
company known as Zurich Financial Services Group. By way of a dual holding
company structure, former Zurich shareholders initially owned approximately 57%
of Zurich Financial Services Group, with the balance initially owned by former
B.A.T shareholders.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations as well as providing investment advice to over [XX] open and
closed-end mutual funds.
In certain cases, the investments for the Fund are managed by the same
individuals who manage one or more other mutual funds advised by the Adviser,
that have similar names, objectives and investment styles. You should be aware
that the Fund is likely to differ from these other mutual funds in size, cash
flow pattern and tax matters. Accordingly, the holdings and performance of the
Fund can be expected to vary from those of these other mutual funds.
The present investment management agreement (the "Agreement") was
approved by the Trustees on August 10, 1998, became effective September 7, 1998,
and was approved at a shareholder meeting held on December 15, 1998. The
Agreement will continue in effect until September 30, 1999 and from year to year
thereafter only if its continuance is approved annually by the vote of a
majority of those Trustees who are not parties to such Agreement or interested
persons of the Adviser or the Trust, cast in person at a meeting called for the
purpose of voting on such approval, and either by a vote of the Trust's Trustees
or of a majority of the outstanding voting securities of the respective Fund.
The Agreement may be terminated at any time without payment of penalty by either
party on sixty days' written notice and automatically terminate in the event of
its assignment.
In selecting the securities in which each Fund may invest, the
conclusions and investment decisions of the Adviser with respect to a Fund are
based primarily on the analyses of its own research department. The Adviser
receives published reports and statistical compilations of the issuers
themselves, as well as analyses from brokers and dealers who may execute
portfolio transactions for the Adviser's clients. However, the Adviser regards
this information and material as an adjunct to its own research activities.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for a fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by a fund. Purchase and sale orders for a fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to that fund.
34
<PAGE>
An investment management agreement dated October 6, 1995 was approved
by the Trustees of the Trust on September 6, 1995 and by the initial shareholder
of the Fund on October 4, 1995. The transaction between Scudder and Zurich
resulted in the assignment of the Fund's investment management agreement with
Scudder, that agreement was deemed to be automatically terminated at the
consummation of the transaction. In anticipation of the transaction, however, a
new investment management agreement between the Trust on behalf of the Fund and
the Adviser was approved by the Trust's Trustees on August 6, 1997. At the
special meeting of the Fund's shareholders held on October 27, 1997, the
shareholders also approved the new investment management agreement. The
investment management agreement became effective as of December 31, 1997.
On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in the Adviser) and the financial services businesses of B.A.T
Industries p.l.c. ("B.A.T") were combined to form a new global insurance and
financial services company known as Zurich Financial Services Group. By way of a
dual holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services Group, with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, the Fund's existing investment
management agreement with the Adviser was deemed to have been assigned and,
therefore, terminated. The Board approved a new investment management agreement
(the "Agreement") with the Adviser, which is substantially identical to the
current investment management agreement, except for the date of execution and
termination. This agreement became effective upon the termination of the then
current investment management agreement and was approved at special shareholder
meetings held in December 1998. The Agreement dated September 7, 1998, was
approved by the Trustees of the Fund on August 6, 1998. The Agreement will
continue in effect until September 30, 2000 and from year to year thereafter
only if its continuance is approved annually by the vote of a majority of those
Trustees who are not parties to such Agreement or interested persons of the
Adviser or the Fund, cast in person at a meeting called for the purpose of
voting on such approval, and either by a vote of the Trust's Trustees or of a
majority of the outstanding voting securities of the Fund. The Agreement may be
terminated at any time without payment of penalty by either party on sixty days'
written notice, and automatically terminates in the event of its assignment.
Under the Agreement, the Adviser regularly provides the Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objective, policies and restrictions and determines what
securities shall be purchased, held or sold and what portion of the Fund's
assets shall be held uninvested, subject to the Trust's Declaration of Trust,
By-Laws, the 1940 Act, the Code and to the Fund's investment objective, policies
and restrictions, and subject, further, to such policies and instructions as the
Board of Trustees of the Fund may from time to time establish. The Adviser also
advises and assists the officers of the Fund in taking such steps as are
necessary or appropriate to carry out the decisions of its Trustees and the
appropriate committees of the Trustees regarding the conduct of the business of
the Fund.
Under the Agreement, the Adviser also renders significant
administrative services (not otherwise provided by third parties) necessary for
the Fund's operations as an open-end investment company including, but not
limited to, preparing reports and notices to the Trustees and shareholders;
supervising, negotiating contractual arrangements with, and monitoring various
third-party service providers to the Fund (such as the Fund's transfer agent,
pricing agents, Custodian, accountants and others); preparing and making filings
with the SEC and other regulatory agencies; assisting in the preparation and
filing of the Fund's federal, state and local tax returns; preparing and filing
the Fund's federal excise tax returns; assisting with investor and public
relations matters; monitoring the valuation of securities and the calculation of
net asset value; monitoring the registration of shares of the Fund under
applicable federal and state securities laws; maintaining the Fund's books and
records to the extent not otherwise maintained by a third party; assisting in
establishing accounting policies of the Fund; assisting in the resolution of
accounting and legal issues; establishing and monitoring the Fund's operating
budget; processing the payment of the Fund's bills; assisting the Fund in, and
otherwise arranging for, the payment of distributions and dividends and
otherwise assisting the Fund in the conduct of its business, subject to the
direction and control of the Trustees.
The Adviser pays the compensation and expenses of all Trustees,
officers and executive employees (except expenses incurred attending Board and
committee meetings outside New York, New York or Boston, Massachusetts) of
35
<PAGE>
the Trust affiliated with the Adviser and makes available, without expense to
the Fund, the services of such Trustees, officers and employees of the Adviser
as may duly be elected officers of the Trust, subject to their individual
consent to serve and to any limitations imposed by law, and provides the Fund's
office space and facilities.
