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. 64
----
And/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 48
----
Scudder Securities Trust
------------------------
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110-4103
----------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
--------------
John Millette
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<S> <C>
/ / Immediately upon filing pursuant to paragraph (b) / / On (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1) / X / On December 1, 1999 pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a) (2) / / On (date) pursuant to paragraph (a) (2) of Rule 485.
</TABLE>
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
SCUDDER
- ------------------
EQUITY/VALUE
- ------------------
Scudder Small
Company Value Fund
Fund #078
Prospectus
December 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 Small Company Value Fund
How the fund works
4 Investment Approach
6 Main Risks to Investors
7 The Fund's Track Record
9 How Much Investors Pay
10 Other Policies and Risks
11 Who Manages and Oversees the Fund
13 Financial Highlights
How to invest in the fund
16 How to Buy Shares
17 How to Exchange or Sell Shares
18 Policies You Should Know About
23 Understanding Distributions and Taxes
<PAGE>
How the fund works
On the next few pages, you'll find information about this fund's investment
goal, the main strategies it uses to pursue that goal, and the main risks that
could affect its performance.
You'll also be able to look at the fund's track record and get an idea of the
costs you should expect to pay as a fund shareholder.
Whether you are considering investing in the fund or are already a shareholder,
you'll probably want to look this information over carefully. You may want to
keep it on hand for reference as well.
Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency. Their share
prices will go up and down, so be aware that you could lose money.
You can access all Scudder fund prospectuses online at: www.scudder.com
<PAGE>
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ticker symbol | SCSUX fund number| 078
Scudder Small Company Value Fund
- --------------------------------------------------------------------------------
Investment Approach
The fund seeks long-term growth of capital by investing primarily in undervalued
stocks of small U.S. companies. The fund normally invests at least 90% of its
total assets in common stocks of companies that are similar in size to those
included in the Russell 2000 Index.
In choosing stocks, the portfolio managers begin by using a computer model to
search for companies that appear to be undervalued relative to the average
valuation of companies in the Russell 2000 Index. The model compares each
company's stock price to other measures of its worth, such as earnings, book
value, and sales.
To further narrow the pool of potential stocks, the managers use bottom-up
analysis, looking for companies that seem poised for above-average growth,
whether through a rebound in their markets, a change in business strategy, or
other factors. The managers assemble the fund's portfolio from among the
qualifying stocks, drawing on analyses of economic outlooks for various
industries and the potential risks of each stock.
The managers intend to diversify the fund's investments among many industries
and among many companies (typically over 150). Depending on their outlook, the
managers may increase or reduce the fund's exposure to a given industry or
company.
The fund will normally sell a stock when it reaches a target price, when the
company no longer qualifies as a small company, when the managers believe other
investments offer better opportunities, or
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING TWO PARAGRAPHS.
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OTHER INVESTMENTS
While the fund invests mainly in common stocks, it may 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, commodities,
currencies, or securities), the managers don't intend to use them as principal
investments, and may not use them at all.
4 | Scudder Small Company Value Fund
<PAGE>
in the course of adjusting its emphasis on a given industry.
Scudder Small Company Value Fund | 5
<PAGE>
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[ICON] This fund is designed for long-term investors who are looking
for a fund that seeks to temper the risks of investing in
small company stocks.
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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. Stock prices can be hurt by poor management,
shrinking product demand, and other business risks. Smaller companies are
especially sensitive to these factors and may even become valueless. These may
affect single companies as well as groups of companies in which the fund
invests.
To the extent that the fund focuses on a given industry or a particular size of
company, many factors affecting that industry or size of company could affect
the value of portfolio securities. For example, a rise in unemployment could
hurt manufacturers of consumer goods, and an economic downturn could hurt small
companies more than mid-size and large ones.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends, or other matters
o undervalued stocks could become unpopular
o some derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some investments or
to get an attractive price for them
6 | Scudder Small Company Value Fund
<PAGE>
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[ICON] While a fund's past performance isn't necessarily a sign of
how it will do in the future, it can be valuable for an
investor to know. This page is designed to look at fund
performance two different ways: year by year and over time.
- --------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how much fund returns have varied from year to year, which
may give some idea of risk. The table shows how the fund's returns over
different periods average out. For context, the table also includes two
broad-based market indexes (which, unlike the fund, do not have any fees or
expenses). All figures on this page assume reinvestment of dividends and
distributions.
- ---------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year
- ---------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
23.84 37.01 -5.54
- --------------------------------------------------------------------------------
'96 '97 '98
- --------------------------------------------------------------------------------
1999 Total Return as of September 30: 0.00%
Best Quarter: 17.56%, Q2 1997 Worst Quarter: -17.31%, Q3 1998
- ---------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1998
- ---------------------------------------------------------------
1 Year Since Inception
- ---------------------------------------------------------------
Fund 5.54 17.29*
- ---------------------------------------------------------------
Russell 2000 Index -2.55 13.30**
- ---------------------------------------------------------------
Russell 2000 Value Index -6.45 16.07**
- ---------------------------------------------------------------
The Russell 2000 Index is an unmanaged capitalization-weighted measure of
approximately 2000 small U.S. stocks.
