Filed electronically with the Securities and Exchange Commission
on September 30, 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. 65
------
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) / X / On October 1, 1999 pursuant to paragraph (b)
/___/ 60 days after filing pursuant to paragraph (a) (1) /___/ On (date) 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
- ---------------
SECTOR
- ---------------
Scudder Choice Series
Scudder Financial Services Fund
Fund #350
Scudder Health Care Fund
Fund #352
Scudder Technology Fund
Fund #351
Prospectus
October 1, 1999
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 Choice Series
How the funds work
2 Financial Services Fund
6 Health Care Fund
10 Technology Fund
14 Other Policies and Risks
15 Who Manages and Oversees the Funds
18 Financial Highlights
How to invest in the funds
22 How to Buy Shares
28 How to Exchange or Sell Shares
24 Policies You Should Know About
28 Understanding Distributions and Taxes
<PAGE>
How the funds work
These funds invest mainly in common stocks, as a way of seeking growth of your
investment. Each fund focuses on a particular sector of the economy.
Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency, and you could
lose money by investing in them.
You can access all Scudder fund prospectuses online at: www.scudder.com
<PAGE>
- --------------------------------------------------------------------------------
ticker symbol | SCFSX fund number | 350
Scudder Financial Services Fund
- --------------------------------------------------------------------------------
Investment Approach
The fund seeks long-term growth of capital by investing at least 80% of total
assets in common stocks of financial services companies. This may include U.S.
and foreign companies of any size that commit at least half of their assets to
the financial services sector, or derive at least half of their revenues or net
income from that sector. The industries in the sector the fund invests in are
banks, insurance companies, savings and loans, securities brokerage firms, and
diversified financial companies.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies with good or
improving balance sheets, effective business strategies, and strong management.
Value orientation. The managers prefer companies whose market value appears low
in light of book value or earnings, and that seem poised for above-average
growth, whether through a merger, a change in business strategy, or other
factors.
Top-down analysis. The managers intend to divide the fund's holdings among the
financial industries included in the S&P Financial Index, although, depending on
their outlook, they may increase or reduce the fund's exposure to a given
industry.
The fund will normally sell a stock when it reaches a target price, when the
managers believe other investments offer better opportunities, or in the course
of adjusting its emphasis on a given financial industry.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING TWO PARAGRAPHS.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in common stocks, it may also invest up to 20% of
total assets in U.S. Treasury and agency debt securities.
Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies, or
securities), the managers don't intend to use them as principal investments, and
may not use them at all.
2 | Scudder Financial Services Fund
<PAGE>
- --------------------------------------------------------------------------------
[ICON] This fund is designed for investors who want to
gain exposure to the financial services sector and are
comfortable with above-average 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. When stock prices fall, you should expect the value of your
investment to fall as well. The fact that the fund concentrates in a single
sector increases this risk, because factors affecting that sector could affect
fund performance. For example, financial services companies could be hurt by
such factors as changing government regulations, increasing competition, and
interest rate movements.
Similarly, because the fund isn't diversified and can invest a larger percentage
of assets in a given stock than a diversified fund, factors affecting that
company could affect fund performance. 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, geographical areas, or other matters
o value stocks could become unpopular
o foreign stocks tend to be more volatile than their U.S. counterparts,
for reasons such as currency fluctuations and political and economic
uncertainty
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
3 | Scudder Financial Services Fund
<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.
- --------------------------------------------------------------------------------
The Fund's Track Record
The bar chart below shows the fund's total return for its first complete
calendar year. The table shows average annual total returns for the fund and a
broad-based market index (which, unlike the fund, does not have any fees or
expenses). The performance of both the fund and the index varies over time. 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:
8.82
- ---------------------------------------------------------------
'98
- ---------------------------------------------------------------
1999 Total Return as of June 30: 5.73%
Best Quarter: 20.66%, Q4 1998 Worst Quarter: -21.26%, Q3 1998
- ---------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1998
- ---------------------------------------------------------------
1 Year Since Inception
- ---------------------------------------------------------------
Fund 8.82 15.00*
- ---------------------------------------------------------------
Index 11.43 15.65**
- ---------------------------------------------------------------
Index: S&P Financial Index, a capitalization-weighted price-only index
representing 11 financial industries and 74 financial companies.
Total return for the period would have been lower if operating expenses hadn't
been maintained.
* Fund inception: 11/3/1997
** Since 11/30/1997
4 | Scudder Financial Services Fund
<PAGE>
How Much Investors Pay
Shareholder fees are charged directly to your account; this fund has no
shareholder fees, other than a redemption/exchange fee. The fund does have
annual operating expenses, and as a shareholder you pay them indirectly.
- -----------------------------------------------------------------
Fee Table
- -----------------------------------------------------------------
Shareholder Fees (paid directly from your investment)
- -----------------------------------------------------------------
Redemption/Exchange Fee, on shares owned less than a year 1.00%
- -----------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
- -----------------------------------------------------------------
Management Fee 0.75%
- -----------------------------------------------------------------
Distribution (12b-1) Fee None
- -----------------------------------------------------------------
Other Expenses* 1.08%
-------
- -----------------------------------------------------------------
Total Annual Operating Expenses 1.83%
- -----------------------------------------------------------------
Expense Reimbursement 0.33%
-------
- -----------------------------------------------------------------
Net Annual Operating Expenses** 1.50%
- -----------------------------------------------------------------
* Includes costs of shareholder servicing, custody, accounting services,
and similar expenses, which may vary with fund size and other factors.
** By contract, total operating expenses are capped at 1.50% through
9/30/2000.
- -----------------------------------------------------------------
Expense Example
- -----------------------------------------------------------------
Based on the costs above (including one year of capped
expenses in each period), 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; actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------
$153 $544 $960 $2,121
5 | Scudder Financial Services Fund
<PAGE>
- --------------------------------------------------------------------------------
ticker symbol | SCHLX fund number | 352
Scudder Health Care Fund
- --------------------------------------------------------------------------------
Investment Approach
The fund seeks long-term growth of capital by investing at least 80% of total
assets in common stocks of companies in the health care sector. This may include
U.S. and foreign companies of any size that commit at least half of their assets
to the health care sector, or derive at least half of their revenues or net
income from that sector. The industries in the sector are pharmaceuticals,
biotechnology, medical products and supplies, and health care services.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies with innovative,
cost-effective products and services, new tests or treatments, the ability to
take advantage of demographic trends, and strong management.
Growth orientation. The managers prefer companies that offer the potential for
sustainable above-average earnings growth and whose market value appears
reasonable in light of their business prospects.
Top-down analysis. The managers intend to divide the fund's holdings among the
industries in the health care sector, although, depending on their outlook, they
may increase or reduce the fund's exposure to a given industry.
The fund will normally sell a stock when it reaches a target price, when its
fundamental factors have changed, when the managers believe other investments
offer better opportunities, or in the course of adjusting its emphasis on a
given health care industry.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING TWO PARAGRAPHS.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in common stocks, it may also invest up to 20% of
total assets in U.S. Treasury and agency debt securities.
Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies, or
securities), the managers don't intend to use them as principal investments, and
may not use them at all.
6 | Scudder Health Care Fund
<PAGE>
- --------------------------------------------------------------------------------
[ICON] This fund may be of interest to investors who want to gain
exposure to the health care sector and are comfortable with
the higher risks of a fund that focuses on an often-volatile
sector.
- --------------------------------------------------------------------------------
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. When stock prices fall, you should expect the value of your
investment to fall as well. The fact that the fund concentrates in a single
sector increases this risk, because factors affecting that sector could affect
fund performance. For example, health care companies could be hurt by such
factors as rapid product obsolescence and the unpredictability of winning
government approvals.
Similarly, because the fund isn't diversified and can invest a larger percentage
of assets in a given stock than a diversified fund, factors affecting that
company could affect fund performance. 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, geographical areas, or other matters
o growth stocks could become unpopular
o foreign stocks tend to be more volatile than their U.S. counterparts,
for reasons such as currency fluctuations and political and economic
uncertainty
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
7 | Scudder Health Care Fund
<PAGE>
The Fund's Track Record
Because this is a new fund, it did not have a full calendar year of performance
to report as of the date of this prospectus.
8 | Scudder Health Care Fund
<PAGE>
How Much Investors Pay
Shareholder fees are charged directly to your account; this fund has no
shareholder fees, other than a redemption/exchange fee. The fund does have
annual operating expenses, and as a shareholder you pay them indirectly.
- ---------------------------------------------------------------
Fee Table
- ---------------------------------------------------------------
Shareholder Fees (paid directly from your investment)
- ---------------------------------------------------------------
Redemption/Exchange Fee, on shares owned less than a year 1.00%
- ---------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
- ---------------------------------------------------------------
Management Fee 0.85%
- ---------------------------------------------------------------
Distribution (12b-1) Fee None
- ---------------------------------------------------------------
Other Expenses* 1.10%
-------
- ---------------------------------------------------------------
Total Annual Operating Expenses 1.95%
- ---------------------------------------------------------------
Expense Reimbursement 0.20%
-------
- ---------------------------------------------------------------
Net Annual Operating Expenses** 1.75%
- ---------------------------------------------------------------
* Includes costs of shareholder servicing, custody, accounting services,
and similar expenses, which may vary with fund size and other factors.
** By contract, total operating expenses are capped at 1.75% through
9/30/2000.
- ---------------------------------------------------------------
Expense Example
- ---------------------------------------------------------------
Based on the costs above (including one year of capped
expenses in each period), 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; actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------
$178 $593 $1,034 $2,259
9 | Scudder Health Care Fund
<PAGE>
- --------------------------------------------------------------------------------
ticker symbol | SCUTX fund number | 351
Scudder Technology Fund
- --------------------------------------------------------------------------------
Investment Approach
The fund seeks long-term growth of capital by investing at least 80% of total
assets in common stocks of companies in the technology sector. This may include
U.S. and foreign companies of any size that commit at least half of their assets
to the technology sector, or derive at least half of their revenues or net
income from that sector. The industries in the sector the fund invests in are
computers (including software, hardware, and internet-related businesses),
computer services, telecommunications, and semi-conductors.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for individual companies with innovative
products and services, good business models, strong management, and solid
positions in their core markets.
Growth orientation. The managers prefer companies that offer the potential for
sustainable above-average earnings growth and whose market value appears
reasonable in light of their business prospects.
Top-down analysis. The managers intend to divide the fund's holdings among the
industries in the technology sector, although, depending on their outlook, they
may increase or reduce the fund's exposure to a given industry.
The fund will normally sell a stock when its earnings growth rate slows, when
the managers believe other investments offer better opportunities, or in the
course of adjusting its emphasis on a given technology industry.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING TWO PARAGRAPHS.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in common stocks, it may also invest up to 20% of
total assets in U.S. Treasury and agency debt securities.
Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies, or
securities), the managers don't intend to use them as principal investments, and
may not use them at all.
10 | Scudder Technology Fund
<PAGE>
- --------------------------------------------------------------------------------
[ICON] This fund may be suitable for investors who want
to gain exposure to the technology sector and who
understand the risks of investing in a single sector that
has shown above-average volatility.
- --------------------------------------------------------------------------------
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. When stock prices fall, you should expect the value of your
investment to fall as well. The fact that the fund concentrates in a single
sector increases this risk, because factors affecting that sector could affect
fund performance. For example, technology companies could be hurt by such
factors as market saturation, price competition, and the advent of competing
technologies.