For these services, Micro Cap Fund will pay the Adviser an annual fee
equal to 0.75% of the Fund's average daily net assets payable monthly, provided
the Fund will make interim payments as may be requested by the Adviser not to
exceed 75% of the amount of the fee then accrued on the books of the Fund and
unpaid. Since inception, the Adviser agreed to limit the total annualized
expenses of the Fund at no more than 1.75% of the average daily net assets of
the Fund until December 31, 1997For the fiscal year ended August 31, 1997 the
Adviser did not impose a portion of its management fee amounting to $210,007,
and the fee imposed amounted to $152,080. The investment advisory fee paid to
the Adviser for the fiscal year ended August 31, 1998 was $1,021,784, of which
$75,593 was unpaid at August 31, 1998. For the fiscal year ended August 31,
1999, the fee imposed amounted to $_______, of which $______ is unpaid at August
31, 1999.
Under the Agreement the Fund is responsible for all of its other
expenses including: organizational costs, fees and expenses incurred in
connection with membership in investment company organizations; fees and
expenses of the Fund's accounting agent; brokers' commissions; legal, auditing
and accounting expenses; taxes and governmental fees; the fees and expenses of
the Transfer Agent; any other expenses of issue, sale, underwriting,
distribution, redemption or repurchase of shares; the expenses of and the fees
for registering or qualifying securities for sale; the fees and expenses of
Trustees, officers and employees of the Fund who are not affiliated with the
Adviser; the cost of printing and distributing reports and notices to
stockholders; and the fees and disbursements of custodians. The Fund may arrange
to have third parties assume all or part of the expenses of sale, underwriting
and distribution of shares of the Fund. The Fund is also responsible for its
expenses of shareholders' meetings, the cost of responding to shareholders'
inquiries, and its expenses incurred in connection with litigation, proceedings
and claims and the legal obligation it may have to indemnify its officers and
Trustees of the Fund with respect thereto.
The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder, Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Trust's investment products and services.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees of the Trust who are not
"interested persons" of the Adviser are represented by independent counsel at
the Fund's expense.
The Agreement provides that the Adviser 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 the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Fund that may have different
distribution arrangements or expenses, which may affect performance.
None of the officers or Trustees of the Trust may have dealings with a
Fund as principals in the purchase or sale of securities, except as individual
subscribers to or holders of shares of the Fund.
AMA InvestmentLink(SM) Program
Pursuant to an Agreement between the Adviser and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Adviser has agreed, subject to applicable state regulations, to pay
36
<PAGE>
AMA Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Adviser with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Adviser
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLink(SM) Program will be a customer of the Adviser (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Age, Scudder Investor
and Address Position with Fund Principal Occupation** Services, Inc.
- ----------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
Lynn S. Birdsong President and Trustee Managing Director of Scudder Kemper --
(53)#@++ Investments, Inc.
Paul Bancroft III (69) Trustee Venture Capitalist and Consultant; --
79 Pine Lane Retired, President, Chief Executive
Box 6639 Officer and Director, Bessemer
Snowmass Village, CO 81615 Securities Corporation
Sheryle J. Bolton (53) Trustee CEO and Director, Scientific Learning --
Scientific Learning Corporation Corporation, Former President and
1995 University Avenue Chief Operating Officer, Physicians
Suite 400 Online, Inc. (electronic transmission
San Francisco, CA 94704 of clinical information for
physicians) (1994-1995)
William T. Burgin (56) Trustee General Partner, Bessemer Venture --
83 Walnut Street Partners; General Partner, Deer &
Wellesley, MA 02181 Company; Director, Fort James Corp.;
Director, Galileo Corp.; Director of
various privately held companies
37
<PAGE>
Position with
Underwriter,
Name, Age, Scudder Investor
and Address Position with Fund Principal Occupation** Services, Inc.
- ----------- ------------------ ---------------------- --------------
Keith R. Fox (45) Trustee Private Equity Investor, Exeter --
10 East 53rd Street Capital Management Corporation
New York, NY 10022
William H. Luers (70) Trustee Retired, President, The Metropolitan --
The United Nations Association Museum of Art (1986 to 1999);
of America Chairman and President, United
801 Second Avenue Nations Association of America
New York, NY 10017 (organizer/researcher of
U.N.-supporting entities (February 1,
1999)
Joan E. Spero (55) Trustee President, The Doris Duke Charitable --
Foundation (1997 to present),
Undersecretary of State for Economic,
Business, and Agricultural Affairs,
(1993-1997)
Kathryn L. Quirk (46) ++@ Trustee, Vice Managing Director of Scudder Kemper Director, Senior Vice
President and Investments, Inc. President, and
Assistant Secretary Assistant Clerk
Thomas J. Devine (72) Honorary Trustee Consultant --
149 East 73rd Street
New York, NY 10021
Wilson Nolen (73) Honorary Trustee Consultant (1989 to present); --
1120 Fifth Avenue Corporate Vice President, Becton,
New York, NY 10128-0144 Dickinson & Company (manufacturer of
medical and scientific products)
until 1989
Robert G. Stone, Jr. (76) Honorary Trustee Chairman Emeritus and Director, Kirby --
405 Lexington Avenue Corporation (inland and offshore
39th Floor marine transportation and diesel
New York, NY 10174 repairs)
Edmund R. Swanberg (78)++ Honorary Trustee Advisory Managing Director of Scudder --
Kemper Investments, Inc.
Peter Chin (57)++ Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
J. Brooks Dougherty (40)+ Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
James M. Eysenbach (37)# Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
38
<PAGE>
Position with
Underwriter,
Name, Age, Scudder Investor
and Address Position with Fund Principal Occupation** Services, Inc.
- ----------- ------------------ ---------------------- --------------
James E. Fenger (40)## Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Philip S. Fortuna (42)# Vice President Managing Director of Scudder Kemper Vice President
Investments
Ann M. McCreary (43)++ Vice President Managing Director of Scudder Kemper --
Investments
John Millette (37)+ Vice President and Assistant Vice President of Scudder --
Secretary Kemper Investments Inc.
Thaddeus Paluszek (42)++ Vice President Vice President of Scudder Kemper --
Investments, Inc.