The Russell 2000 Value Index measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth rates.
Total returns would have been lower if operating expenses hadn't been
maintained.
Scudder Small Company Value Fund | 7
<PAGE>
Total returns would have been lower if operating expenses hadn't been
maintained.
* Fund inception: 10/6/1995
** Since 10/31/1995
8 | Scudder Small Company Value 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 x.xx%
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Distribution (12b-1) Fee None
- ------------------------------------------------------------------
Other Expenses x.xx%*
-------
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Total Annual Operating Expenses x.xx%
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* By contract, total operating expenses are capped at 1.25% through 11/30/
2000.
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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
- ---------------------------------------------------------------
$xx $xxx $xxx $xxxx
- ---------------------------------------------------------------
Scudder Small Company Value Fund | 9
<PAGE>
Other Policies and Risks
While the sections on the previous pages describe the main points of the fund's
strategy and risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, the fund's Board could change
the fund's investment goal and other policies without seeking shareholder
approval.
o As a temporary defensive measure, the fund 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.
Year 2000 and euro readiness
Like all mutual funds, this fund could be affected by the inability of some
computer systems to recognize the year 2000. Also, because it may invest in
foreign securities, the fund could be affected by accounting differences,
changes in tax treatment or other issues related to the conversion of certain
European currencies into the euro, which is already underway. The investment
adviser has readiness programs designed to address these problems, and is also
researching the readiness of suppliers and business partners as well as issuers
of securities the fund owns. Still, there's some risk that one or both of these
problems could materially affect the fund's operations (such as its ability to
calculate net asset value and to handle purchases and redemptions), its
investments, or securities markets in general.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING TWO PARAGRAPHS.
- ------------------------------------------------------------------------
FOR MORE INFORMATION
This prospectus doesn't tell you about every policy or risk of investing in the
fund.
If you want more information on the fund's allowable securities and investment
practices and the characteristics and risks of each one, you may want to request
a copy of the SAI (the back cover has information on how to do this).
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
10 | Other Policies and Risks
<PAGE>
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[ICON] Scudder Kemper, the company with overall responsibility for
managing the fund, takes a team approach to asset management.
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Who Manages and Oversees the Fund
The investment adviser
The fund's investment adviser is Scudder Kemper Investments, Inc., located at
345 Park Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years
of experience managing mutual funds, and currently has more than $290 billion in
assets under management.
The fund is managed by a team of investment professionals, who individually
represent different areas of expertise and who together develop investment
strategies and make buy and sell decisions. Supporting the fund managers are
Scudder Kemper's many economists, research analysts, traders, and other
investment specialists, located in offices across the United States and around
the world.
As payment for serving as investment adviser, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was x.xx% of its average daily net assets.
The portfolio managers
The following people who handle the day-to-day management of the fund.
James M. Eysenbach Calvin S. Young
Co-lead Portfolio Manager o Began investment career
o Began investment career in 1987
in 1984 o Joined the adviser in 1990
o Joined the adviser in 1991 o Joined the fund team
o Joined the fund team in 1995 in 1998
Philip S. Fortuna
Co-lead Portfolio Manager
o Began investment career
in DATE
o Joined the adviser in 1986
o Joined the fund team in 1995 TE
Who Manages and Oversees the Fund | 11
<PAGE>
The Board
A mutual fund's Board is responsible for the general oversight of the fund's
business. A majority of the Board is not affiliated with Scudder Kemper. The
independent members have primary responsibility for assuring that the fund is
managed in the best interests of its shareholders.
The following people comprise the fund's Board:
Trustees Kathryn L. Quirk
o Managing Director of
Lynn S. Birdsong Scudder Kemper
o Managing Director of Investments, Inc.
Scudder Kemper o Vice President and Assistant
Investments, Inc. Secretary of the funds
o President of the funds
Joan E. Spero
Paul Bancroft III o President, Doris Duke
o Venture capitalist and Charitable Foundation
consultant
Honorary Trustees
Sheryle J. Bolton
o Chief Executive Officer, Thomas J. Devine
Scientific Learning o Consultant
Corporation
Wilson Nolen
William T. Burgin o Consultant
o General Partner, Bessemer
Venture Partners Robert G. Stone, Jr.
o Chairman Emeritus and
Keith R. Fox Director, Kirby Corporation
o Private equity investor
Edmund R. Swanberg
William H. Luers o Advisory Managing Director
o Chairman and President, of Scudder Kemper
U.N. Association of Investments, Inc.
the U.S.A.
12 | Who Manages and Oversees the Fund
<PAGE>
Financial Highlights
This table is designed to help you understand the fund's financial performance
in recent years. The figures in the first part of the table are for a single
share. The total return figures represent the percentage that an investor in the
fund would have earned (or lost), assuming all dividends and distributions were
reinvested. This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the fund's financial statements, is included in the
annual report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
each period (a) and other performance information derived from the financial
statements.