Similarly, because the fund isn't diversified and can invest a larger percentage
of assets in a given stock than a diversified fund, factors affecting that
company could affect fund performance. Because a stock represents ownership in
its issuer, stock prices can be hurt by poor management, shrinking product
demand, and other business risks. Many technology companies are smaller
companies which may have limited business lines and financial resources, making
them especially vulnerable to business risks and economic downturns.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends, geographical areas, or other matters
o growth stocks could become unpopular
o foreign stocks tend to be more volatile than their U.S. counterparts,
for reasons such as currency fluctuations and political and economic
uncertainty
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
11 | Scudder Technology Fund
<PAGE>
The Fund's Track Record
Because this is a new fund, it did not have a full calendar year of performance
to report as of the date of this prospectus.
12 | Scudder Technology Fund
<PAGE>
How Much Investors Pay
Shareholder fees are charged directly to your account; this fund has no
shareholder fees, other than a redemption/exchange fee. The fund does have
annual operating expenses, and as a shareholder you pay them indirectly.
- ---------------------------------------------------------------
Fee Table
- ---------------------------------------------------------------
Shareholder Fees (paid directly from your investment)
- ---------------------------------------------------------------
Redemption/Exchange Fee, on shares owned less than a year 1.00%
- ---------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
- ---------------------------------------------------------------
Management Fee 0.85%
- ---------------------------------------------------------------
Distribution (12b-1) Fee None
- ---------------------------------------------------------------
Other Expenses* 1.01%
-------
- ---------------------------------------------------------------
Total Annual Operating Expenses 1.86%
- ---------------------------------------------------------------
Expense Reimbursement 0.11%
-------
- ---------------------------------------------------------------
Net Annual Operating Expenses** 1.75%
- ---------------------------------------------------------------
* Includes costs of shareholder servicing, custody,
accounting services, and similar expenses, which may
vary with fund size and other factors.
** By contract, total operating expenses are capped at 1.75% through 9/30/2000.
- ---------------------------------------------------------------
Expense Example
- ---------------------------------------------------------------
Based on the costs above (including one year of capped
expenses in each period), 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; actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------
$178 $574 $996 $2,171
13 | Scudder Technology Fund
<PAGE>
Other Policies and Risks
While the fund-by-fund sections on the previous pages describe the main points
of each fund's strategy and risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, each fund's Board could
change that fund's investment goal without seeking shareholder
approval.
o As a temporary defensive measure, each of these funds could shift up to
100% of its assets into investments such as money market securities.
This could prevent losses, but would mean that the fund was not
pursuing its goal.
o These funds may trade securities more actively than many funds, which
could mean higher expenses (thus lowering return) and higher taxable
distributions.
Year 2000 and euro readiness
Like all mutual funds, these funds could be affected by the inability of some
computer systems to recognize the year 2000. Also, because they may invest in
foreign securities, the funds could be affected by accounting differences,
changes in tax treatment, or other issues related to the conversion of certain
European currencies into the euro. The funds' 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 funds own. Still, there's some risk that the year 2000 problem could
materially affect a 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
funds.
If you want more information on a fund's allowable securities and investment
practices and the characteristics and risks of each one, you may want to request
a copy of the funds' SAI (the back cover has information on how to do this).
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
14 | Other Policies and Risks
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Scudder Kemper, the company with overall
responsibility for managing the funds, takes a team
approach to asset management.
- --------------------------------------------------------------------------------
Who Manages and Oversees the Funds
The investment adviser
The investment adviser for these funds 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.
Each 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 each fund. Below are the actual rates paid by each fund for
the 12 months through the most recent fiscal year end, as a percentage of
average daily net assets:
Fund Name Fee Paid
- ---------------------------------------------------------------
Scudder Financial Services Fund 0.42%
Scudder Health Care Fund 0.65%
Scudder Technology Fund 0.74%
15 | Who Manages and Oversees the Funds
<PAGE>
The portfolio managers
The following people handle the day-to-day management of each fund in this
prospectus.
<TABLE>
<CAPTION>
<S> <C>
Scudder Financial Services Fund Scudder Technology Fund
Thaddeus Paluszek J. Brooks Dougherty
Co-lead Portfolio Manager Lead Portfolio Manager
o Began investment career in 1979 o Began investment career in 1984
o Joined the adviser in 1993 o Joined the adviser in 1993
o Joined the fund team in 1997 o Joined the fund team in 1998
Peter Taylor Robert Horton
Co-lead Portfolio Manager o Began investment career in 1993
o Began investment career in 1968 o Joined the adviser in 1996
o Joined the adviser in 1989 o Joined the fund team in 1998
o Joined the fund team in 1997
Deborah Koch
Andrew Absler o Began investment career in 1985
o Began investment career in 1996 o Joined the adviser in 1992
o Joined the adviser in 1993 o Joined the fund team in 1998
o Joined the fund team in 1998
Virginea Stuart
Scudder Health Care Fund o Began investment career in 1995
o Joined the adviser in 1996
James Fenger o Joined the fund team in 1998
Lead Portfolio Manager
o Began investment career in 1984 James Burkart
o Joined the adviser in 1984 o Began investment career in 1971
o Joined the fund team in 1997 o Joined the adviser in 1998
o Joined the fund team in 1999
Anne Carney
o Began investment career in 1988
o Joined the adviser in 1992
o Joined the fund team in 1998
Sally Yanchus
o Began investment career in 1992
o Joined the adviser in 1997
o Joined the fund team in 1998
Frank Zavrl
o Began investment career in 1989
o Joined the adviser in 1998
o Joined the fund team in 1998
</TABLE>
16 | Who Manages and Oversees the Funds
<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 each fund is
managed in the best interests of its shareholders. The following people comprise
each fund's Board:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Trustees Honorary Trustees
Lynn S. Birdsong Thomas J. Devine
o Managing Director of Scudder Kemper o Consultant
Investments, Inc.
o President of the funds Wilson Nolen
o Consultant
Paul Bancroft III
o Venture capitalist and consultant Robert G. Stone, Jr.
o Chairman Emeritus and Director,
Sheryle J. Bolton Kirby Corporation
o Chief Executive Officer, Scientific
Learning Corporation Edmund R. Swanberg
o Advisory Managing Director of
William T. Burgin Scudder Kemper Investments, Inc.
o General Partner, Bessemer Venture
Partners
Keith R. Fox
o Private equity investor
William H. Luers
o Chairman and President, U.N.
Association of the U.S.A.
Kathryn L. Quirk
o Managing Director of Scudder Kemper
Investments, Inc.
o Vice President and Assistant Secretary
of the funds
Joan E. Spero
o President, Doris Duke Charitable
Foundation
</TABLE>
17 | Who Manages and Oversees the Funds
<PAGE>
Financial Highlights
These tables are designed to help you understand each fund's financial
performance in recent years. The figures in the first part of each table are for
a single share. The total return figures represent the percentage that an
investor in a particular 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 each fund's financial
statements, is included in that fund's annual report (see "Shareholder reports"
on the back cover).
<TABLE>
<CAPTION>
Scudder Financial Services Fund
- ----------------------------------------------------------------------------------------
Years ended May 31, 1999(a) 1998(b)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value, beginning of period $14.22 $12.00
-------------------------
Income (loss) from investment operations:
Net investment income (loss) .02 .02
Net realized and unrealized gain (loss) on investments (.01) 2.22
-------------------------
Total from investment operations .01 2.24
Less distributions:
From net investment income (.03) (.03)
From net realized gains on investment transactions (.09) --
-------------------------
Total distributions (.12) (.03)
-------------------------
Redemption fees .03 .01
Net asset value, end of period $14.14 $14.22
-------------------------
Total Return (%) (c) (d) 0.30 18.73**
Ratios and Supplemental Data
- ----------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 34 37
Ratio of operating expenses, net, to average daily net
assets (%) 1.50 1.50*
Ratio of operating expenses before expense reductions, to
average daily net assets (%) 1.83 2.59*
Ratio of net investment income to average daily net assets (%) .15 .25*
Portfolio turnover rate (%) 23.2 25.0*
(a) Based on monthly average shares outstanding during the period.
(b) For the period November 3, 1997 (commencement of operations) to May 31, 1998.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Total return does not reflect the effect to the shareholder of the 1%
redemption fee on shares held less than one year.
* Annualized
** Not annualized
18 | Financial Highlights
<PAGE>
Scudder Health Care Fund
- ----------------------------------------------------------------------------------------
Years ended May 31, 1999(a) 1998(b)
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.08 $12.00
---------------------------
Income (loss) from investment operations:
Net investment income (loss) (.11) (.01)
Net realized and unrealized gain (loss) on investments .94 .09
-------------------------
Total from investment operations .83 .08
Redemption fees .02 --***
Net asset value, end of period $12.93 $12.08
-------------------------
Total Return (%) (c) (d) 7.04 .67**
Ratios and Supplemental Data
- ----------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 47 41
Ratio of operating expenses, net, to average daily net
assets (%) 1.75 1.75*
Ratio of operating expenses before expense reductions, to
average daily net assets (%) 1.95 3.68*
Ratio of net investment income to average daily net assets (%) (.88) (.40)*
Portfolio turnover rate (%) 132.8 68.3*
(a) Based on monthly average shares outstanding during the period.
(b) For the period March 2, 1998 (commencement of operations) to May 31, 1998.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Total return does not reflect the effect to the shareholder of the 1%
redemption fee on shares held less than one year.
* Annualized
** Not annualized
*** Amount is less than one half of $.01
19 | Financial Highlights
<PAGE>
Scudder Technology Fund
- ----------------------------------------------------------------------------------------
Years ended May 31, 1999(a) 1998(b)
- ----------------------------------------------------------------------------------------
Net asset value, beginning of period $12.07 $12.00
----------------------------
Income (loss) from investment operations:
Net investment income (loss) (.17) (.03)
Net realized and unrealized gain (loss) on investments 7.37 .10
--------------------------
Total from investment operations 7.20 .07
Redemption fees .04 --***
Net asset value, end of period $19.31 $12.07
--------------------------
Total Return (%) (c) (d) 59.90 .58**
Ratios and Supplemental Data
- ----------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 119 37
Ratio of operating expenses, net, to average daily net
assets (%) 1.75 1.75*
Ratio of operating expenses before expense reductions, to
average daily net assets (%) 1.86 3.69*
Ratio of net investment income to average daily net
assets (%) (1.11) (.87)*
Portfolio turnover rate (%) 134.9 136.5*
(a) Based on monthly average shares outstanding during the period.
(b) For the period March 2, 1998 (commencement of operations) to May 31, 1998.
(c) Total return would have been lower had certain expenses not been reduced.
(d) Total return does not reflect the effect to the shareholder of the 1%
redemption fee on shares held less than one year.
* Annualized
** Not annualized
*** Amount is less than one half of $.01
</TABLE>
20 | Financial Highlights
<PAGE>
How to invest in the funds
The following pages tell you how to invest in these funds 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 express o Fill out and sign an o Send a check and a Scudder
(see below) application investment slip to us at the
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 automatic -- o To set up regular investments
investment from a bank checking account,
plan call 1-800-SCUDDER
- -------------------------------------------------------------------------------------------------
Using QuickBuy -- o Call 1-800-SCUDDER
- -------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
[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)
- --------------------------------------------------------------------------------
22 | How to Buy Shares
<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
account ($1,000 for IRAs) most for over $100,000, can
$100 or more for exchanges only be ordered in writing; if
between existing accounts you're in doubt, see page 25
- --------------------------------------------------------------------------------
By phone o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
or 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 number from which you want to
out 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 automatic -- o To set up regular cash
withdrawal plan payments from a Scudder fund
account, call 1-800-SCUDDER
- --------------------------------------------------------------------------------
Using QuickSell -- o Call 1-800-SCUDDER
- --------------------------------------------------------------------------------
</TABLE>
23 | How To Exchange or Sell Shares
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Question? 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 funds are open for business whenever the New York Stock Exchange is open.
Each 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.
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.
24 | Policies You Should Know About
<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.
- --------------------------------------------------------------------------------
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 funds
can only accept wires of $100 or more.