Kurt R. Stalzer (41)## Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Peter Taylor (62)++ Vice President Managing Director of Scudder Kemper --
Investments, Inc.
John R. Hebble (41)+ Treasurer Senior Vice President of Scudder --
Kemper Investments, Inc.
Richard W. Desmond (63)++ Assistant Secretary Vice President of Scudder Kemper Vice President
Investments, Inc.
Caroline Pearson (37)+ Assistant Secretary Senior Vice President of Scudder --
Kemper Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
</TABLE>
* Mr. Birdsong and Ms. Quirk are considered by the Fund and its counsel
to be persons who are "interested persons" of the Adviser or of the
Fund within the meaning of the 1940 Act.
** Unless otherwise stated, all officers and trustees have been associated
with their respective companies for more than five years, but not
necessarily in the same capacity.
@ Mr. Birdsong and Ms. Quirk are members of the Executive Committee which
may exercise substantially all of the powers of the Board of Trustees
when it is not in session.
+ Address: Two International Place, Boston, Massachusetts 02110
++ Address: 345 Park Avenue, New York, New York 10154
# Address: 101 California Street, Suite 4100, San Francisco, CA
94111-5886
## Address: 222 South Riverside Plaza, Chicago, IL 60606-5808
39
<PAGE>
The Trustees and Officers of the Trust also serve in similar capacities
with other Scudder Funds.
To the knowledge of the Trust, as of November 30, 1999, all Trustees
and officers of the Fund as a group owned beneficially (as that term is defined
under Section 13(d) of the Securities Exchange Act of 1934) _______ shares, or
____% of the shares of the Fund outstanding on such date.
Certain accounts for which the Adviser acts as investment adviser owned
_________ shares in the aggregate, or _____% of the outstanding shares on
November 30, 1999. The Adviser may be deemed to be the beneficial owner of such
shares but disclaims any beneficial ownership in such shares.
As of November 30, 1999, _______ shares in the aggregate ____% of the
outstanding shares of Scudder Small Company Value Fund, were held in the name of
Charles Schwab & Co., Inc., 101 Montgomery St., San Francisco, CA 94104, who may
be deemed to be the beneficial owner of certain of these shares, but disclaim
any beneficial ownership therein.
As of November 30, 1999, _______ shares in the aggregate _____% of the
outstanding shares of the Fund, were held in the name of State Street Bank &
Trust Co., for Scudder Pathway Series: Growth Portfolio, 1 Heritage Drive #P5S,
Quincy, MA 02171, who may be deemed to be the beneficial owner of certain of
these shares, but disclaim any beneficial ownership therein.
To the knowledge of the Trust, as of November 30, 1999, no person owned
beneficially more than 5% of the Fund's outstanding shares except as stated
above.
REMUNERATION
Responsibilities of the Board -- Board and Committee Meetings
The Board of Trustees is responsible for the general oversight of the
Fund's business. A majority of the Board's members are not affiliated with
Scudder Kemper Investments, Inc. These "Independent Trustees" have primary
responsibility for assuring that the Fund is managed in the best interests of
its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of the Fund and other operational matters, including policies and
procedures designed to ensure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, the
Fund's investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by the Fund's independent public accountants and by
independent legal counsel selected by the Independent Trustees.
All the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects the Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Trustees from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Trustees
The Independent Trustees receive the following compensation from the
Funds of Scudder Securities Trust: an annual trustee's fee of $3,500; a fee of
$325 for attendance at each board meeting, audit committee meeting or other
meeting held for the purposes of considering arrangements between the Trust on
behalf of the Fund and the Adviser or any affiliate of the Adviser; $100 for all
other committee meetings; and reimbursement of expenses incurred for travel to
and from Board Meetings. No additional compensation is paid to any Independent
Trustee for travel time to meetings, attendance at directors' educational
seminars or conferences, service on industry or association committees,
participation as speakers at directors' conferences or service on special
trustee task forces or subcommittees. Independent Trustees do
40
<PAGE>
not receive any employee benefits such as pension or retirement benefits or
health insurance. Notwithstanding the schedule of fees, the Independent Trustees
have in the past and may in the future waive a portion of their compensation.
The Independent Trustees also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type and complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1997 from the Trust and from all of the Scudder funds as a group.
[To Be Updated]
<TABLE>
<CAPTION>
Scudder Securities Trust* All Scudder Funds
------------------------- -----------------
Paid by Paid by Paid by Paid by
Name the Trust the Adviser the Funds the Adviser
---- --------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Paul Bancroft III, $38,155 $5,400 $156,922 (20 funds) $ 25,950 (20 funds)
Trustee
Sheryle J. Bolton, $5,068 $0.00 $86,213 (20 funds) $10,800 (20 funds)
Trustee**
William T. Burgin, $23,353 $5,400 $85,950 (20 funds) $17,550 (20 funds)
Trustee
Thomas J. Devine, $43,255 $5,400 $186,598 (21 funds) $27,150 (21 funds)
Honorary Trustee+
Keith R. Fox, Trustee $44,905 $5,400 $134,390 (18 funds) $17,550 (18 funds)
William H. Luers, $5,068 $0.00 $117,729 (20 funds) $16,350 (20 funds)
Trustee**
Wilson Nolen, Honorary $40,455 $5,400 $189,548 (21 funds) $25,300 (21 funds)
Trustee+
Joan E. Spero,*** Trustee $0.00 $0.00 $0.00 $0.00
</TABLE>
* Scudder Securities Trust consists of seven funds: Scudder Development
Fund, Scudder Financial Services Fund, Scudder Health Care Fund,
Scudder Technology Fund, Scudder Micro Cap Fund, Scudder Small Company
Value Fund and Scudder 21st Century Growth Fund.
** Elected as Trustee of the Trust in October 1997.
*** Elected as Trustee of the Trust in September 1998.
+ Elected as Honorary Trustee in December 1998, after serving as Trustee.
No fees were incurred by the Fund with respect to the alliance with B.A.T.