Scudder Small Company Value Fund
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Years ended August 31, 1999(b) 1998 1997 1996(c)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $17.65 $19.58 $13.57 $12.00
--------------------------------------------------
- --------------------------------------------------------------------------------------------
Income from investment operations:
- --------------------------------------------------------------------------------------------
Net investment income .02 .07 .01 .07
- --------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investment transactions 1.90 (1.71) 6.03 1.53
--------------------------------------------------
- --------------------------------------------------------------------------------------------
Total from investment operations 1.92 (1.64) 6.04 1.60
- --------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------
From net investment income (.05) (.02) (.03) (.05)
- --------------------------------------------------------------------------------------------
From net realized gains on investment
transactions (.14) (.30) (.01) --
--------------------------------------------------
- --------------------------------------------------------------------------------------------
Total distributions (.19) (.32) (.04) (.05)
--------------------------------------------------
- --------------------------------------------------------------------------------------------
Redemption fees .02 .03 .01 .02
- --------------------------------------------------------------------------------------------
Net asset value, end of period $19.40 $17.65 $19.58 $13.57
--------------------------------------------------
- --------------------------------------------------------------------------------------------
Total Return (%) 10.96(d)** (8.45) 44.67(d) 13.54(d)(e)**
- --------------------------------------------------------------------------------------------
Ratios and Supplemental Data
- --------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 294 237 123 41
- --------------------------------------------------------------------------------------------
Ratio of operating expenses net, to
average daily net assets (%) 1.32* 1.39 1.50 1.50*
- --------------------------------------------------------------------------------------------
Ratio of operating expenses before
expense reductions, to average daily
net assets (%) 1.59* 1.39 1.63 2.61*
- --------------------------------------------------------------------------------------------
Ratio of net investment income to
average daily net asset (%) .11* .31 .07 .67*
- --------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33.7* 22.6 43.6 34.0*
- --------------------------------------------------------------------------------------------
</TABLE>
Financial Highlights | 13
<PAGE>
(a) Based on monthly average shares outstanding during the period.
(b) Eleven months ended July 31, 1999 (Note E).
(c) For the period October 6, 1995 (commencement of operations) to August 31,
1996.
(d) Total return would have been lower had certain expenses not been reduced.
(e) 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
14 | Financial Highlights
<PAGE>
How to invest in the fund
The following pages tell you how to invest in the fund and what to expect as a
shareholder. If you're investing directly with Scudder, all of this information
applies to you.
If you're investing through a "third party provider" -- for example, a workplace
retirement plan, financial supermarket or financial adviser -- your provider may
have its own policies or instructions, and you should follow those.
<PAGE>
How to Buy Shares
Use these instructions to invest directly with Scudder. Make out your check to
"The Scudder Funds."
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
First investment Additional investments
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
$2,500 or more for regular $100 or more for regular accounts
accounts
$50 or more for IRAs
$1,000 or more for IRAs
$50 or more with an Automatic
Investment Plan
- -------------------------------------------------------------------------------------------------
By mail or o Fill out and sign an application o Send a check and a Scudder
express investment slip to us at the
(see below) o Send it to us at the appropriate appropriate address below
address, along with an
investment check o If you don't have an investment
slip, simply include a letter with
your name, account number, the
full name of the fund, and your
investment instructions
- --------------------------------------------------------------------------------------------------
By wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for instructions
instructions
By phone -- o Call 1-800-SCUDDER for instructions
- --------------------------------------------------------------------------------------------------
With an -- o To set up regular investments
automatic from a bank checking account,
investment plan call 1-800-SCUDDER
- --------------------------------------------------------------------------------------------------
Using -- o Call 1-800-SCUDDER
QuickBuy
- --------------------------------------------------------------------------------------------------
</TABLE>
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[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)
- --------------------------------------------------------------------------------
16 | 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 most
account ($1,000 for IRAs) for over $100,000, can only be
ordered in writing; if you're in
$100 or more for exchanges doubt, see page 20
between existing accounts
- ------------------------------------------------------------------------------------------------
By phone or o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
wire instructions instructions
- ------------------------------------------------------------------------------------------------
Using SAIL(TM) o Call 1-800- 343-2890 and follow o Call 1-800-343-2890 and follow
the instructions the instructions
- ------------------------------------------------------------------------------------------------
By mail, express Write a letter that includes: Write a letter that includes:
or fax
(see previous o the fund, class, and account o the fund, class, and account
page) number you're exchanging number from which you want to
out of sell shares
o the dollar amount or number of o the dollar amount or number of
shares you want to exchange shares you want to sell
o the name and class of the fund o your name(s), signature(s), and
you want to exchange into address, as they appear on your
account
o your name(s), signature(s), and
address, as they appear on your o a daytime telephone number
account
o a daytime telephone number
- ------------------------------------------------------------------------------------------------
With an -- o To set up regular cash payments
automatic from a Scudder fund account,
withdrawal plan call 1-800-SCUDDER
- ------------------------------------------------------------------------------------------------
Using QuickSell -- o Call 1-800-SCUDDER
- ------------------------------------------------------------------------------------------------
</TABLE>
How to Exchange or Sell Shares | 17
<PAGE>
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[ICON] Questions? You can speak to a Scudder representative between 8
a.m. and 8 p.m. eastern time on any fund business day by
calling 1-800-SCUDDER.