Exchanges among Scudder funds are an option for shareholders who bought their
shares directly from Scudder and for 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.
25 | Policies You Should Know About
<PAGE>
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.
How the funds calculate share price
For each fund in this prospectus, the price at which you buy shares is the net
asset value per share, or NAV. To calculate NAV, the funds use the following
equation:
TOTAL ASSETS - TOTAL LIABILITIES = NAV
----------------------------------------
TOTAL NUMBER OF SHARES OUTSTANDING
The price at which you sell shares of each fund is also that fund's NAV, minus a
1.00% redemption/exchange fee on shares owned less than one year. You won't be
charged this fee if you're investing in an employer-sponsored retirement plan
that is set up directly with Scudder. If your employer-sponsored retirement plan
is through a third-party investment provider, or if you are investing through an
IRA or other individual retirement account, the fee will apply. Certain other
types of accounts may also be eligible for this waiver.
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, a fund's value for a security is likely to be different from quoted market
prices.
26 | Policies You Should Know About
<PAGE>
- --------------------------------------------------------------------------------
[ICON] If you ever have difficulty placing an order by phone
or fax, you can always send us your order in writing.
- --------------------------------------------------------------------------------
Because the funds may invest in securities that are traded primarily in foreign
markets, the value of their holdings could change at a time when you aren't able
to buy or sell fund shares. This is because some foreign markets are open on
days when the funds don't price their shares.
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, a 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)
27 | Policies You Should Know About
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Because each shareholder's tax situation 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 funds intend to pay dividends and distributions to their shareholders in
November or 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.
28 | 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 a fund
o short-term capital gains distributions you receive from a
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 a
fund
Each 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 in a fund right before it 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.
29 | Understanding Distributions and Taxes
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from each fund's management team
about recent market conditions and the effects of a fund's strategies on its
performance. For each fund, 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 each
fund's features and policies, including additional risk information. The SAI is
incorporated by reference into this document (meaning that it's 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
Fund Name SEC File #
---------------------------------------------------------------
Scudder Financial Services Fund 811-2021
Scudder Health Care Fund 811-2021
Scudder Technology Fund 811-2021
<PAGE>
SCUDDER FINANCIAL SERVICES FUND
SCUDDER HEALTH CARE FUND
SCUDDER TECHNOLOGY FUND
Each a series of Scudder Securities Trust
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
October 1, 1999
- --------------------------------------------------------------------------------
This combined Statement of Additional Information is not a prospectus and should
be read in conjunction with the combined prospectus of Scudder Financial
Services Fund, Scudder Health Care Fund and Scudder Technology Fund dated
October 1, 1999, as amended from time to time, copies of which may be obtained
without charge by writing to Scudder Investor Services, Inc., Two International
Place, Boston, Massachusetts 02110-4103.
The Annual Report to Shareholders of Scudder Financial Services Fund, Scudder
Health Care Fund and Scudder Technology Fund dated May 31, 1999 is incorporated
by reference and is hereby deemed to be part of this Statement of Additional
Information. Please call 1-800-SCUDDER to request a copy of the Annual Report.
<PAGE>
TABLE OF CONTENTS
Page
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES..................................1
General Investment Objective and Policies................................1
Scudder Financial Services Fund..........................................1
Scudder Health Care Fund.................................................1
Scudder Technology Fund..................................................2
Specialized Investment Techniques........................................3
Investment Restrictions.................................................11
PURCHASES.....................................................................12
Additional Information About Opening An Account.........................12
Additional Information About Making Subsequent Investments..............13
Additional Information About Making Subsequent Investments by QuickBuy..13
Checks..................................................................13
Wire Transfer of Federal Funds..........................................14
Share Price.............................................................14
Share Certificates......................................................14
Other Information.......................................................14
EXCHANGES AND REDEMPTIONS.....................................................14
Exchanges...............................................................14
Special Redemption and Exchange Information.............................15
Redemption by Telephone.................................................16
Redemption by QuickSell.................................................16
Redemption by Mail or Fax...............................................17
Redemption-in-Kind......................................................17
Other Information.......................................................17
FEATURES AND SERVICES OFFERED BY THE FUNDS....................................18
No-Load Concept.........................................................18
Internet access.........................................................19
Dividend and Capital Gain Distribution Options..........................19
Reports to Shareholders.................................................20
Transaction Summaries...................................................20
SPECIAL PLAN ACCOUNTS.........................................................22
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension
Plans for Corporations and Self-Employed Individuals.................22
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations
and Self-Employed Individuals........................................22
Scudder IRA: Individual Retirement Account..............................23
Scudder Roth IRA: Individual Retirement Account........................23
Scudder 403(b) Plan.....................................................23
Automatic Withdrawal Plan...............................................23
Group or Salary Deduction Plan..........................................24
Automatic Investment Plan...............................................24
Uniform Transfers/Gifts to Minors Act...................................24
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.....................................24
PERFORMANCE INFORMATION.......................................................25
Average Annual Total Return.............................................25
Cumulative Total Return.................................................25
Total Return............................................................26
Comparison of Fund Performance..........................................26
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
ORGANIZATION OF THE FUNDS.....................................................27
INVESTMENT ADVISER............................................................28
Personal Investments by Employees of the Adviser........................31
TRUSTEES AND OFFICERS.........................................................31
REMUNERATION..................................................................34
Responsibilities of the Board -- Board and Committee Meetings...........34
Compensation of Officers and Trustees...................................34
DISTRIBUTOR...................................................................35
TAXES.........................................................................36
PORTFOLIO TRANSACTIONS........................................................39
Portfolio Turnover......................................................41
NET ASSET VALUE...............................................................41
ADDITIONAL INFORMATION........................................................42
Experts.................................................................42
Other Information.......................................................42
FINANCIAL STATEMENTS..........................................................43
ii
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
Scudder Financial Services Fund, Scudder Health Care Fund and Scudder
Technology Fund (each a "Fund," collectively the "Funds") are each
non-diversified series of Scudder Securities Trust (the "Trust"), an open-end
management investment company, which continuously offers and redeems shares at
net asset value. Each Fund is a company of the type commonly known as a mutual
fund.
General Investment Objective and Policies
Scudder Financial Services Fund
Scudder Financial Services Fund's ("Financial Services Fund") investment
objective is to seek long-term growth of capital primarily through investment in
common stocks of financial services companies, including commercial banks,
insurance companies, thrifts, consumer finance companies, commercial finance
companies, leasing companies, securities brokerage firms, asset management firms
and government-sponsored financial enterprises.
Financial Services Fund invests in the securities of a broad array of
companies whose mission it is to help their customers to save and invest, access
credit or capital, or insure personal or business risks. The Fund can also
invest in companies that assist financial service firms in providing these
services in an efficient, cost-effective manner. The Fund's portfolio is
represented by a variety of large companies doing business on a national or even
global scale, as well as smaller companies operating on more of a regional
basis.
Under normal circumstances, the fund will invest at least 80% of its total
assets in common stocks of companies in a group of related industries as
described below. The Fund will invest in securities of U.S. companies, but may
invest in foreign companies as well. The Fund will generally limit investments
in any one stock to 10% of the Fund's total assets. A security will be
considered appropriate for the Fund if at least 50% of its total assets,
revenues, or net income are related to or derived from the industry or
industries designated for the Fund. While the Fund invests predominantly in
common stocks, the Fund may purchase convertible securities, rights, warrants
and illiquid securities. The Fund may enter into repurchase agreements and
reverse repurchase agreements, and may engage in strategic transactions, using
such derivatives contracts as index options and futures, to increase stock
market participation, enhance liquidity and manage transaction costs. Securities
may be listed on national exchanges or traded over-the-counter. The Fund may
invest up to 20% of its total assets in U.S. Treasury securities, and agency and
instrumentality obligations. For temporary defensive purposes, the Fund may
invest without limit in cash and cash equivalents when the Adviser deems such a
position advisable in light of economic or market conditions. It is impossible
to predict accurately how long such alternate strategies may be utilized.
Generally, the Fund's portfolio may contain stocks that offer yields that
are higher than the median yield of the Standard & Poor's 500 Index ("S&P 500
Index") and that have attractive valuations relative to the S&P 500 Index (with
respect to price-to-earnings ratio and price-to-book ratio). The Fund may not
borrow money in an amount greater than 5% of its total assets, except for
temporary or emergency purposes, as determined by the Trustees. The Fund may
engage up to 5% of total assets in reverse repurchase agreements or dollar
rolls.
In addition to the traditional risks associated with an equity sector
fund, this Fund exposes investors to special risks as a result of being
concentrated in the financial services industries. These more pronounced risks
revolve around changes in interest rates, economic growth, and governmental
regulation.
Scudder Health Care Fund
Scudder Health Care Fund's ("Health Care Fund") investment objective is to
seek long-term growth of capital primarily through investment in common stocks
of companies that are engaged primarily in the development, production or
distribution of products or services related to the treatment or prevention of
diseases and other medical problems. These include companies that operate
hospitals and other health care facilities; companies that design, manufacture
or sell medical supplies, equipment and support services; and pharmaceutical
firms. Health Care Fund may also invest in companies engaged in medical,
diagnostic, biochemical and biotechnological research and development.
Health Care Fund invests in the equity securities of health care companies
located throughout the world. In the opinion of the Adviser, investments in the
health care industry offer potential for significant growth due to favorable
<PAGE>
demographic trends, technological advances in the industry, and innovations by
companies in the diagnosis and treatment of illnesses.
Under normal circumstances, the fund will invest at least 80% of its total
assets in common stocks of companies in a group of related industries as
described below. The Fund will invest in securities of U.S. companies, but may
invest in foreign companies as well. A security will be considered appropriate
for the Fund if at least 50% of its total assets, revenues, or net income are
related to or derived from the industry or industries designated for the Fund.
While the Fund invests predominantly in common stocks, the Fund may purchase
convertible securities, rights, warrants and illiquid securities. The Fund may
enter into repurchase agreements and reverse repurchase agreements, and may
engage in strategic transactions, using such derivatives contracts as index
options and futures, to increase stock market participation, enhance liquidity
and manage transaction costs. Securities may be listed on national exchanges or
traded over-the-counter. The Fund may invest up to 20% of its total assets in
U.S. Treasury securities, and agency and instrumentality obligations. For
temporary defensive purposes, the Fund may invest without limit in cash and cash
equivalents when the Adviser deems such a position advisable in light of
economic or market conditions. It is impossible to predict accurately how long
such alternate strategies may be utilized.
The Fund may not borrow money in an amount greater than 5% of its total
assets, except for temporary or emergency purposes, as determined by the
Trustees. The Fund may engage up to 5% of its total assets in reverse repurchase
agreements or dollar rolls.
Scudder Technology Fund
Scudder Technology Fund's ("Technology Fund") investment objective is to
seek long-term growth of capital primarily through investment in common stocks
of companies engaged in the development, production or distribution of
technology-related products or services. These types of products and services
currently include computer hardware and software, semi-conductors, office
equipment and automation, and Internet-related products and services.
Under normal circumstances, the fund will invest at least 80% of its total
assets in common stocks of companies in a group of related industries as
described below. The Fund will invest in securities of U.S. companies, but may
invest in foreign companies as well. A security will be considered appropriate
for the Fund if at least 50% of its total assets, revenues, or net income are
related to or derived from the industry or industries designated for the Fund.
While the Fund invests predominantly in common stocks, the Fund may purchase
convertible securities, rights, warrants and illiquid securities. The Fund may
enter into repurchase agreements and reverse repurchase agreements, and may
engage in strategic transactions, using such derivatives contracts as index
options and futures, to increase stock market participation, enhance liquidity
and manage transaction costs. Securities may be listed on national exchanges or
traded over-the-counter. The Fund may invest up to 20% of its total assets in
U.S. Treasury securities, and agency and instrumentality obligations. For
temporary defensive purposes, the Fund may invest without limit in cash and cash
equivalents when the Adviser deems such a position advisable in light of
economic or market conditions. It is impossible to predict accurately how long
such alternate strategies may be utilized.