DISTRIBUTOR
The Trust has an underwriting agreement with Scudder Investor Services,
Inc., Two International Place, Boston, MA 02110 (the "Distributor"), a
Massachusetts corporation, which is a subsidiary of the Adviser, a Delaware
41
<PAGE>
corporation. The Trust's underwriting agreement dated September 7, 1998 will
remain in effect until September 30, 2000 and from year to year thereafter only
if its continuance is approved annually by a majority of the Trustees who are
not parties to such agreement or interested persons of any such party and either
by a vote of a majority of the Trustees or a majority of the outstanding voting
securities of the Fund. The underwriting agreement was last approved by the
Trustees on August 6, 1998.
Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of its registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering the Fund as a broker or dealer in the
various states as required; the fees and expenses of preparing, printing and
mailing prospectuses annually to existing shareholders (see below for expenses
relating to prospectuses paid by the Distributor), notices, proxy statements,
reports or other communications to shareholders of the Fund; the cost of
printing and mailing confirmations of purchases of shares and any prospectuses
accompanying such confirmations; any issuance taxes and/or any initial transfer
taxes; a portion of shareholder toll-free telephone charges and expenses of
shareholder service representatives; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
a portion of the cost of computer terminals used by both the Fund and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of the shares of the Fund to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a 12b-1 Plan is in effect which
provides that the Fund shall bear some or all of such expenses.
Note: Although the Fund does not currently have a 12b-1 Plan, the Fund would
also pay those fees and expenses permitted to be paid or assumed by the
Fund pursuant to a 12b-1 Plan, if any, were adopted by the Fund,
notwithstanding any other provision to the contrary in the underwriting
agreement.
As agent, the Distributor currently offers the Fund's shares on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
TAXES
The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code or a predecessor statute, and has qualified as
such since its inception. It intends to continue to qualify for such treatment.
Such qualification does not involve governmental supervision or management of
investment practices or policy.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90% of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
If for any taxable year the Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such event,
dividend distributions, would be taxable to shareholders to the extent of the
Fund's earnings and profits, and would be eligible for the dividends received
deduction for corporations.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing
42
<PAGE>
at least 98% of the Fund's ordinary income for the calendar year, at least 98%
of the excess of its capital gains over capital losses (adjusted for certain
ordinary losses) realized during the one-year period ending October 31 during
such year, and all ordinary income and capital gains for prior years that were
not previously distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund. Presently, the Fund has
no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a relative share of federal income taxes paid by
the Fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between such reported gains and the individual tax
credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are expected to comprise a
substantial part of the Fund's gross income. To the extent that such dividends
constitute a portion of the Fund's gross income, a portion of the income
distributions of the Fund may be eligible for the deduction for dividends
received by corporations. Shareholders will be informed of the portion of
dividends which so qualify. The dividends-received deduction is reduced to the
extent the shares of the Fund with respect to which the dividends are received
are treated as debt-financed under federal income tax law, and is eliminated if
either those shares or the shares of the Fund are deemed to have been held by
the Fund or the shareholder, as the case may be, for less than 46 days during
the 90-day period beginning 45 days before the shares become ex-dividend.
Properly designated distributions of 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 the length of time the shares of the Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
A qualifying individual may make a deductible IRA contribution for any
taxable year only if (i) neither the individual nor his or her spouse (unless
filing separate returns) is an active participant in an employer's retirement
plan, or (ii) the individual (and his or her spouse, if applicable) has an
adjusted gross income below a certain level ($40,050 for married individuals
filing a joint return, with a phase-out of the deduction for adjusted gross
income between $40,050 and $50,000; $25,050 for a single individual, with a
phase-out for adjusted gross income between $25,050 and $35,000). However, an
individual not permitted to make a deductible contribution to an IRA for any
such taxable year may nonetheless make nondeductible contributions up to $2,000
to an IRA (up to $2,000 per individual for married couples if only one spouse
has earned income) for that year. There are special rules for determining how
withdrawals are to be taxed if an IRA contains both deductible and nondeductible
amounts. In general, a proportionate amount of each withdrawal will be deemed to
be made from nondeductible contributions; amounts treated as a return of
nondeductible contributions will not be taxable. Also, annual contributions may
be made to a spousal IRA even if the
43
<PAGE>
spouse has earnings in a given year if the spouse elects to be treated as having
no earnings (for IRA contribution purposes) for the year.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Equity options (including covered call options on portfolio stock) and
over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general, no loss is
recognized by the Fund upon payment of a premium in connection with the purchase
of a put or call option. The character of any gain or loss recognized (i.e.,
long-term or short-term) will generally depend, in the case of a lapse or sale
of the option, on the Fund's holding period for the option, and in the case of
an exercise of a put option, on the Fund's holding period for the underlying
stock. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying stock or substantially identical stock in the Fund's portfolio. If
the Fund writes a put or call option, no gain is recognized upon its receipt of
a premium. If the option lapses or is closed out, any gain or loss is treated as
a short-term capital gain or loss. If a call option is exercised, any resulting
gain or loss is a short-term or long-term capital gain or loss depending on the
holding period of the underlying stock. The exercise of a put option written by
the Fund is not a taxable transaction for the Fund.
Many futures contracts and certain foreign currency forward contracts
entered into by the Fund and all listed non-equity options written or purchased
by the Fund (including options on futures contracts and options on broad-based
stock indices) will be governed by Section 1256 of the Code. Absent a tax
election to the contrary, gain or loss attributable to the lapse, exercise or
closing out of any such position generally will be treated as 60% long-term and
40% short-term capital gain or loss, and on the last trading day of the Fund's
fiscal year, all outstanding Section 1256 positions will be marked to market
(i.e. treated as if such positions were closed out at their closing price on
such day), with any resulting gain or loss recognized as 60% long-term and 40%
short-term. Under certain circumstances, entry into a futures contract to sell a
security may constitute a short sale for federal income tax purposes, causing an
adjustment in the holding period of the underlying security or a substantially
identical security in the Fund's portfolio.
Positions of the Fund which consist of at least one stock and at least
one other position with respect to a related security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for certain "qualified
covered call options" on stock written by the Fund.