- --------------------------------------------------------------------------------
Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder. Some of this information, such as the section on dividends
and taxes, applies to all investors, including those investing through
investment providers.
If you are investing through an investment provider, check the materials you got
from them. As a general rule, you should follow the information in those
materials wherever it contradicts the information given here. Please note that
an investment provider may charge its own fees.
Policies about transactions
The fund is open for business whenever the New York Stock Exchange is open. The
fund calculates its share price every business day, as of the close of regular
trading on the Exchange (typically 4 p.m. eastern time, but sometimes earlier,
as in the case of scheduled half-day trading or unscheduled suspensions of
trading).
You can place an order to buy or sell shares at any time. Once your order is
received by Scudder Service Corporation, and they have determined that it is a
"good order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Scudder
Service Corporation before they can be processed, you'll need to allow extra
time. A representative of your investment provider should be able to tell you
when your order will be processed.
18 | Policies You Should Know About
<PAGE>
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[ICON] The Scudder Web site can be a valuable resource for
shareholders with Internet access. Go to www.scudder.com to
get up-to-date information, review balances or even place
orders for exchanges.
- --------------------------------------------------------------------------------
SAIL(TM), the Scudder Automated Information Line, is available 24 hours a day by
calling 1-800-343-2890. You can use SAIL to get information on Scudder funds
generally and on accounts held directly at Scudder. You can also use it to make
exchanges and to sell shares.
QuickBuy and QuickSell let you set up a link between a Scudder account and a
bank account. Once this link is in place, you can move money between the two
with a phone call. You'll need to make sure your bank has Automated Clearing
House (ACH) services. To set up QuickBuy or QuickSell on a new account, see the
account application; to add it to an existing account, call 1-800-SCUDDER.
When you call us to sell shares, we may record the call, ask you for certain
information, or take other steps designed to prevent fraudulent orders. It's
important to understand that as long as we take reasonable steps to ensure that
an order appears genuine, we are not responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that while we don't
charge a fee to receive wires, we will deduct a $5 fee from all wires sent from
us to your bank. Your bank may charge its own fees for handling wires. The fund
can only accept wires of $100 or more.
Policies You Should Know About | 19
<PAGE>
Exchanges among Scudder funds are an option for shareholders who bought their
fund shares directly from Scudder and many other investors as well. Exchanges
are a shareholder privilege, not a right: we may reject any exchange order,
particularly when there appears to be a pattern of "market timing" or other
frequent purchases and sales. We may also reject purchase orders, for these or
other reasons.
When you want to sell more than $100,000 worth of shares, you'll usually need to
place your order in writing and include a signature guarantee. The only
exception is if you want money wired to a bank account that is already on file
with us; in that case, you don't need a signature guarantee. Also, you don't
need a signature guarantee for an exchange, although we may require one in
certain other circumstances.
A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
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.
20 | Policies You Should Know About
<PAGE>
- --------------------------------------------------------------------------------
[ICON] If you ever have difficulty placing an order br phone or fax,
you can always send us your order in writing.
- --------------------------------------------------------------------------------
How the fund calculates share price
For the fund the share price at which you buy shares is the net asset value per
share, or NAV. To calculate NAV, the fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
------------------------------------ = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
The price at which you sell shares of the fund is also the 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 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 of
Trustees. In such a case, the fund's value for a security is likely to be
different from quoted market prices.
Policies You Should Know About | 21
<PAGE>
Other rights we reserve
You should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if you have been
notified by the IRS that you are subject to backup withholding, or if you
fail to provide us with a correct taxpayer ID number or certification that
you are exempt from backup withholding
o charge you $10 a year if your account balance falls below $2,500, and close
your account and send you the proceeds if your balance falls below $1,000; in
either case, we will give you 60 days' notice so you can either increase your
balance or close your account (these policies don't apply to retirement
accounts, to investors with $100,000 or more in Scudder fund shares, or in
any case where a fall in share price created the low balance)
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been opened, we
may give you 30 days' notice to provide the correct number
o pay you for shares you sell by "redeeming in kind," that is, by giving you
marketable securities (which typically will involve brokerage costs for you
to liquidate) rather than cash; in most cases, the fund won't make a
redemption-in-kind unless your requests over a 90-day period total more than
$250,000 or 1% of the fund's assets, whichever is less
o change, add, or withdraw various services, fees, and account policies (for
example, we may change or terminate the exchange privilege at any time)
22 | Policies You Should Know About
<PAGE>
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. The 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. (The fund's earnings are separate
from any gains or losses stemming from your own purchases and sales of shares.)