The Fund may not borrow money in an amount greater than 5% of its total
assets, except for temporary or emergency purposes, as determined by the
Trustees. The Fund may engage up to 5% of its total assets in reverse repurchase
agreements or dollar rolls.
Master/feeder structure.
The Board of Trustees has the discretion to retain the current
distribution arrangement for a Fund while investing in a master fund in a
master/feeder structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder fund"),
instead of investing directly in a portfolio of securities, invests most or all
of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
2
<PAGE>
Specialized Investment Techniques
Concentration. Each Fund "concentrates," for purposes of the Investment Company
Act of 1940 (the "1940 Act"), its assets in securities related to a particular
industry, which means that at least 25% of its net assets will be invested in
these assets at all times. As a result, each Fund may be subject to greater
market fluctuation than a fund which has securities representing a broader range
of investment alternatives. For a more detailed discussion of the risks
associated with a particular industry, please see "THE FUNDS' INVESTMENT
OBJECTIVES AND POLICIES."
Common Stocks. Under normal circumstances, each 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, a
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 stock also offers greater potential for
long-term 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 a Fund's objective of long-term capital appreciation, each Fund
may invest up to 20% of that Fund's total assets 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. Each Fund may purchase
"investment-grade" bonds, rated Aaa, Aa, A or Baa by Moody's Investor Services,
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.
Convertible Securities. Each 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 a 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 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.
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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. Each 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 a
Fund may purchase.
A repurchase agreement provides a means for a Fund to earn income on funds
for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., a 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 a Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to a Fund together
with the repurchase price upon repurchase. In either case, the income to a 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.
For purposes of the 1940 Act a repurchase agreement is deemed to be a loan
from a Fund to the seller of the Obligation subject to the repurchase agreement
and is therefore subject to a Fund's investment restriction applicable to loans.
It is not clear whether a court would consider the Obligation purchased by a
Fund subject to a repurchase agreement as being owned by a Fund or as being
collateral for a loan by a Fund to the seller. In the event of the commencement
of bankruptcy or insolvency proceedings with respect to the seller of the
Obligation before repurchase of the Obligation under a repurchase agreement, a
Fund may encounter delay and incur costs before being able to sell the security.
Delays may involve loss of interest or decline in price of the Obligation. If
the court characterizes the transaction as a loan and a Fund has not perfected a
security interest in the Obligation, a 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, a 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 a 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 a Fund may incur a loss if the
proceeds to a 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), a 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 a 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.
Reverse Repurchase Agreements. Each Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which a Fund, as the seller of
the securities, agrees to repurchase them at an agreed upon time and price. A
Fund maintains a segregated account in connection with outstanding reverse
repurchase agreements. Each 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.
Borrowing. It is a fundamental policy of each Fund not to 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 a Fund's volatility
and the risk of loss in a declining market. Borrowing by a Fund will involve
special risk considerations. Although the principal of a Fund's borrowings will
be fixed, a Fund's assets may change in value during the time a borrowing is
outstanding, thus increasing exposure to capital risk.
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As a matter of non-fundamental policy, a Fund may not borrow money in an
amount greater than 5% of total assets, except for temporary or emergency
purposes, although a Fund may engage up to 5% of total assets in reverse
repurchase agreements or dollar rolls.
Illiquid Securities. Each Fund may occasionally purchase securities other than
in the open market. While such purchases may often offer attractive
opportunities for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities," "not readily
marketable," or "illiquid" restricted securities, i.e., which cannot be sold to
the public without registration under the Securities Act of 1933 (the "1933
Act") 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. This investment practice, therefore, could have the
effect of increasing the level of illiquidity of a Fund. It is each Fund's
policy that illiquid securities (including repurchase agreements of more than
seven days duration, certain restricted securities, and other securities which
are not readily marketable) may not constitute, at the time of purchase, more
than 15% of the value of a Fund's net assets.
Lending of Portfolio Securities. Each 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. A 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 of good standing,
and will not be made unless, in the judgment of the Adviser, the consideration
to be earned from such loans would justify their risks. The value of the
securities loaned will not exceed 5% of the value of a Fund's total assets at
the time any loan is made.
Real Estate Investment Trusts. The Health Care Fund may invest in REITs. REITs
are sometimes informally characterized as equity REITs, mortgage REITs and
hybrid REITs. Investment in REITs may subject the Fund to risks associated with
the direct ownership of real estate, such as decreases in real estate values,
overbuilding, increased competition and other risks related to local or general
economic conditions, increases in operating costs and property taxes, changes in
zoning laws, casualty or condemnation losses, possible environmental
liabilities, regulatory limitations on rent and fluctuations in rental income.
Equity REITs generally experience these risks directly through fee or leasehold
interests, whereas mortgage REITs generally experience these risks indirectly
through mortgage interests, unless the mortgage REIT forecloses on the
underlying real estate. Changes in interest rates may also affect the value of
the Fund's investment in REITs. For instance, during periods of declining
interest rates, certain mortgage REITs may hold mortgages that the mortgagors
elect to prepay, which prepayment may diminish the yield on securities issued by
those REITs.
Certain REITs have relatively small market capitalization, which may tend
to increase the volatility of the market price of their securities. Furthermore,
REITs are dependent upon specialized management skills, have limited
diversification and are, therefore, subject to risks inherent in operating and
financing a limited number of projects. REITs are also subject to heavy cash
flow dependency, defaults by borrowers and the possibility of failing to qualify
for tax-free pass-through of income under the Internal Revenue Code of 1986, as
amended (the "Code") and to maintain exemption from the registration
requirements of the 1940 Act. By investing in REITs indirectly through the Fund,
a shareholder will bear not only his or her proportionate share of the expenses
of the Fund, but also, indirectly, similar expenses of the REITs. In addition,
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders.
Short Sales Against the Box. Each Fund may make short sales of common stocks if,
at all times when a short position is open, the applicable Fund owns the stock
or owns preferred stocks or debt securities convertible or exchangeable, without
payment of further consideration, into the shares of common stock sold short.
Short sales of this kind are referred to as short sales "against the box." The
broker/dealer that executes a short sale generally invests cash proceeds of the
sale until they are paid to a Fund. Arrangements may be made with the
broker/dealer to obtain a portion of the interest earned by the broker on the
investment of short sale proceeds.
Depository Receipts. Each Fund may invest indirectly in securities of foreign
issuers through sponsored or unsponsored American Depository Receipts ("ADRs"),
Global Depository Receipts ("GDRs"), International Depository Receipts ("IDRs")
and other types of Depository Receipts (which, together with ADRs, GDRs and IDRs
are hereinafter referred
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to as "Depository Receipts"). Prices of unsponsored Depositary Receipts may be
more volatile than if the issuer of the underlying securities sponsored them.
Depository Receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. In addition, the
issuers of the stock of unsponsored Depository Receipts are not obligated to
disclose material information in the United States and, therefore, there may not
be a correlation between such information and the market value of the Depository
Receipts. ADRs are Depository Receipts which are bought and sold in the United
States and are typically issued by a U.S. bank or trust company which evidence
ownership of underlying securities by a foreign corporation. GDRs, IDRs and
other types of Depository Receipts are typically issued by foreign banks or
trust companies, although they may also be issued by United States banks or
trust companies, and evidence ownership of underlying securities issued by
either a foreign or a United States corporation. Generally, Depositary Receipts
in registered form are designed for use in the United States securities markets
and Depositary Receipts in bearer form are designed for use in securities
markets outside the United States. For purposes of each Fund's investment
policies, a Fund's investments in ADRs, GDRs and other types of Depositary
Receipts will be deemed to be investments in the underlying securities.
Depositary Receipts other than those denominated in U.S. dollars will be subject
to foreign currency exchange rate risk. However, by investing in ADRs rather
than directly in foreign issuers' stock, the Fund avoids currency risks during
the settlement period. In general, there is a large, liquid market in the United
States for most ADRs. However, certain Depositary Receipts may not be listed on
an exchange and therefore may be illiquid securities.
Warrants. Each Fund may invest in warrants up to 5% of the value of its
respective 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 a Fund were not exercised by the date of its
expiration, the Fund would lose the entire purchase price of the warrant.
Strategic Transactions and Derivatives. Each Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of the fixed-income securities in a Fund's portfolio, or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, each Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for a Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect 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 a Fund's portfolio, or to establish a position in the derivatives
markets as a temporary substitute for purchasing or selling particular
securities. Some Strategic Transactions may also be used to enhance potential
gain although no more than 5% of a Fund's total assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of a Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. Each Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not to create leveraged exposure in a 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
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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 a Fund to hold a security it might
otherwise sell. The use of currency transactions can result in a Fund incurring
losses as a result of a number of factors including the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive a
specified currency. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of a Fund creates the possibility that losses on the hedging instrument
may be greater than gains in the value of a Fund's position. In addition,
futures and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, a Fund's purchase of a put option on a security might be designed
to protect its holdings in the underlying instrument (or, in some cases, a
similar instrument) against a substantial decline in the market value by giving
a Fund the right to sell such instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the seller the obligation to sell, the underlying instrument at the
exercise price. A Fund's purchase of a call option on a security, financial
future, index, currency or other instrument might be intended to protect a Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. Each Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
A Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
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
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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. A Fund
will only sell OTC options (other than OTC currency options) that are subject to
a buy-back provision permitting a Fund to require the Counterparty to sell the
option back to the Fund at a formula price within seven days. A Fund expects
generally to enter into OTC options that have cash settlement provisions,
although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, a Fund will
lose any premium it paid for the option as well as any anticipated benefit of
the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. Each Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or 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 a Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to a Fund's
limitation on investing its assets in illiquid securities.
If a Fund sells a call option, the premium that it receives may serve as a
partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase a Fund's income. The sale of put options can also provide income.
Each Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by a Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though a Fund will receive the option premium to help protect it against
loss, a call sold by a Fund exposes that Fund during the term of the option to
possible loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require a Fund to hold a security or
instrument which it might otherwise have sold.
Each Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities), and on
securities indices and futures contracts other than futures on individual
corporate debt and individual equity securities. The Fund may not purchase
options, unless the aggregate premiums paid on all such options held by the Fund
at any time does not exceed 20% of its total assets. A Fund will not sell put
options if, as a result, more than 50% of that Fund's assets would be required
to be segregated to cover its potential obligations under such put options other
than those with respect to futures and options thereon. In selling put options,
there is a risk that a Fund may be required to buy the underlying security at a
disadvantageous price above the market price.
General Characteristics of Futures. Each Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate or equity market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The sale of a futures contract creates
a firm obligation by a Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures, 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.
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A Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the rules
and regulations of the Commodity Futures Trading Commission and will be entered
into only for bona fide hedging, risk management (including duration management)
or other portfolio management purposes. Typically, maintaining a futures
contract or selling an option thereon requires a Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of a Fund. If
a Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an offsetting transaction
but there can be no assurance that the position can be offset prior to
settlement at an advantageous price, nor that delivery will occur.
Each Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of a Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
Options on Securities Indices and Other Financial Indices. Each Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Combined Transactions. Each 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 a
Fund may enter are interest rate, and index swaps and the purchase or sale of
related caps, floors and collars. Each Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio as a duration management technique or to protect
against any increase in the price of securities a Fund anticipates purchasing at
a later date. Each Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where
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 a Fund
with another party of their respective commitments to pay or receive interest,
e.g., an exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. 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.