Positions of the Fund which consist of at least one position not
governed by Section 1256 and at least one futures or forward contract or
non-equity option governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, certain tax elections exist for them which reduce or
eliminate the operation of these rules. The Fund intends to monitor its
transactions in options and futures and may make certain tax elections in
connection with these investments.
Notwithstanding any of the foregoing, recent tax law changes may
require the Fund to recognize gain (but not loss) from a constructive sale of
certain "appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
44
<PAGE>
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
The Fund will be required to report to the Internal Revenue Service all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The Fund is organized as a series of a Massachusetts business trust and
is not liable for any income or franchise tax in the Commonwealth of
Massachusetts, provided that it qualifies as a regulated investment company for
federal income tax purposes.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
45
<PAGE>
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by the Fund to reported commissions paid by
others. The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. 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 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 execution services and the
receipt of research, market or statistical information. The Adviser will not
place orders with broker/dealers on the basis that the broker/dealer has or has
not sold shares of the Fund. 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.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker-dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Fund for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements the Adviser's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Fund, and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to the Fund.
The Trustees review from time to time whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
[To Be Updated]
For the fiscal years ended August 31, 1997, 1998 and 1999, the Fund
paid brokerage commissions of $150,026, $176,651 and $_______, respectively. For
the fiscal year ended August 31, 1999, $_______ (__% of the total brokerage
commissions paid) resulted from orders placed, consistent with the policy of
obtaining the most favorable net results, with brokers and dealers who provided
supplementary research market and statistical information to the Fund or the
Adviser. The total amount of brokerage transactions aggregated $__________, of
which $__________ (__% of all brokerage transactions) were transactions which
included research commissions.
46
<PAGE>
Portfolio Turnover
[To Be Updated]
The portfolio turnover rates (defined by the SEC as the ratio of the
lesser of sales or purchases to the monthly average value of such securities
owned during the year, excluding all securities whose remaining maturities at
the time of acquisition were one year or less) for the fiscal years ended August
30, 1998 and 1999 were 33.5% and ____%, respectively.
NET ASSET VALUE
The net asset value of shares of the Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading
(the "Value Time"). The Exchange is scheduled to be closed on the following
holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas,
and on the preceding Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively. Net asset value per share is
determined by dividing the value of the total assets of the Fund, less all
liabilities, by the total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price on the exchange it is traded as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated Mean") on such exchange as
of the Value Time. Lacking a Calculated Mean quotation the security is valued at
the most recent bid quotation on such exchange as of the Value Time. An equity
security which is traded on the National Association of Securities Dealers
Automated Quotation ("Nasdaq") system will be valued at its most recent sale
price on such system as of the Value Time. Lacking any sales, the security will
be valued at the most recent bid quotation as of the Value Time. The value of an
equity security not quoted on the Nasdaq system, but traded in another
over-the-counter market, is its most recent sale price if there are any sales of
such security on such market as of the Value Time. Lacking any sales, the
security is valued at the Calculated Mean quotation for such security as of the
Value Time. Lacking a Calculated Mean quotation the security is valued at the
most recent bid quotation as of the Value Time.
Debt securities, other than money market instruments, are valued at
prices supplied by the Fund's pricing agent(s) which reflect broker/dealer
supplied valuations and electronic data processing techniques. Money market
instruments with an original maturity of sixty days or less maturing at par
shall be valued at amortized cost, which the Board believes approximates market
value. If it is not possible to value a particular debt security pursuant to
these valuation methods, the value of such security is the most recent bid
quotation supplied by a bona fide marketmaker. If it is not possible to value a
particular debt security pursuant to the above methods, the Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
47
<PAGE>
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of the Fund included in the prospectus and the
Financial Statements incorporated by reference in this Statement of Additional
Information have been so included or incorporated by reference in reliance on
the report of PricewaterhouseCoopers LLP, 160 Federal Street, Boston,
Massachusetts 02110, independent accountants, and given on the authority of that
firm as experts in accounting and auditing. Effective July 1, 1998, Coopers &
Lybrand L.L.P. and Price Waterhouse LLP merged to become PricewaterhouseCoopers
LLP. PricewaterhouseCoopers, LLP is responsible for performing annual audits of
the financial statements and financial highlights of the Fund in accordance with
generally accepted auditing standards, and the preparation of federal tax
returns.
Shareholder Indemnification
The Trust is an organization of the type commonly known as a
Massachusetts business trust. Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Fund's property or
the acts, obligations or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of the Fund's property of any shareholder held
personally liable for the claims and liabilities which a shareholder may become
subject by reason of being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
Other Information
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in light of the objective and policies of the
Fund, and other factors such as its other portfolio holdings and tax
considerations, and should not be construed as recommendations for similar
action by other investors.
The name "Scudder Securities Trust" is the designation of the Trustees
for the time being under a Declaration of Trust dated October 16, 1985, as
amended from time to time, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Fund. No series
of the Trust shall be liable for the obligations of any other series. Upon the
initial purchase of shares, the shareholder agrees to be bound by the Trust's
Declaration of Trust, as amended from time to time. The Declaration of Trust is
on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts.
The CUSIP number of Scudder Micro Cap Fund is 8111 96 302.
The Fund has a fiscal year end of August 31.
Dechert Price & Rhoads acts as general counsel for the Fund.
The Fund employs State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 as Custodian.
Costs incurred by the Fund in conjunction with its organization are
amortized over the five year period beginning August 12, 1996.
48
<PAGE>
[To Be Updated]
Scudder Service Corporation ("SSC"), P.O. Box 2291, Boston,
Massachusetts, 02107-2291, a subsidiary of the Adviser, is the transfer and
dividend disbursing agent for the Fund. Service Corporation also serves as
shareholder service agent and provides subaccounting and recordkeeping services
for shareholder accounts in certain retirement and employee benefit plans. The
Fund pays Service Corporation an annual fee for each account maintained for a
participant. For the year ended August 31, 1999, the amount charged to the Fund
by SSC aggregated $_______, of which $______ is unpaid at August 31, 1999. For
the year ended August 31, 1998, the amount charged to the Fund by SSC aggregated
$342,162, of which $25,821 was unpaid at August 31, 1998. For the year ended
August 31, 1997, the amount charged to the Fund by SSC aggregated $251,988, of
which $26,114 was unpaid at August 31, 1997.