The fund may not always pay a distribution for a given period.
The fund intends to pay dividends and distributions to its shareholders in
November and 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.
Understanding Distributions and Taxes | 23
<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.
- --------------------------------------------------------------------------------
The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
- ------------------------------------------------------------------
o short-term capital gains from selling fund shares
- ------------------------------------------------------------------
o taxable income dividends you receive from the fund
- ------------------------------------------------------------------
o short-term capital gains distributions you receive from the fund
- ------------------------------------------------------------------
Generally taxed at capital gains rates
- ------------------------------------------------------------------
o long-term capital gains from selling fund shares
- ------------------------------------------------------------------
o long-term capital gains distributions you receive from the fund
- ------------------------------------------------------------------
The fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.
If you invest right before the fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.
Corporations may be able to take a dividends-received deduction for a portion of
income dividends they receive.
24 | Understanding Distributions and Taxes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
Notes
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To Get More Information
Shareholder reports -- These include commentary from the fund's management team
about recent market conditions and the effect of the fund's strategies on its
performance. They also have detailed performance figures, a list of everything
the fund owns, and the fund's financial statements. Shareholders get these
reports automatically. To reduce costs, we mail one copy per household. For more
copies, call 1-800-SCUDDER.
Statements of Additional Information (SAI) -- This tells you more about the
fund's features and policies, including additional risk information. The fund's
SAI is incorporated by reference into this document (meaning that it is legally
part of this prospectus).
If you'd like to ask for copies of these documents, or if you're a shareholder
and have questions, please contact Scudder or the SEC (see below). Materials you
get from Scudder are free; those from the SEC involve a copying fee. If you
like, you can look over these materials in person at the SEC's Public Reference
Room in Washington, DC.
Scudder Funds SEC
PO Box 2291 450 Fifth Street, N.W.
Boston, MA 02107-2291 Washington, DC 20549-6009
1-800-SCUDDER 1-800-SEC-0330
www.scudder.com www.sec.gov
SEC File Number 811-2021
<PAGE>
SCUDDER SMALL COMPANY VALUE FUND
A series of Scudder Securities Trust
A No-Load (No Sales Charges) Diversified Mutual Fund Which Invests for
Long-Term Growth of Capital by Seeking out Undervalued Stocks
of Small U.S. Companies
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
December 1, 1999
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus, and
should be read in conjunction with the prospectus of Scudder Small Company Value
Fund dated December 1, 1999, as amended from time to time, a copy 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 the Scudder Small Company Value
Fund dated July 31, 1999 is incorporated by reference and is hereby deemed to be
part of this Statement of Additional Information. This may also be obtained
without charge by calling 1-800-SCUDDER.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES.........................................................1
General Investment Objective and Policies...................................................1
Investments.................................................................................1
Master/feeder structure.....................................................................2
Investments and Investment Techniques.......................................................2
Investment Restrictions....................................................................13
PURCHASES...........................................................................................14
Additional Information About Opening An Account............................................14
Minimum balances...........................................................................14
Additional Information About Making Subsequent Investments.................................15
Additional Information About Making Subsequent Investments by QuickBuy.....................15
Checks.....................................................................................16
Wire Transfer of Federal Funds.............................................................16
Share Price................................................................................16
Share Certificates.........................................................................16
Other Information..........................................................................16
EXCHANGES AND REDEMPTIONS...........................................................................17
Exchanges..................................................................................17
Special Redemption and Exchange Information................................................18
Redemption by Telephone....................................................................18
Redemption by QuickSell....................................................................19
Redemption by Mail or Fax..................................................................20
Redemption-In-Kind.........................................................................20
Other Information..........................................................................20
FEATURES AND SERVICES OFFERED BY THE FUND...........................................................21
The Pure No-Load(TM).......................................................................21
Internet access............................................................................22
Dividends and Capital Gains Distribution Options...........................................22
Scudder Investor Centers...................................................................23
Reports to Shareholders....................................................................23
Transaction Summaries......................................................................23
THE SCUDDER FAMILY OF FUNDS.........................................................................23
SPECIAL PLAN ACCOUNTS...............................................................................30
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for
Corporations and Self-Employed Individuals..............................................30
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations
and Self-Employed Individuals...........................................................30
Scudder IRA: Individual Retirement Account................................................30
Scudder Roth IRA: Individual Retirement Account...........................................31
Scudder 403(b) Plan........................................................................32
Automatic Withdrawal Plan..................................................................32
Group or Salary Deduction Plan.............................................................32
Automatic Investment Plan..................................................................33
Uniform Transfers/Gifts to Minors Act......................................................33
Scudder Savings Incentive Match Plans for Employees: SIMPLE IRA'S.........................33
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS...........................................................34
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
PERFORMANCE INFORMATION.............................................................................34
Average Annual Total Return................................................................34
Cumulative Total Return....................................................................34
Total Return...............................................................................35
Comparison of Fund Performance.............................................................35
FUND ORGANIZATION...................................................................................39
INVESTMENT ADVISER..................................................................................40
Personal Investments by Employees of the Adviser...........................................43
TRUSTEES AND OFFICERS...............................................................................43
REMUNERATION........................................................................................46
Responsibilities of the Board -- Board and Committee Meetings..............................46
Compensation of Officers and Trustees......................................................47
DISTRIBUTOR.........................................................................................48
TAXES...............................................................................................49
PORTFOLIO TRANSACTIONS..............................................................................52
Brokerage Commissions......................................................................52
Portfolio Turnover.........................................................................54
NET ASSET VALUE.....................................................................................54
ADDITIONAL INFORMATION..............................................................................55
Experts....................................................................................55
Shareholder Indemnification................................................................55
Other Information..........................................................................56
FINANCIAL STATEMENTS................................................................................57
</TABLE>
ii
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
Scudder Small Company Value Fund (the "Fund") is a no-load, diversified
series of Scudder Securities Trust (the "Trust"), an open-end management
investment company which continuously offers and redeems its shares at net asset
value. It is a company of the type commonly known as a mutual fund.