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Each Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with 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 Funds believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The 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 a Fund segregate cash or liquid
assets 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 a Fund to pay or deliver securities or
assets must be covered at all times by the securities, instruments or currency
required to be delivered, or, subject to any regulatory restrictions, an amount
of cash or liquid securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by a Fund will require that Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate cash or liquid securities sufficient to purchase
and deliver the securities if the call is exercised. A call option sold by a
Fund on an index will require 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 a Fund requires the Fund to segregate cash or liquid assets
equal to the exercise price.
Except when a Fund enters into a forward contract for the purchase or sale
of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates a Fund to buy or sell currency
will generally require a Fund to hold an amount of that currency or liquid
securities denominated in that currency equal to a Fund's obligations or to
segregate cash or liquid assets equal to the amount of the Fund's obligation.
OTC options entered into by a 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 assets equal to its
accrued net obligations, as there is no requirement for payment or delivery of
amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by a Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when a Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, a Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by a Fund other than those
above generally settle with physical delivery, and a Fund will segregate an
amount of assets equal to the full value of the option. OTC options settling
with physical delivery, or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option thereon, each Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, a Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of assets with a value equal to a Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. Each Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
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equals its net outstanding obligation in related options and Strategic
Transactions. For example, a Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by a Fund. Moreover, instead of segregating assets if a Fund held a futures
or forward contract, it could purchase a put option on the same futures or
forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
When-Issued Securities. Each 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 a Fund. To the extent that assets of a Fund are held
in cash pending the settlement of a purchase of securities, that Fund would earn
no income; however, it is a 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, a Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time a 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 Funds do
not believe that their net asset value or income will be adversely affected by
its purchase of securities on a when-issued or forward delivery basis.
Investment Restrictions
Unless specified to the contrary, the following restrictions may not be
changed without the approval of a majority of the outstanding voting securities
of a 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 a Fund are present or
represented by proxy, or (2) more than 50% of the outstanding voting securities
of a 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, a Fund.
As a matter of fundamental policy, each Fund may 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) 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;
(4) 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;
(5) purchase physical commodities or contracts related to physical
commodities; or
(6) make loans to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's investment objective and
policies may be deemed to be loans.
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Each Fund may not, as a matter of nonfundamental policy:
(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 a Fund's
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 certified a Tax Identification Number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-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 tax identification or social security number, address and telephone
number. The investor must then call the bank to arrange a wire transfer to The
Scudder Funds, 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 a Fund promptly.
The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
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Additional Information About Making Subsequent Investments
Subsequent purchase orders, which must be 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 pension and profit sharing, 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 Scudder Investor Services, Inc.
office listed in the Funds' prospectus. A two-part invoice of the purchase will
be mailed out promptly following receipt of a request to buy. Payment should be
attached to a copy of the invoice for proper identification. Federal regulations
require that payment be received within three business days. If payment is not
received within that time, the shares may be canceled. In the event of such
cancellation or cancellation at the purchaser's request, the purchaser will be
responsible for any loss incurred by a Fund or the principal underwriter by
reason of such cancellation. If the purchaser is a shareholder, a Fund shall
have the authority, as agent of the shareholder, to redeem shares in the account
in order to reimburse a Fund or the principal underwriter for the loss incurred.
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 a 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 (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 will be subject to any losses or fees incurred in the transaction.
QuickBuy transactions are not available for most retirement plan accounts.
However, QuickBuy transactions are available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing an QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls, testing
a caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that the Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Checks
A certified check is not necessary, but checks are 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 a Fund are purchased by a check which proves to be
uncollectible, that Fund reserves the right to cancel the purchase immediately
and 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, a Fund shall have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse a Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from or restricted in placing future orders in any of the Scudder
funds.
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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 a 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 the Custodian
of "wired funds," but the right to charge investors for this service is
reserved.
Boston banks are closed on certain local 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
funds on behalf of the Funds.
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 the
Exchange is open for trading. Orders received after the close of regular trading
on the Exchange will be executed at the next business day's net asset value. If
the order has been placed by a member of the NASD, other than the Distributor,
it is the responsibility of that member broker, rather than the Funds, to
forward the purchase order to Scudder Service Corporation (the "Transfer Agent")
in Boston by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of Fund management to afford ease of redemption,
certificates will not be issued to indicate ownership in a Fund.
Other Information
If purchases or redemptions of a Fund's shares are arranged and settlement
is made at an investor's election through a member of the NASD, other than the
Distributor, that member may, at its discretion, charge a fee for that service.
The Board of Trustees and the Distributor, also the Funds' principal
underwriter, `each has the right to limit the amount of purchases by, and to
refuse to sell to, any person. The Trustees and the Distributor may suspend or
terminate the offering of shares of a Fund at any time for any reason.
The Tax Identification Number section of the 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., certification of exempt status from exempt investors), will be returned
to the investor.
Each Fund 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.
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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 -- Redeeming shares -- Signature
guarantees" in the Funds' 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 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 a Fund may be subject to the Funds' 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. Each Fund employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that a Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. Each Fund will not be liable for acting upon
instructions communicated by telephone that they reasonably believe to be
genuine. The Funds 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
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 each Fund may be exchanged or redeemed at net asset
value. However, shares of a Fund held for less than one year are redeemable at a
price equal to 99% of that 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 a 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. Each 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 a 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 a Fund), (d) 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 by Scudder
Service Corporation of appropriate written instructions and documentation
satisfactory to Scudder Service Corporation, or (e) a redemption of shares by a
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. 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
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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
a 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.
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 Funds employ procedures, including recording telephone calls, testing
a caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that a Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. A Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Redemption requests by telephone (technically a repurchase by agreement
between a Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Redemption by QuickSell
Shareholders whose predesignated bank account of record is a member of the
Automated Clearing House Network (ACH) and who have elected to participate in
the QuickSell program may sell shares of the Fund by telephone. To sell shares
by QuickSell, shareholders should call before 4 p.m. eastern time. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, shares will be redeemed at the net asset value per share calculated at
the close of trading on the day of your call. QuickSell requests received after
the close of regular trading on the Exchange will begin their processing and be
redeemed at the net asset value calculated
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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 QuickSell to their account may do so by
completing a QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
The Funds employ procedures, including recording telephone calls, testing
a caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that a Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. A Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Redemption 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 a Fund
and valued as they are for purposes of computing a Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities into cash.
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 Funds' 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 a 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. A 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 a Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for a 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.
Shareholders should maintain a share balance worth at least $2,500 ($1,000
for IRAs, Uniform Gift to Minor Act, and Uniform Trust to Minor Act accounts),
which amount may be changed by the Board of Trustees. Scudder retirement plans
have similar or lower minimum balance requirements. A shareholder may open an
account with at least $1,000 ($500 for an IRA), if an automatic investment plan
(AIP) of $100/month ($50/month for an IRA) is established.
Shareholders who maintain a non-fiduciary account balance of less than
$2,500 in a Fund, without establishing an AIP, will be assessed an annual $10.00
per fund charge with the fee to be reinvested in the Fund. The $10.00 charge
will not apply to shareholders with a combined household account balance in any
of the Scudder Funds of $100,000 or more. Each Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
accounts below $250, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account. A Fund
will mail the proceeds of the redeemed account to the shareholder at the address
of record. Reductions in value that result solely from market activity will not
trigger an involuntary redemption. UGMA, UTMA, IRA and other retirement accounts
will not be assessed the $10.00 charge or be subject to automatic liquidation.
FEATURES AND SERVICES OFFERED BY THE FUNDS
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 Rule 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 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 from other no-load mutual funds. Scudder pioneered the no-
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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.
Investors are encouraged to review the fee tables on page 5 for Scudder
Financial Services Fund, page 9 for Scudder Health Care Fund, and page 13 for
Scudder Technology Fund, of the Funds' prospectus for more specific information
about the rates at which management fees and other expenses are assessed.
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 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 -- The Adviser 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.
The Adviser'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.
Dividend and Capital Gain 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 the same Fund. A change of instructions for the
method of payment must be given to the Transfer Agent in writing at least five
days prior to a dividend record date. Shareholders may change their dividend
option 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' prospectus 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 applicable 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.
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<PAGE>
Reports to Shareholders
Each Fund issues to its shareholders unaudited semiannual financial
statements and annual financial statements audited by independent accountants,
including a list of investments held and statements of assets and liabilities,
operations, changes in net assets and financial highlights. Each distribution
will be accompanied by a brief explanation of the source of the distribution.
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
Scudder Emerging Markets Income Fund
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
- ----------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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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 S&P 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.
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
- ----------
** 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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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. 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 a Fund may also be a permitted investment under profit sharing
and pension plans and IRA's other than those offered by the Funds' 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 a Fund may be purchased as the investment medium under a plan in
the form of a Scudder Profit-Sharing Plan (including a version of the Plan which
includes a cash-or-deferred feature) or a Scudder Money Purchase Pension Plan
(jointly referred to as the Scudder Retirement Plans) adopted by a corporation,
a self-employed individual or a group of self-employed individuals (including
sole proprietorships and partnerships), or other qualifying organization. Each
of these forms was approved by the IRS as a prototype. The IRS's approval of an
employer's plan under Section 401(a) of the Internal Revenue Code will be
greatly facilitated if it is in such approved form. Under certain circumstances,
the IRS will assume that a plan, adopted in this form, after special notice to
any employees, meets the requirements of Section 401(a) of the Internal Revenue
Code.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of a Fund may be purchased as the investment medium under a plan in
the form of a Scudder 401(k) Plan adopted by a corporation, a self-employed
individual or a group of self-employed individuals (including sole proprietors
and partnerships), or other qualifying organization. This plan has been approved
as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of a 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
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contributing what would otherwise be the maximum tax-deductible contribution he
or she could make, the individual will be eligible to contribute the difference
to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples if only one spouse has
earned income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
Scudder Roth IRA: Individual Retirement Account
Shares of the Fund(s) may be purchased as the underlying investment for an
individual Retirement Account which meets the requirements of Section 408A of
the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000 per
year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first time home purchase ($10,000 maximum, one-time use), or
upon death or disability. All other distributions from a Roth IRA are taxable
and subject to a 10% tax penalty unless an exception applies. Exceptions to the
10% penalty include distributions that are (i) properly rolled over, (ii) one of
a series of substantially equal payments over a period that does not exceed life
expectancy (iii) exempt withdrawals of excess distributions, (iv) for deductible
medical expenses, (v) for certain health insurance premiums in the event of
unemployment, and (vi) for qualified higher education expenses.
An individual with less than $100,000 (who is not married filing
separately) can roll his or her existing IRA into a Roth IRA. However, the
individual must pay taxes on the taxable amount in his or her traditional IRA.
Individuals who complete the rollover in 1998 will be allowed to spread the tax
payments over a four year period. After 1998, all taxes on such a rollover will
have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of a Fund may also be purchased as the underlying investment for
tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information -- Redeeming shares -- Signature
guarantees" in the Fund's prospectus. Any such requests must be
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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-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.
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
Each 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. Each 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, a
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.")
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If a 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, a 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 a Fund, to the extent permissible, as part of that
Fund's deduction for dividend paid on its federal tax return.
The Trust intends to distribute a 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 a 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 a 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 a 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 a Fund, ended on the last day of a
recent calendar quarter. Average annual total return quotations reflect changes
in the price of a 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
ERV = ending redeemable value: ERV is the value, at the end
of the applicable period, of a hypothetical $1,000
investment made at the beginning of the applicable
period.
Average Annual Total Return for the period ended May 31, 1999
Life of Fund One Year
------------ --------
Scudder Financial Services Fund 11.82%(1) 0.30%
Scudder Health Care Fund 6.21%(2) 7.04%
Scudder Technology Fund 46.78%(2) 59.90%
(1) For the period beginning November 3, 1997 (commencement of operations).
(2) For the period beginning March 2, 1998 (commencement of operations).
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 a Fund's shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is
25
<PAGE>
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.