The Fund, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
Annual service fees are paid by the Fund to Scudder Trust Company
("STC"), Two International Place, Boston, Massachusetts 02110-4103, an affiliate
of the Adviser, for certain retirement plan accounts. For the year ended August
31, 1999, the amount charged to the Fund by STC aggregated $_______, of which
$_______ is unpaid at August 31, 1999. For the year ended August 31, 1998, the
amount charged to the Fund by STC aggregated $32,442, of which $7,299 was unpaid
at August 31, 1998. For the year ended August 31, 1997, the amount charged to
the Fund by STC aggregated $13,747, of which $1,589 was unpaid at August 31,
1997.
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts 02110-4103, a subsidiary of the Adviser, computes net
asset values for the Fund. The Fund pays Scudder Fund Accounting Corporation an
annual fee equal to 0.025% of the first $150 million of average daily net
assets, 0.0075% of such assets in excess of $150 million and 0.0045% of such
assets in excess of $1 billion, plus holding and transaction charges for this
service. For the year ended August 31, 1999, the amount charged to the Fund by
SFAC aggregated $______, of which $_____ was unpaid at August 31, 1999. For the
year ended August 31, 1998, the amount charged to the Fund by SFAC aggregated
$89,375, of which $6,397 was unpaid at August 31, 1998. For the year ended
August 31, 1997, the amount charged to the Fund by SFAC aggregated $84,245, of
which $6,261 was unpaid at August 31, 1997.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Fund has
filed with the SEC under the Securities Act of 1933 and reference is hereby made
to the Registration Statement for further information with respect to the Fund
and the securities offered hereby. This Registration Statement and its
amendments are available for inspection by the public at the SEC in Washington,
D.C.
FINANCIAL STATEMENTS
The financial statements, including the Investment Portfolio of the
Fund, together with the Report of Independent Accountants, Financial Highlights
and notes to financial statements in the Annual Report to the Shareholders of
the Fund dated August 31, 1998, are incorporated herein by reference, and are
hereby deemed to be a part of this Statement of Additional Information.
49
<PAGE>
SCUDDER SECURITIES TRUST
SCUDDER MICRO CAP FUND
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits:
- -------
<S> <C> <C>
(a) (a)(1) Amended and Restated Declaration of Trust dated December 21, 1987,
is incorporated by reference to Post-Effective Amendment No. 43 to
the Registration Statement.
(a)(2) Amendment to Amended and Restated Declaration of Trust, dated
December 13, 1990, is incorporated by reference to Post-Effective
Amendment No. 43 to the Registration Statement.
(a)(3) Amendment to Amended and Restated Declaration of Trust to change
the name of the Trust, dated July 21, 1995, is incorporated by
reference to Post-Effective Amendment No. 35 to the Registration
Statement.
(a)(4) Amendment to Amended and Restated Declaration of Trust to add new
series, dated July 21, 1995, is incorporated by reference to
Post-Effective Amendment No. 35 to the Registration Statement.
(a)(5) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Development
Fund, Scudder Small Company Value Fund, Scudder Micro Cap Fund, and
Scudder 21st Century Growth Fund, dated June 6, 1996, is
incorporated by reference to Post-Effective Amendment No. 40 to the
Registration Statement.
(a)(6) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Development
Fund, Scudder Financial Services Fund, Scudder Health Care Fund,
Scudder Micro Cap Fund, Scudder Small Company Value Fund, Scudder
Technology Fund, and Scudder 21st Century Growth Fund, dated June
3, 1997, is incorporated by reference to Post-Effective Amendment
No. 46 to the Registration Statement.
(b) (b)(1) By-Laws as of October 16, 1985, are incorporated by reference to
Post-Effective Amendment No. 43 to the Registration Statement.
(b)(2) Amendment to the By-Laws of Registrant, as amended through December
9, 1985, is incorporated by reference to Post-Effective Amendment
No. 43 to the Registration Statement.
(b)(3) Amendment to the By-Laws, Article IV: Notice of Meetings, dated
December 12, 1991, is incorporated by reference to Post-Effective
Amendment No. 43 to the Registration Statement.
(c) Inapplicable.
Part C - Page 1
<PAGE>
(d) (d)(1) Investment Management Agreement between the Registrant (on behalf
of Scudder Development Fund) and Scudder Kemper Investments, Inc.,
dated September 7, 1998, is incorporated by reference to
Post-Effective Amendment No. 62 to the Registration Statement.
(d)(2) Investment Management Agreement between the Registrant (on behalf
of Scudder Small Company Value Fund) and Scudder Kemper
Investments, Inc., dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 62 to the Registration
Statement.
(d)(3) Investment Management Agreement between the Registrant (on behalf
of Scudder Micro Cap Fund) and Scudder Kemper Investments, Inc.,
dated September 7, 1998, is incorporated by reference to
Post-Effective Amendment No. 62 to the Registration Statement.
(d)(4) Investment Management Agreement between the Registrant (on behalf
of Scudder Financial Services Fund) and Scudder Kemper
Investments, Inc., dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 62 to the Registration
Statement.
(d)(5) Investment Management Agreement between the Registrant (on behalf
of Scudder Health Care Fund) and Scudder Kemper Investments, Inc.,
dated September 7, 1998, is incorporated by reference to
Post-Effective Amendment No. 62 to the Registration Statement.
(d)(6) Investment Management Agreement between the Registrant (on behalf
of Scudder Technology Fund) and Scudder Kemper Investments, Inc.,
dated September 7, 1998, is incorporated by reference to
Post-Effective Amendment No. 62 to the Registration Statement.