General Investment Objective and Policies
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies. The Fund's
investment adviser, Scudder Kemper Investments, Inc. (the "Adviser"), uses a
systematic, proprietary investment approach to identify small, domestic
companies that, in the opinion of the Adviser, are selling at prices that do not
reflect adequately their long-term business potential. These companies are often
out of favor or not closely followed by investors and, as a result, may offer
substantial appreciation potential over time.
The Fund is expected to provide little, if any, current income and is
designed for the aggressive portion of an investor's portfolio. Although the
Fund typically holds a large number of securities identified through a
quantitative, value-driven investment strategy, it does entail above-average
investment risk in comparison to larger stocks. Shares of the Fund should be
purchased with a long-term horizon in mind. To encourage long-term investment, a
1% redemption exchange fee, described more fully below, is payable to the Fund
for the benefit of remaining shareholders on shares held less than one year.
Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
If there is a change in investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. There can be no assurance that the Fund's
objective will be met.
Investments
In pursuit of long-term growth of capital, the Fund invests, under
normal circumstances, at least 90% of its assets in the common stock of small
U.S. companies. The Fund will invest in securities of companies that are similar
in size to those in the Russell 2000(R) Index of small stocks. The Fund will
sell securities of companies that have grown in market capitalization above the
maximum of the Russell 2000 Index, as necessary to keep the Fund focused on
smaller companies.
The Fund takes a diversified approach to investing in small
capitalization issues. The Fund will typically invest in more than one hundred
and fifty small companies, representing a variety of U.S. industries.
While the Fund invests predominantly in common stocks, it can purchase
other types of equity securities including preferred stocks (convertible
securities), rights, warrants, and restricted and illiquid securities.
Securities may be listed on national exchanges or traded over-the-counter. The
Fund also may invest up to 20% of its total assets in U.S. Treasury, agency and
instrumentality obligations on a temporary basis, 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. The Fund currently intends to borrow only for temporary or emergency
purposes, such as providing for redemptions or distributions, and not for
investment leverage purposes.
For temporary defensive purposes, the Fund may invest without limit in
cash and cash equivalents when the Adviser deems such a position advisable in
light of economic or market conditions. It is impossible to accurately predict
how long such alternate strategies may be utilized. In such cases, the Fund may
hold without limit, cash, high
<PAGE>
grade debt securities, without equity features, which are rated Aaa, A or A by
Moody's Investors Service, Inc. ("Moody's") or AAA, AA or A by Standard & Poor's
("S&P"), or, if unrated, are deemed by the Adviser to be of equivalent quality.
U.S. Government securities and invest in money market instruments which are
rated in the the two highest categories by Moody's or S&P, or if unrated, are
deemed by the Adviser to be of equivalent quality. The Fund may borrow money for
temporary, emergenvy, or other purposes, including investment leverage purposes,
as determined by the Trustees. The Fund may also borrow under reverse repurchase
agreements. The Investment Company Act of 1940, as amended (the "1940 Act")
requires borrowings to have 300% asset coverage.
Master/feeder structure
The Board of Trustees has the discretion to retain the current
distribution arrangement for the Fund while investing in a master fund in a
master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Investments and Investment Techniques
Value Investment Approach. The Fund is actively managed using a disciplined,
value-oriented investment management approach. The Adviser uses a proprietary,
computerized model to identify for investment small public U.S. companies
selling at prices that, in the opinion of the Adviser, do not reflect adequately
their long-term business potential. Companies purchased for the Fund typically
have attractive valuations relative to the Russell 2000 Index -- a widely used
benchmark of small stock performance-- based on measures such as price to
earnings, price to book value and price to cash flow ratios.