Cumulative Total Return for the period ended May 31, 1999
Life of Fund One Year
------------ --------
Scudder Financial Services Fund* 19.09%(1) 0.30%
Scudder Health Care Fund* 7.75%(2) 7.04%
Scudder Technology Fund* 60.83%(2) 59.90%
(1) For the period beginning November 3, 1997 (commencement of operations).
(2) For the period beginning March 2, 1998 (commencement of operations).
* The Adviser maintained expenses for each Fund for the fiscal period ended
May 31, 1999. The cumulative total return for the life of each Fund, had
the Adviser not maintained Fund expenses, would have been lower.
Total Return
Total return is the rate of return on an investment for a specified period
of time calculated in the same manner as cumulative total return.
Quotations of a Fund's performance are historical and are not intended to
indicate future performance. An investor's shares when redeemed may be worth
more or less than their original cost. Performance of a Fund will vary based on
changes in market conditions and the level of a Fund's expenses.
Comparison of Fund Performance
In connection with communicating its performance to current or prospective
shareholders, a Fund also may compare these figures to the performance of
unmanaged indices which may assume reinvestment of dividends or interest but
generally do not reflect deductions for administrative and management costs.
From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.
From time to time, in marketing and other Fund literature, Trustees and
officers of the Trust, a 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
Funds. In addition, the amount of assets that the Adviser has under management
in various geographical areas may be quoted in advertising and marketing
materials.
The Funds may be advertised as an investment choice in Scudder's college
planning program.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Funds. The
description may include a "risk/return spectrum" which compares the Funds to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and
26
<PAGE>
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 Funds to bank products, such as
certificates of deposit. Unlike mutual funds, certificates of deposit are
insured up to $100,000 by the U.S. government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment and
money market funds seek stability of principal, these investments are considered
to be less risky than investments in either bond or equity funds, which may
involve the loss of principal. However, all long-term investments, including
investments in bank products, may be subject to inflation risk, which is the
risk of erosion of the value of an investment as prices increase over a long
time period. The risks/returns associated with an investment in bond or equity
funds depend upon many factors. For bond funds these factors include, but are
not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Evaluation of Fund performance or other relevant statistical information
made by independent sources may also be used in advertisements concerning the
Funds, including reprints of, or selections from, editorials or articles about
these Funds.
ORGANIZATION OF THE FUNDS
The Funds are non-diversified 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 Small Company Value Fund, Scudder
Micro Cap Fund, Scudder 21st Century Growth Fund, Scudder Financial Services
Fund, Scudder Health Care Fund and Scudder Technology 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 the Funds has equal rights with each other share of the
Funds as to voting, dividends and liquidation. All shares issued and outstanding
will be fully paid and nonassessable by the Trust, and redeemable as described
in this Statement of Additional Information and in the Funds' 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.
27
<PAGE>
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 Funds (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 Declaration of Trust provides that obligations of a Fund are not
binding upon the Trustees individually but only upon the property of a Fund,
that a Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law and that a 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 a 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 Funds. Nothing in the Declaration of Trust, however, protects
or indemnifies a Trustee or officer against any liability to which that person
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of that
person's office.
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
investment counsel firms in the U. S. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. In 1928 it introduced the first no-load mutual fund to
the public. In 1953 the Adviser introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On June 26, 1997, Scudder,
Stevens & Clark, Inc. ("Scudder") entered into an agreement with Zurich
Insurance Company ("Zurich") pursuant to which Scudder and Zurich agreed to form
an alliance. On December 31, 1997, Zurich acquired a majority interest in
Scudder, and Zurich Kemper Investments, Inc., a Zurich subsidiary, became part
of Scudder. Scudder's name has been changed to Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation organized
under the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.
The principal source of the Adviser's income is professional fees received
from providing continuous investment advice, and the firm derives no income from
brokerage or underwriting of securities. Today, it provides investment counsel
for many individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations. In addition,
it manages Montgomery Street Income Securities, Inc., Scudder California Tax
Free Trust, Scudder Cash Investment Trust, Value Equity Trust, Scudder Fund,
Inc., Scudder Funds Trust, Global/International Fund, Inc., Scudder Global High
Income Fund, Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder
Institutional Fund, Inc., Scudder International Fund, Inc., Investment Trust,
Scudder Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund,
Inc., Scudder Pathway Series, Scudder Securities Trust, Scudder State Tax Free
Trust, Scudder Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S.
Treasury Money Fund, Scudder Variable Life Investment Fund, The Argentina Fund,
Inc., The Brazil Fund, Inc., The Korea Fund, Inc., and The Japan Fund, Inc. Some
of the foregoing companies or trusts have two or more series.
The Adviser also provides investment advisory services to the mutual funds
which comprise the AARP Investment Program from Scudder. The AARP Investment
Program from Scudder has assets over $13 billion and includes the AARP Growth
Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed Investment
Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between 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 AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Adviser with respect to
28
<PAGE>
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.
The Adviser maintains a large research department, which conducts
continuous studies of the factors that affect the position of various
industries, companies and individual securities. The Adviser receives published
reports and statistical compilations from issuers and other sources, 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. The Adviser's' international
investment management team travels the world, researching hundreds of companies.
In selecting the securities in which a 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.
Certain investments may be appropriate for a Fund and also for other
clients advised by the Adviser. Investment decisions for the Funds 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 a Fund.
The transaction between Scudder and Zurich resulted in the assignment of
the Financial Services Fund's investment management agreement with Scudder, that
agreement automatically terminated at the consummation of the transaction. In
anticipation of the transaction, however, the Trustees approved a new investment
management agreement between the Fund and the Adviser on September 11, 1997. The
new investment management agreement (the "Agreement") became effective as of
December 31, 1997. The Agreement is in all material respects on the same terms
as the previous investment management agreement which it supersedes. The
Agreement incorporates conforming changes which promote consistency among all of
the funds advised by the Adviser and which permit ease of administration. The
investment management agreements between the Health Care Fund and the Technology
Fund and the Adviser are each dated December 31, 1997 and were approved by the
Trustees on December 3, 1997 and by the initial shareholder of each Fund on
January 2, 1998.
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 as the Fund. 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 the other mutual
funds.
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.
Upon consummation of this transaction, the Funds' existing investment
management agreements with Scudder Kemper were deemed to have been assigned and,
therefore, terminated. The Board has approved new investment management
agreements with Scudder Kemper, which are substantially identical to the current
investment management agreements, except for the date of execution and
termination. These agreements became effective on September 7, 1998 upon the
termination of the then current investment management agreements and were
approved at a shareholder meeting held on December 15, 1998.
The Agreements dated September 7, 1998 were approved by the Trustees on
August 6, 1998. The Agreements will continue in effect until September 30, 1999
and from year to year thereafter only if their continuance is approved annually
by the vote of a majority of those Trustees who are not parties to such
Agreements or interested persons of the
29
<PAGE>
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
Agreements 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
their assignment.
Under the Agreements, the Adviser regularly provides a Fund with
continuing investment management for a Fund's portfolio consistent with each
Fund's investment objective, policies and restrictions and determines what
securities shall be purchased, held or sold and what portion of a Fund's assets
shall be held uninvested, subject to the Trust's Declaration of Trust, By-Laws,
the 1940 Act, the Code and to a Fund's investment objective, policies and
restrictions, and subject, further, to such policies and instructions as the
Board of Trustees of the Trust may from time to time establish. The Adviser also
advises and assists the officers of the Trust 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
each Fund.
Under the Agreements, the Adviser renders significant administrative
services (not otherwise provided by third parties) necessary for a Fund's
operations as an open-end investment company including, but not limited to,
preparing reports and notices to the Trustees and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to a Fund (such as the Funds' transfer agent, pricing agents,
Custodian, accountants and others); preparing and making filings with the SEC
and other regulatory agencies; assisting in the preparation and filing of each
Fund's federal, state and local tax returns; preparing and filing each 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 Funds under applicable
federal and state securities laws; maintaining each Fund's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of each Fund; assisting in the resolution of accounting and
legal issues; establishing and monitoring each Fund's operating budget;
processing the payment of each Fund's bills; assisting each Fund in, and
otherwise arranging for, the payment of distributions and dividends and
otherwise assisting each 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 the Trust
affiliated with the Adviser and makes available, without expense to the Funds,
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 Funds' office space and
facilities.
For these services, Financial Services Fund, Health Care Fund and
Technology Fund will each pay the Adviser an annual fee equal to 0.75%, 0.85%
and 0.85%, respectively, of the relevant Fund's average daily net assets payable
monthly, provided each 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. The Adviser has agreed until September 30, 2000 to
maintain the total annualized expenses of each of the Financial Services Fund,
Health Care Fund and Technology Fund at no more than 1.50%, 1.75% and 1.75%,
respectively, of the average daily net assets of each Fund.
Under the Agreements, the Funds are 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 Funds' 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 Funds 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 Funds may
arrange to have third parties assume all or part of the expenses of sale,
underwriting and distribution of shares of a Fund. The Funds are 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 Funds with respect thereto.
The Agreements identify 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 Funds, 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.
30
<PAGE>
In reviewing the terms of the Agreements and in discussions with the
Adviser concerning such Agreements, the Trustees of the Trust who are not
"interested persons" of the Adviser are represented by independent counsel at
the Funds' expense.
The Agreements provide that the Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by a Fund in connection
with matters to which the Agreements relate, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the Agreements.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Funds' custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions 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 Funds that may have different distribution
arrangements or expenses, which may affect performance.
None of the officers or Trustees of the Trust may have dealings with a
Fund as principals in the purchase or sale of securities, except as individual
subscribers to or holders of shares of that Fund.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Age Scudder Investor
and Address Position with Trust Principal Occupation** Services, Inc.
- ----------- ------------------- ---------------------- --------------
<S> <C> <C> <C>
Lynn S. Birdsong (52)++* President and Trustee Managing Director of Scudder Senior Vice President
Kemper Investments, Inc.
Paul Bancroft III (69) Trustee Venture Capitalist and --
79 Pine Lane Consultant; Retired, President,
Snowmass Village, CO 81615 Chief Executive Officer and
Director, Bessemer Securities
Corporation
Sheryle J. Bolton (53) Trustee Chief Executive Officer, --
Scientific Learning Corporation Scientific Learning
1995 University Avenue Corporation; Former President
Suite 400 and Chief Operating Officer,
Berkeley, CA 94704 Physicians' Online, Inc.
(electronic transmission of
clinical information for
physicians) (1994-1995)
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Age Scudder Investor
and Address Position with Trust Principal Occupation** Services, Inc.
- ----------- ------------------- ---------------------- --------------
<S> <C> <C> <C>
William T. Burgin (56) Trustee General Partner, Bessemer --
83 Walnut Street Venture Partners; General
Wellesley, MA 02181-2101 Partner, Deer & Company;
Director, James River Corp.;
Director, Galile Corp.;
Director of various privately
held companies
Thomas J. Devine (71) Honorary Trustee Consultant --
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 --
The U.N. Association of the Metropolitan Museum of Art
USA (1986 to 1999); Chairman and
801 Second Avenue President, United Nations
New York, NY 10128-0144 Association of America
(organizer/researcher of U.N.-
supporting entities (February
1, 1999)
Wilson Nolen (72) Honorary Trustee Consultant (1989 to present); --
1120 Fifth Avenue. #10-B Corporate Vice President,
New York, NY 10128-0144 Becton, Dickinson & Company
(manufacturer of medical and
scientific products) (until
1989)
Joan E. Spero (54) 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 President Managing Director of Scudder Director, Senior Vice
and Assistant Secretary Kemper Investments, Inc. President, Chief Legal
Officer and Assistant
Clerk
Robert G. Stone, Jr. (76) Honorary Trustee Chairman Emeritus and Director, --
405 Lexington Avenue Kirby Corporation (inland and
New York, NY 10174 offshore marine transportation
and diesel repairs)
Edmund R. Swanberg++ (78) Honorary Trustee Advisory Managing Director of --
Scudder Kemper Investments, Inc.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Name, Age Scudder Investor
and Address Position with Trust Principal Occupation** Services, Inc.