(d)(7) Investment Management Agreement between the Registrant (on behalf
of Scudder 21st Century Growth Fund) and Scudder Kemper
Investments, Inc., dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 62 to the Registration
Statement.
(e) (e)(1) Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc., dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 62 to the Registration
Statement.
(f) Inapplicable.
(g) (g)(1) Custodian Contract between the Registrant and State Street Bank
and Trust Company, dated September 6, 1995, is incorporated by
reference to Post-Effective Amendment No. 35 to the Registration
Statement.
(g)(2) Fee schedule for Exhibit (g)(1) is incorporated by reference to
Post-Effective Amendment No. 35 to the Registration Statement.
Part C - Page 2
<PAGE>
(g)(3) Amendment to Custody Contract between the Registrant and State
Street Bank and Trust Company, dated March 1, 1999, is
incorporated by reference to Post-Effective Amendment No. 64 to
the Registration Statement.
(g)(4) Subcustodian Agreement between Brown Brothers Harriman & Co. and
The Bank of New York, London office, dated January 30, 1979, is
incorporated by reference to Post-Effective Amendment No. 43 to
the Registration Statement.
(g)(5) Fee schedule for Exhibit (g)(4) is incorporated by reference to
Post-Effective Amendment No. 43 to the Registration Statement.
(h) (h)(1) Transfer Agency and Service Agreement between the Registrant and
Scudder Service Corporation, dated October 2, 1989, is
incorporated by reference to Post-Effective Amendment No. 43 to
the Registration Statement.
(h)(2) Revised fee schedule for Exhibit (h)(1) is incorporated by
reference to Post-Effective Amendment No. 37 to the Registration
Statement.
(h)(3) Service Agreement between Copeland Associates, Inc. (on behalf of
Scudder Development Fund) and Scudder Service Corporation, dated
June 8, 1995, is incorporated by reference to Post-Effective
Amendment No. 35 to the Registration Statement.
(h)(4) COMPASS Service Agreement between the Registrant and Scudder Trust
Company, dated January 1, 1990, is incorporated by reference to
Post-Effective Amendment No. 43 to the Registration Statement.
(h)(5) Fee schedule for Exhibit (h)(4) is incorporated by reference to
Post-Effective Amendment No. 43 to the Registration Statement.
(h)(6) Shareholder Services Agreement between the Registrant and Charles
Schwab & Co., Inc., dated June 1, 1990, is incorporated by
reference to Post-Effective Amendment No. 43 to the Registration
Statement.
(h)(7) Fund Accounting Services Agreement between the Registrant (on
behalf of Scudder Development Fund) and Scudder Fund Accounting
Corporation, dated March 21, 1995, is incorporated by reference to
Post-Effective Amendment No. 35 to the Registration Statement.
(h)(8) Fund Accounting Services Agreement between the Registrant (on
behalf of Scudder Small Company Value Fund) and Scudder Fund
Accounting Corporation, dated October 6, 1995, is incorporated by
reference to Post-Effective Amendment No. 37 to the Registration
Statement.
(h)(9) Fund Accounting Services Agreement between the Registrant (on
behalf of Scudder Micro Cap Fund) and Scudder Fund Accounting
Corporation, dated August 12, 1996, is incorporated by reference
to Post-Effective Amendment No. 41 to the Registration Statement.
Part C - Page 3
<PAGE>
(h)(10) Fund Accounting Services Agreement between the Registrant (on
behalf of Scudder 21st Century Growth Fund) and Scudder Fund
Accounting Corporation, dated September 9, 1996, is incorporated
by reference to Post-Effective Amendment No. 41 to the
Registration Statement.
(h)(11) Fund Accounting Services Agreement between the Registrant (on
behalf of Scudder Financial Services Fund) and Scudder Fund
Accounting Corporation, dated September 11, 1997, is incorporated
by reference to Post-Effective Amendment No. 50 to the
Registration Statement.
(h)(12) Fund Accounting Services Agreement between the Registrant (on
behalf of Scudder Health Care Fund) and Scudder Fund Accounting
Corporation, dated December 4, 1997, is incorporated by reference
to Post-Effective Amendment No. 62 to the Registration Statement.
(h)(13) Fund Accounting Services Agreement between the Registrant (on
behalf of Scudder Technology Fund) and Scudder Fund Accounting
Corporation , dated December 4, 1997, is incorporated by reference
to Post-Effective Amendment No. 62 to the Registration Statement.
(i) Legal Opinion and Consent of Counsel to be filed by subsequent
amendment.
(j) Consent of Independent Auditors to be filed by subsequent
amendment.
(k) Inapplicable.
(l) Inapplicable.
(m) Inapplicable.
(n) Inapplicable.
(o) Inapplicable.