The Fund's holdings are often out of favor or simply overlooked by
investors. Accordingly, their prices can rise either as a result of improved
business fundamentals, particularly when earnings grow faster than general
expectations, or as more investors come to recognize the full extent of a
company's underlying potential.
While the Fund involves above-average equity risk, the Fund's
value-oriented, systematic approach to investing is designed to mitigate
volatility of the Fund's share price relative to the small capitalization sector
of the U.S. stock market. This risk is further managed by purchasing a large
number of stocks, and employing specialized portfolio management techniques,
such as portfolio optimization.
The Fund focuses specifically on finding undervalued stocks of small
U.S. companies. Historically, small companies have been attractive because they
have been sources of new technologies and services, have competed with large
companies on the basis of lower labor costs and have grown faster than larger
firms. Their small size has also allowed them to respond rapidly to changing
business conditions. In addition, small companies have not been closely followed
by as many securities analysts as larger companies, so they have rewarded
investors with the patience and knowledge to have them sought out.
2
<PAGE>
Investments Involving Above-Average Risk. The Fund may purchase securities
carrying above-average risk relative to larger cap stocks or fixed income
investments. The Fund's shares are suitable only for those investors who can
make such investments without concern for current income and who are in a
financial position to assume above-average stock market risks in search of
long-term rewards.
Small companies may have limited product lines, markets or financial
resources; may lack management depth or experience; and may be more vulnerable
to adverse general market or economic developments than large companies. The
prices of small company securities are often more volatile than prices
associated with large company issues, and can display abrupt or erratic
movements at times, due to limited trading volumes and less publicly available
information. To help reduce risk, the Fund allocates its investments among many
companies and different industries.
The securities of small companies are often traded only
over-the-counter and may not be traded in the volume typical of larger companies
trading on a national securities exchange. As a result, the disposition by the
Fund of holdings of such securities may require the Fund to offer a discount
from recent prices or dispose of the securities over a lengthy period of time.
The prices of this type of security may be more volatile than those of larger
companies which are often traded on a national securities exchange.
Common stocks. Under normal circumstances, the Fund invests primarily in common
stocks. Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, the
Fund participates in the success or failure of any company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
Convertible Securities. The Fund may invest in convertible securities, that is,
bonds, notes, debentures, preferred stocks, and other securities which are
convertible into common stocks.
The convertible securities in which the Fund may invest may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any particular
convertible security may be adjusted from time to time due to stock splits,
dividends, spin-offs, other corporate distributions, or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities generally, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion or exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stocks changes, and, therefore, also tends to follow movements in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis and so may not experience
market value declines to the same extent as the underlying common stock. When
the market price of the underlying common stock increases, the prices of the
convertible securities tend to rise as a reflection of the value of the
underlying common stock, although typically not as much as the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
nonconvertible 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
3
<PAGE>
subordination feature, convertible bonds and convertible preferred stock
typically have lower ratings than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid Yield
Option Notes (LYONS). Zero coupon securities pay no cash income and are sold at
substantial discounts from their value at maturity. When held to maturity, their
entire income, which consists of accretion of discount, comes from the
difference between the issue 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.
Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933 or the availability of an exemption from registration
(such as Rules 144 or 144A) or because they are subject to other legal or
contractual delays in or restrictions on resale.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the Securities Act of 1933. The Fund may be deemed to be an
"underwriter" for purposes of the Securities Act of 1933 when selling restricted
securities to the public, and in such event the Fund may be liable to purchasers
of such securities if such sale is made in violation of the 1933 Act or if the
registration statement prepared by the issuer, or the prospectus forming a part
of it, is materially inaccurate or misleading.
The Adviser will monitor the liquidity of such restricted securities
subject to the supervision of the Board of Trustees. In reaching liquidity
decisions, the Adviser will consider the following factors: (1) the frequency of
trades and quotes for the security, (2) the number of dealers wishing to
purchase or sell the security and the number of their potential purchasers, (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (i.e. the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer).
Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker/dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Adviser to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Ratings Services ("S&P").
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price upon repurchase. In either case, the income to the
Fund is unrelated to the interest rate on the Obligation itself. Obligations
will be physically 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 the Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to the Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by the Fund subject to a repurchase
4
<PAGE>
agreement as being owned by the Fund or as being collateral for a loan by the
Fund to the seller. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the Obligation before repurchase of
the Obligation under a repurchase agreement, the Fund may encounter delay and
incur costs before being able to sell the security. Delays may involve loss of
interest or decline in price of the Obligation. If the court characterizes the
transaction as a loan and the Fund has not perfected a security interest in the
Obligation, the Fund may be required to return the Obligation to the seller's
estate and be treated as an unsecured creditor of the seller. As an unsecured
creditor, the Fund would be at risk of losing some or all of the principal and
income involved in the transaction. As with any unsecured debt obligation
purchased for the Fund, the Adviser seeks to minimize the risk of loss through
repurchase agreements by analyzing the creditworthiness of the obligor, in this
case the seller of the Obligation. Apart from the risk of bankruptcy or
insolvency proceedings, there is also the risk that the seller may fail to
repurchase the security. However, if the market value of the Obligation subject
to the repurchase agreement becomes less than the repurchase price (including
interest), the Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price.