- ----------- ------------------- ---------------------- --------------
<S> <C> <C> <C>
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.
James E. Fenger (40)## Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Philip S. Fortuna (41)# Vice President Managing Director of Scudder Vice President
Kemper Investments
Ann M McCreary (42)++ Vice President Managing Director of Scudder __
Kemper Investments, Inc.
John Millette (37)+ Vice President and Assistant Vice President of __
Secretary Scudder 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 Vice President
Kemper 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 Funds and counsel to be
persons who are "interested persons" of the Adviser or of the Funds,
within the meaning of the Investment Company Act of 1940, as amended.
** Unless otherwise stated, all Trustees and officers have been associated
with their respective companies for more than five years, but not
necessarily in the same capacity.
33
<PAGE>
@ Mr. Pierce and Ms. Quirk are members of the Executive Committee for the
Trust, 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
++ Address: 345 Park Avenue, New York, New York
# Address: 101 California Street, Suite 4100, San Francisco, CA 94111-5886
## Address: 222 South Riverside Plaza, Chicago, IL 60606-5808
The Trustees and officers of the Funds also serve in similar capacities
with other Scudder Funds.
As of August 31, 1999, all Trustees and officers of the Funds as a group
owned beneficially (as that term is defined is section 13(d) of the Securities
Exchange Act of 1934) less than 1% of each Fund.
As of August 31, 1999, 207,528 shares in the aggregate, 5.87% of the
outstanding shares of Scudder Health Care Fund were held in the name of Charles
Schwab & Co., 101 Montgomery Street, San Francisco, CA 94104, who may be deemed
to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein.
As of August 31, 1999, 487,973 shares in the aggregate, 6.52% of the
outstanding shares of Scudder Technology Fund were held in the name of Charles
Schwab & Co., 101 Montgomery Street, San Francisco, CA 94104, who may be deemed
to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein.
As of August 31, 1999, 113,407 shares in the aggregate, 5.25% of the
outstanding shares of Scudder Financial Services Fund were held in the name of
Charles Schwab & Co., 101 Montgomery Street, San Francisco, CA 94104, who may be
deemed to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein.
To the best of the Funds' knowledge, as of August 31, 1999, no person
owned beneficially more than 5% of a 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 each
Fund's business. A majority of the Board's members are not affiliated with the
Adviser. These "Independent Trustees" have primary responsibility for assuring
that each Fund is managed in the best interests of its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of each Fund and other operational matters, including policies and
procedures designated to assure 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, each
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 Funds' independent public accountants and by
independent legal counsel selected by the Independent Trustees.
All of 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 each 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
each 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
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<PAGE>
as speakers at directors' conferences or service on special trustee task forces
or subcommittees. Independent Trustees do 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 1998 from the Trust and from all of the Scudder funds as a group.
<TABLE>
<CAPTION>
Paid by Paid by Paid by Paid by
Name The Trust The Adviser the Funds the Adviser(1)
---- --------- ----------- --------- --------------
<S> <C> <C> <C> <C>
Paul Bancroft III, Trustee $44,625 $0 $174,200 $8,925 (23 funds)
Sheryle J. Bolton, Trustee** $43,225 $0 $149,050 $0 (21 funds)
William T. Burgin, Trustee $45,125 $2,975 $150,950 $8,925 (21 funds)
Thomas J. Devine, Honorary Trustee+ $45,125 $2,975 $162,450 (22 funds) $8,925 (22 funds)
Keith R. Fox, Trustee $47,475 $2,975 $156,800 $8,925 (21 funds)
William H. Luers, Trustee** $37,975 $2,975 $157,050 $8,925 (24 funds)
Wilson Nolen, Honorary Trustee+ $45,125 $2,975 $189,075 (24 funds) $6,375 (24 funds)
Joan E. Spero, *** rustee $7,360 $0.00 $29,736 (21 funds) $0.00 (21 funds)
</TABLE>
(1) Meetings associated with the Adviser's alliance with Zurich Insurance
Company. See "Investment Adviser" for additional information.
* Scudder Securities Trust consists of seven funds: Scudder Development
Fund, Scudder Small Company Value Fund, Scudder 21st Century Growth Fund,
Scudder Micro Cap Fund, Scudder Financial Services Fund, Scudder Health
Care Fund and Scudder Technology Fund. Scudder Financial Services Fund
commenced operations on November 3, 1997. Scudder Health Care Fund and
Scudder Technology Fund each commenced operations on March 2, 1998.
** Elected as Trustee to Scudder Securities Trust in October 1997.
*** Elected as Trustee to Scudder Securities Trust in June 1997.
Members of the Board of Trustees who are employees of the Adviser or its
affiliates receive no direct compensation from the Trust, although they are
compensated as employees of the Adviser, or its affiliates, as a result of which
they may be deemed to participate in fees paid by each Fund.
DISTRIBUTOR
The Trust has an underwriting agreement with Scudder Investor Services,
Inc., a Massachusetts corporation, which is a subsidiary of the Adviser, a
Delaware corporation. The Trust's underwriting agreement dated September 7, 1998
will remain in effect until September 30, 1999 and from year to year thereafter
only if their continuance is approved annually by a majority of the members of
the Board of Trustees who are not parties to such agreement or interested
persons of any such party and either by vote of a majority of the Board of
Trustees or a majority of the outstanding voting securities of a Fund. The
underwriting agreement was last approved by the Trustees on August 6, 1998.
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<PAGE>
Under the underwriting agreement, the Funds are 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 each Fund as a broker or dealer in
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 a 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 Funds 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 Funds'
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of shares of the Funds to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
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 Funds, unless a Rule 12b-1 Plan is in effect
which provides that the Funds shall bear some or all of such expenses.
Note: Although the Funds do not currently have a 12b-1 Plan, and the
Trustees have no current intention of adopting one, the Funds would
also pay those fees and expenses permitted to be paid or assumed by
the Funds pursuant to a 12b-1 Plan, if any, were adopted by a Fund,
notwithstanding any other provision to the contrary in the
underwriting agreement.
As agent, the Distributor currently offers shares of the Funds on a
continuous basis to investors in all states in which shares of a 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 Funds.
TAXES
Each Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code or a predecessor statute and has qualified as
such since its inception. They intend 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 percent 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.
Each Fund is subject to a 4% nondeductible excise tax on amounts required
to be but not distributed under a prescribed formula. The formula requires
payment to shareholders during a calendar year of distributions representing at
least 98% of a Fund's ordinary income for the calendar year, at least 98% of the
excess of its capital gains over capital losses (adjusted for certain ordinary
losses) 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 generally is made up of 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 a Fund.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by a Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, that 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 proportionate share of federal income taxes paid
by a Fund on such gains as a credit against the shareholder's federal income tax
liability, and will be entitled to increase the adjusted tax
36
<PAGE>
basis of the shareholder's Fund shares by the difference between such reported
gains and the shareholder's tax credit. If a Fund makes such an election, it may
not be treated as having met the excise tax distribution requirement.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
If any such dividends constitute a portion of a Fund's gross income, a
portion of the income distributions of a Fund may be eligible for the 70%
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 a 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 a 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 gains, regardless of the length of time the shares of a Fund have been
held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as 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 declared in
October, November or December with a record date 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 of up to
$2,000 or, if less, the amount of the individual's earned income (up to $2,000
per individual for married couples if only one spouse has earned income) 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 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 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. (Different provisions may apply to Roth IRAs. See discussion above under
Special Plan Accounts.)
Distributions by a 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 written on portfolio stock)
and over-the-counter options on debt securities written or purchased by a Fund
will be subject to tax under Section 1234 of the Code. In general, no loss will
be recognized by a Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e. long-term or short-term) will generally depend, in the case of a lapse or
sale
37
<PAGE>
of the option, on the Fund's holding period for the option, and in the case of
the exercise of a put option, on a Fund's holding period for the underlying
property. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of any property
in the Fund's portfolio similar to the property underlying the put option. If a
Fund writes an 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 short-term
capital gain or loss. If the option is exercised, the character of the gain or
loss depends on the holding period of the underlying stock.
Positions of a Fund which consist of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes 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 stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by a Fund.
Many futures and forward contracts entered into by the Fund and listed
nonequity options written or purchased by a Fund (including options on debt
securities, options on futures contracts, options on securities indices and
options on currencies), 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. Moreover, on the last trading day of a
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 capital gain or loss. Under Section 988 of the Code,
discussed below, gain or loss from foreign currency-related forward contracts,
certain futures and options and similar financial instruments entered into or
acquired by a Fund will be treated as ordinary income or loss.
Positions of a Fund which consist of at least one position not governed by
Section 1256 and at least one futures or forward contract or nonequity option or
other position governed by Section 1256 which substantially diminishes a Fund's
risk of loss with respect to such other position will be treated as a "mixed
straddle." Although mixed straddles are subject to the straddle rules of Section
1092 of the Code, the operation of which may cause deferral of losses,
adjustments in the holding periods of securities and conversion of short-term
capital losses into long-term capital losses, certain tax elections exist for
them which reduce or eliminate the operation of these rules. Each Fund will
monitor its transactions in options, foreign currency futures and forward
contracts and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may require a
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, or if
certain conditions are met.
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.
Gains or losses attributable to fluctuations in exchange rates which occur
between the time a Fund accrues receivables or liabilities denominated in a
foreign currency and the time the Fund actually collects such receivables or
pays such liabilities are treated are ordinary income or ordinary loss.
Similarly, on disposition of debt securities denominated in a foreign currency
and on disposition of certain futures contracts, forward contracts and options,
gains or losses attributable to fluctuations in the value of foreign currency
between the date of acquisition of the security or contract and the date of
disposition are also treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "Section 988" gains or losses, may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.
A portion of the difference between the issue price of zero coupon
securities and their face value (the "original issue discount") is considered to
be income to a Fund each year, even thought the Fund will not receive cash
interest payments from the securities. This original issue discount imputed
income will comprise a part of the investment
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<PAGE>
company taxable income of the Funds which must be distributed to shareholders in
order to maintain the qualification of the Funds as regulated investment
companies and to avoid federal income tax at the Fund's level.
If a Fund invests in stock of certain foreign investment companies, the
Fund may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of a Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of a Fund, other than the taxable year of the
excess distribution or deposition, would be taxed to a Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of a foreign company's stock. Any amount of
distribution or gain allocated to the taxable year of the distribution or
disposition would be included in a Fund's investment company taxable income and,
accordingly, would not be taxable to that Fund to the extent distributed by the
Fund as a dividend to its shareholders.
Each Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, each
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds a Fund's adjusted basis in these shares;
any mark-to-market losses and any loss from an actual disposition of shares
would be deductible as ordinary losses to the extent of any net mark-to-market
gains included in income in prior years. The effect of the election would be to
treat excess distributions and gains on dispositions as ordinary income which is
not subject to a fund-level tax when distributed to shareholders as a dividend.
Alternatively, the Funds may elect to include as income and gains their share of
the ordinary earnings and net capital gain of certain foreign investment
companies in lieu of being taxed in the manner described above.
Dividend and interest income received by a Fund from services outside the
United States may be subject to withholding and other taxes imposed by such
foreign jurisdictions. Tax conventions between certain countries and the U.S.
may reduce or eliminate those foreign taxes, however, and foreign countries
generally do not impose taxes on capital gains in respect to investments by
foreign investors.