</TABLE>
Item 24. Persons Controlled by or under Common Control with Registrant
- -------- -------------------------------------------------------------
None
Item 25. Indemnification
- -------- ---------------
A policy of insurance covering Scudder Kemper Investments,
Inc., its subsidiaries including Scudder Investor Services,
Inc., and all of the registered investment companies advised
by Scudder Kemper Investments, Inc. 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 IV, Sections 4.1 - 4.3 of the Registrant's Declaration
of Trust provide as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees,
Etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or
the acts,
Part C - Page 4
<PAGE>
obligations or affairs of the Trust. No Trustee, officer,
employee or agent of the Trust shall be subject to any
personal liability whatsoever to any Person, other than to the
Trust or its Shareholders, in connection with Trust Property
or the affairs of the Trust, save only that arising from bad
faith, willful misfeasance, gross negligence or reckless
disregard of his duties with respect to such Person; and all
such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature arising in connection
with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee, or agent, as such, of the Trust, is made a
party to any suit or proceeding to enforce any such liability
of the Trust, he shall not, on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by
reason of his being or having been a Shareholder, and shall
reimburse such Shareholder for all legal and other expenses
reasonably incurred by him in connection with any such claim
or liability. The indemnification and reimbursement required
by the preceding sentence shall be made only out of the assets
of the one or more Series of which the Shareholder who is
entitled to indemnification or reimbursement was a Shareholder
at the time the act or event occurred which gave rise to the
claim against or liability of said Shareholder. The rights
accruing to a Shareholder under this Section 4.1 shall not
impair any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not
specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee,
officer, employee, or agent thereof for any action or failure
to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of the duties involved
in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the Trust to the
fullest extent permitted by law against all 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, administrative or other,
including appeals), actual or threatened; 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
Trustee or officer:
(i) against any liability to the Trust, a Series
thereof, or the Shareholders by reason of a final adjudication
by a court or other body before which a proceeding was brought
that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in good faith
in the reasonable belief that his action was in the best
interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as provided in
paragraph (b)(i) or (b)(ii) resulting in a payment by a
Trustee or officer, 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 or other disposition; or
Part C - Page 5
<PAGE>
(B) based upon a review of readily available
facts (as opposed to a full trial-type inquiry) by
(x) vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the
matter) or (y) written opinion of independent legal
counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust,
shall be severable, shall not affect any other rights
to which any Trustee or officer may now or hereafter
be entitled, shall continue as to a person who has
ceased to be such Trustee or officer and shall insure
to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing
contained herein shall affect any rights to
indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense
to any claim, action, suit or proceeding of the
character described in paragraph (a) of this Section
4.3 may be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by
or on behalf of the recipient to repay such amount if
it is ultimately determined that he is not entitled
to indemnification under this Section 4.3, provided
that either:
(i) such undertaking is secured by a surety bond or
some other appropriate security provided by the recipient, or
the Trust shall be insured against losses arising out of any
such advances; or
(ii) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the Disinterested
Trustees act on the matter) or an independent legal counsel in
a written opinion shall determine, based upon a review of
readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested
Trustee" is one who is not (i) an "Interested Person" of the
Trust (including anyone who has been exempted from being an
"Interested Person" by any rule, regulation or order of the
Commission), or (ii) involved in the claim, action, suit or
proceeding.
Item 26. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and employees who are
denominated officers but do not as such have corporation-wide responsibilities.
Such persons are not considered officers for the purpose of this Item 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
Part C - Page 6
<PAGE>
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO, Member Group Executive Board, Zurich Financial Services, Inc. ##
CEO/Branch Offices, Zurich Life Insurance Company ##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Financial Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporationoo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
</TABLE>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg,
R.C. Luxembourg B 34.564
Part C - Page 7
<PAGE>
*** Toronto, Ontario, Canada
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman,
British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
Item 27. Principal Underwriters
- -------- ----------------------
(a) Scudder Investor Services, Inc. acts as principal underwriter of
the Registrant's shares and also acts as principal underwriter for other funds
managed by Scudder Kemper Investments, Inc.
(b) The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide responsibilities and
are not considered officers for the purpose of this Item 27.
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C>
Lynn S. Birdsong Senior Vice President President & Trustee
345 Park Avenue
New York, NY 10154
Mark S. Casady Director, President and Assistant None
Two International Place Treasurer
Boston, MA 02110
Linda Coughlin Director and Senior Vice President None
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President Assistant Secretary
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154
Philip S. Fortuna Vice President Vice President
101 California Street
San Francisco, CA 94111
William F. Glavin Vice President None
Two International Place
Boston, MA 02110
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
John R. Hebble Assistant Treasurer Treasurer
Two International Place
Boston, MA 02110
Part C - Page 8
<PAGE>
James J. McGovern Chief Financial Officer None
345 Park Avenue
New York, NY 10154
Lorie C. O'Malley Vice President None
Two International Place
Boston, MA 02110
Caroline Pearson Clerk Assistant Secretary
Two International Place
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President, Chief Trustee, Vice President &
345 Park Avenue Legal Officer and Assistant Clerk Assistant Secretary
New York, NY 10154
William M. Thomas Vice President None
Two International Place
Boston, MA 02110
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President and Chief Compliance None
Two International Place Officer
Boston, MA 02110
</TABLE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions And Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 28. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder Kemper
Investments Inc., Two International Place, Boston, MA
02110-4103. Records relating to the duties of the Registrant's
custodian are maintained by State Street Bank and Trust
Company, Heritage Drive, North Quincy, Massachusetts. Records
relating to the duties of the Registrant's transfer agent are
maintained by Scudder Service Corporation, Two International
Place, Boston, Massachusetts.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
Part C - Page 9
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston and the Commonwealth of Massachusetts on the
13th day of October, 1999.
SCUDDER SECURITIES TRUST
By /s/John Millette
-------------------------------------
John Millette
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Lynn S. Birdsong
- ---------------------------------------
Lynn S. Birdsong* President and Trustee October 13, 1999
/s/Paul Bancroft III
- ---------------------------------------
Paul Bancroft III Trustee October 13, 1999
/s/Sheryle J. Bolton
- ---------------------------------------
Sheryle J. Bolton* Trustee October 13, 1999
/s/William T. Burgin
- ---------------------------------------
William T. Burgin* Trustee October 13, 1999
/s/Keith R. Fox
- ---------------------------------------
Keith R. Fox* Trustee October 13, 1999
/s/William H. Luers
- ---------------------------------------
William H. Luers* Trustee October 13, 1999
/s/Kathryn L. Quirk
- ---------------------------------------
Kathryn L. Quirk* Trustee, Vice President and October 13, 1999
Assistant Secretary
/s/Joan Spero
- ---------------------------------------
Joan Spero* Trustee October 13, 1999
1
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/John R. Hebble
- ---------------------------------------
John R. Hebble Treasurer (Principal Financial October 13, 1999
Officer)
</TABLE>
*By: /s/John Millette
--------------------------------
John Millette
*Attorney-in-fact, pursuant to powers
of attorney contained in Post-Effective
Amendment No. 62 to the Registration
Statement, filed on August 2, 1999.
2
<PAGE>
File No. 2-36238
File No. 811-2021
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 66
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 49
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER SECURITIES TRUST
<PAGE>
SCUDDER SECURITIES TRUST
EXHIBIT INDEX
To be filed by subsequent amendment.
2