Each Fund will be required to report to the Internal Revenue Service all
distributions of investment company 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 investment company 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 a Fund is notified by the IRS or a broker
that the taxpayer identification number furnished by the shareholder is
incorrect or that the shareholder has previously failed to report interest or
dividend income. If the withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in additional
shares, will be reduced by the amounts required to be withheld.
Shareholders of a Fund may be subject to state and local taxes on
distributions received from that Fund and on redemptions of the Fund's shares.
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 a 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.
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<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 routinely reviews commission rates, execution and settlement
services performed and makes 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, with out 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 brokerage and research services to the Adviser or the
Fund. The term "research services" 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, if applicable, 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 services. The Adviser has negotiated arrangements,
which are not applicable to most fixed-income transactions, with certain
broker/dealers pursuant to which a broker/dealer will provide research services,
to the Adviser or the Fund in exchange for the direction by the Adviser of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Adviser will not place orders with a broker/dealer 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 services 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.
In the fiscal period ended May 31, 1999, Scudder Financial Services Fund
paid brokerage commissions of $13,550, Scudder Health Care Fund paid brokerage
commissions of $74,815 and Scudder Technology Fund paid brokerage commissions of
$75,697. For Scudder Financial Services Fund, for the fiscal period ended May
31, 1999, $8,329 (61% 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
information to the Fund or the Adviser. The amount of such transactions
aggregated $18,519,232 (54% of all transactions). For Scudder Health Care Fund,
for the fiscal period ended May 31, 1998, $39,415 (53% 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 information to the Fund or the Adviser. The amount of
such transactions aggregated $120,200,875 (53% of all transactions). For Scudder
Technology Fund, for the fiscal period ended May 31, 1999, $53,131 (70% 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 information to the Fund or the Adviser. The
amount of such transactions aggregated $208,104,964 (72% of all transactions).
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<PAGE>
The Trustees review from time to time whether the recapture for the
benefit of a Fund of some portion of the brokerage commissions or similar fees
paid by a Fund on portfolio transactions is legally permissible and advisable.
Portfolio Turnover
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 period ended May
31, 1999 for Scudder Financial Services Fund, Scudder Health Care Fund and
Scudder Technology Fund were 23.2%, 132.8% and 134.9%, respectively. Higher
levels of activity by a Fund result in higher transaction costs and may also
result in taxes on realized capital gains to be borne by the Fund's
shareholders. Purchases and sales are made for the Fund whenever necessary, in
management's opinion, to meet a Fund's objective.
NET ASSET VALUE
The net asset value of the Funds is computed as of the close of regular
trading on the Exchange on each day the Exchange is open for trading. The
Exchange is scheduled to be closed on the following holidays: New Year's Day,
Dr. Martin Luther King, Jr. Day, 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 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 Nasdaq Stock Market Inc. ("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 Funds' 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 a 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 a Fund is determined
in a manner which, in the discretion of the Valuation Committee most fairly
reflects fair market value of the property on the valuation date.
41
<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 each Fund included in the Funds' 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, MA 02110, independent accountants, given on the authority of said firm
as experts in accounting and auditing. PricewaterhouseCoopers LLP audits the
financial statements of each Fund and provides other audit, tax, and related
services.
Other Information
Many of the investment changes in the Funds will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of a Fund. These transactions will reflect investment
decisions made by the Adviser in the light of its other portfolio holdings and
tax considerations and should not be construed as recommendations for similar
action by other investors.
The CUSIP number of Scudder Financial Services Fund is 811196-50-0.
The CUSIP number of Scudder Health Care Fund is 811196-60-9.
The CUSIP number of Scudder Technology Fund is 811196-70-8.
Each Fund has a fiscal year end of May 31.
Dechert Price & Rhoads acts as counsel for the Funds.
The Funds employ State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110 as Custodian.
Costs of $27,984.26 incurred by Financial Services Fund in conjunction
with its organization are amortized over the five year period beginning November
3, 1998. Costs of $28,000 and $28,000 incurred by Health Care Fund and
Technology Fund, respectively, in conjunction with their organization are
amortized over the five-year period beginning January 5, 1998.
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 Funds. SSC also serves as shareholder service agent and provides
subaccounting and recordkeeping services for shareholder accounts in certain
retirement and employee benefit plans. The Funds each pay Service Corporation an
annual fee for each account maintained for a participant. For the year ended May
31, 1999, SSC imposed its fee for Scudder Financial Services Fund, Scudder
Health Care Fund and Scudder Technology Fund aggregating $183,262, $303,720 and
$402,981, respectively, of which $14,427, $145,156 and $208,103, respectively,
was unpaid at May 31, 1999.
The Fund(s), 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 Funds to Scudder Trust Company, Two
International Place, Boston, Massachusetts, 02110-4103, an affiliate of the
Adviser, for certain retirement plan accounts.
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts 02110-4103, a subsidiary of the Adviser, computes net
asset values for the Funds. Each Fund pays Scudder Fund Accounting Corporation
an annual fee equal to 0.025% of the first $150 million of average daily net
assets, 0.0075% of such assets in excess of $150 million and 0.0045% of such
assets in excess of $1 billion, plus holding and transaction charges for this
service. For the year ended May 31, 1999, SFAC imposed its fee for Scudder
Financial Services Fund,
42
<PAGE>
Scudder Health Care Fund and Scudder Technology Fund aggregating $37,500,
$37,500 and $39,654, respectively, of which $3,125, $3,125 and $3,517,
respectively, was unpaid at May 31, 1999.
The Funds' prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Funds have
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 each 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 portfolios, of Scudder
Financial Services Fund, Scudder Health Care Fund and Scudder Technology Fund,
together with the Report of Independent Accountants, Financial Highlights and
notes to financial statements in the Annual Report to the Shareholders of the
Funds dated May 31, 1999, are incorporated herein by reference, and are hereby
deemed to be a part of this Statement of Additional Information.
43
<PAGE>
SCUDDER SECURITIES TRUST
PART C.
-------
OTHER INFORMATION
-----------------
<TABLE>
<CAPTION>
Item 23. Exhibits:
- --------
<S> <C> <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 is 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.
<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.
2
<PAGE>
(g)(3) Amendment to Custody Contract between the Registrant and State
Street Bank 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.
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 is filed herein.
(j) Consent of Independent Auditors is filed herein.
(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, 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
4
<PAGE>
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
(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
5
<PAGE>
(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.#
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member Group Executive Board, Zurich Financial Services, Inc. ##
6
<PAGE>
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
* 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
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
7
<PAGE>
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
</TABLE>
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> <C>
Lynn S. Birdsong Senior Vice President President & Trustee
345 Park Avenue
New York, NY 10154
Mary Elizabeth Beams Vice President None
Two International Place
Boston, MA 02110
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 None
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
8
<PAGE>
John R. Hebble Assistant Treasurer Treasurer
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Treasurer Vice President
Two International Place and Assistant Clerk
Boston, MA 02110
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
Robert A. Rudell Director and Vice President None
Two International Place
Boston, MA 02110
William M. Thomas Vice President None
Two International Place
Boston, MA 02110
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Sydney S. Tucker 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> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
9
<PAGE>
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.
10
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and 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 28th day of September, 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 September 28, 1999
/s/ Paul Bancroft III
- ---------------------------------------
Paul Bancroft III Trustee September 28, 1999
/s/ Sheryle J. Bolton
- ---------------------------------------
Sheryle J. Bolton* Trustee September 28, 1999
/s/ William T. Burgin
- ---------------------------------------
William T. Burgin* Trustee September 28, 1999
/s/ Keith R. Fox
- ---------------------------------------
Keith R. Fox* Trustee September 28, 1999
/s/ William H. Luers
- ---------------------------------------
William H. Luers* Trustee September 28, 1999
/s/ Kathryn L. Quirk
- ---------------------------------------
Kathryn L. Quirk* Trustee, Vice President and Assistant September 28, 1999
Secretary
/s/ Joan Spero
- ---------------------------------------
Joan Spero* Trustee September 28, 1999
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ John Hebble
- ---------------------------------------
John R. Hebble Treasurer (Principal Financial September 28, 1999
Officer)
</TABLE>
*By: /s/ John Millette
----------------------------------
John Millette
Attorney-in-fact pursuant to power of
attorneys contained in the signature
pages filed herein.
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. 65
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
(i)
(j)
2
<PAGE>
Exhibit (I)
[DECHERT PRICE & RHOADS LETTERHEAD]
September 28, 1999
Scudder Securities Trust
Two International Place
Boston, Massachusetts 02110
Re: Post-Effective Amendment No. 65 to the Registration
Statement on Form N-1A (SEC File No. 2-36238)
Ladies and Gentlemen:
Scudder Securities Trust, formerly Scudder Development Fund, (the
"Trust") is a trust created under a written Declaration of Trust dated October
16, 1985. The Declaration of Trust, as amended from time to time, is referred to
as the "Declaration of Trust." The beneficial interest under the Declaration of
Trust is represented by transferable shares, $.01 par value per share
("Shares"). The Trustees have the powers set forth in the Declaration of Trust,
subject to the terms, provisions and conditions therein provided.
We are of the opinion that all legal requirements have been complied
with in the creation of the Trust and that said Declaration of Trust is legal
and valid.
Under Article V, Section 5.4 of the Declaration of Trust, the Trustees
are empowered, in their discretion, from time to time, to issue Shares for such
amount and type of consideration, at such time or times and on such terms as the
Trustees may deem best. Under Article V, Section 5.1, it is provided that the
number of Shares authorized to be issued under the Declaration of Trust is
unlimited. Under Article V, Section 5.11, the Trustees may authorize the
division of Shares into two or more series. By written instruments, the Trustees
have from time to time established various series of the Trust. The Shares are
currently divided into seven series (the "Funds").
By votes adopted on December 3, 1997 and December 9, 1998, the Trustees
of the Trust authorized the President, any Vice President, the Secretary and the
Treasurer, from
<PAGE>
Scudder Securities Trust
September 28, 1999
Page 2
time to time, to determine the appropriate number of Shares to be registered, to
register with the Securities and Exchange Commission, and to issue and sell to
the public, such Shares.
We understand that you are about to file with the Securities and
Exchange Commission, on Form N-1A, Post Effective Amendment No. 65 to the
Trust's Registration Statement (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), in connection with
the continuous offering of the Shares of three Funds: Scudder Financial Services
Fund, Scudder Health Care Fund and Scudder Technology Fund. We understand that
our opinion is required to be filed as an exhibit to the Registration Statement.
We are of the opinion that all necessary Trust action precedent to the
issue of the Shares of the three Funds named above has been duly taken, and that
all such Shares may be legally and validly issued for cash, and when sold will
be fully paid and non-assessable by the Trust upon receipt by the Trust or its
agent of consideration for such Shares in accordance with the terms in the
Registration Statement, subject to compliance with the Securities Act, the
Investment Company Act of 1940, as amended, and applicable state laws regulating
the sale of securities.
We consent to your filing this opinion with the Securities and Exchange
Commission as an Exhibit to Post-Effective Amendment No. 65 to the Registration
Statement.
Very truly yours,
/s/ Dechert Price & Rhoads
2
Exhibit (j)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Prospectus and
Statement of Additional Information constituting the Post-Effective Amendment
No. 65 to the Registration Statement on Form N-1A (the "Registration Statement")
of Scudder Securities Trust, comprised of Scudder Financial Services Fund,
Scudder Health Care Fund, and Scudder Technology Fund, of our report dated July
9, 1999, on the financial statements and financial highlights appearing in the
May 31, 1999 Annual Report to the Shareholders of Scudder Financial Services
Fund, Scudder Health Care Fund, and Scudder Technology Fund, respectively, which
is also incorporated by reference into the Registration Statement. We further
consent to the references to our Firm under the heading "Financial Highlights,"
in the Prospectus and "Experts" in the Statement of Additional Information.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 27, 1999