Warrants. The Fund may invest in warrants up to 5% of the value of total assets.
The holder of a warrant has the right, until the warrant expires, to purchase a
given number of shares of a particular issuer at a specified price. Such
investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered speculative investments. Warrants pay
no dividends and confer no rights other than a purchase option. Thus, if a
warrant held by the Fund were not exercised by the date of its expiration, the
Fund would lose the entire purchase price of the warrant.
Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. The Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. The Fund will enter into reverse repurchase agreements only when the
Adviser believes that the interest income to be earned from the investment of
the proceeds of the transaction will be greater than the interest expense of the
transaction.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms deemed by the Adviser to be in good standing.
The value of the securities loaned will not exceed 5% of the value of the Fund's
total assets at the time any loan is made.
Borrowing. As a matter of fundamental policy, the Fund will not borrow money,
except as permitted under the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. While
the Trustees do not currently intend to borrow for investment leverage purposes,
if such a strategy were implemented in the future it would increase the Fund's
volatility and the risk of loss in a declining market. Borrowing by the Fund
will involve special risk considerations. Although the principal of the Fund's
borrowings will be fixed, the Fund's assets may change in value during the time
a borrowing is outstanding, thus increasing exposure to capital risk.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks or to seek gain. These strategies may be executed through the use
of derivative contracts. Such strategies are generally accepted as a part of
modern portfolio management and are regularly utilized by many mutual funds and
other institutional investors. Techniques and instruments may change over time
as new instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and other financial instruments, purchase and sell financial
futures contracts and options thereon, and enter into various interest rate
transactions such as swaps, caps, floors or
5
<PAGE>
collars (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities market fluctuations, to
protect the Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of fixed-income securities in the Fund's
portfolio, or to establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. Some Strategic
Transactions may also be used to enhance potential gain although no more than 5%
of the Fund's assets will be committed to Strategic Transactions entered into
for non-hedging purposes. Any or all of these investment techniques may be used
at any time and in any combination, and there is no particular strategy that
dictates the use of one technique rather than another, as use of any Strategic
Transaction is a function of numerous variables including market conditions. The
ability of the Fund to utilize these Strategic Transactions successfully will
depend on the Adviser's ability to predict pertinent market movements, which
cannot be assured. The Fund will comply with applicable regulatory requirements
when implementing these strategies, techniques and instruments. Strategic
Transactions involving financial futures and options thereon will be purchased,
sold or entered into only for bona fide hedging, risk management or portfolio
management purposes and not to create leveraged exposure in the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as
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the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 15% of its net assets in illiquid
securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
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The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed 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, and futures contracts. All calls sold by the
Fund must be "covered" (i.e., the Fund must own the securities or futures
contract subject to the call) or must meet the asset segregation requirements
described below as long as the call is outstanding. Even though the Fund will
receive the option premium to help protect it against loss, a call sold by the
Fund exposes the Fund during the term of the option to possible loss of
opportunity to realize appreciation in the market price of the underlying
security or instrument and may require the Fund to hold a security or instrument
which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, equity securities
(including convertible securities) and Eurodollar instruments (whether or not it
holds the above securities in its portfolio), 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. The Fund will not sell put options if, as a result,
more than 50% of the Fund's assets would be required to be segregated to cover
its potential obligations under such put options other than those with respect
to futures and options thereon. In selling put options, there is a risk that the
Fund may be required to buy the underlying security at a disadvantageous price
above the market price.
General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, or equity market changes, for duration
management and for risk management purposes. Futures are generally bought and
sold on the commodities exchanges where they are listed with payment of initial
and variation margin as described below. The sale of a futures contract creates
a firm obligation by the Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). Options on futures contracts are similar to
options on securities except that an option on a futures contract gives the
purchaser the right in return for the premium paid to assume a position in a
futures contract and obligates the seller to deliver such position.
The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index
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<PAGE>
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. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, and multiple
interest rate transactions and any combination of futures, options, currency and
interest rate transactions ("component" transactions), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio as a duration management technique or to protect
against any increase in the price of securities the Fund anticipates purchasing
at a later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream the
Fund may be obligated to pay. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain return within a
predetermined range of interest rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund 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.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
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Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid high grade securities at
least equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. For example, a call option written by the Fund will require the Fund to
hold the securities subject to the call (or securities convertible into the
needed securities without additional consideration) or to segregate cash or
liquid assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
OTC options entered into by the Fund, including those on securities,
financial instruments or indices and OCC issued and exchange listed index
options, will generally provide for cash settlement. As a result, when the Fund
sells these instruments it will only segregate an amount of cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement and the Fund will segregate an
amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid assets
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating cash or liquid assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
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Investment Restrictions
Unless specified to the contrary, the following fundamental
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund involved which, under the 1940 Act and
the rules thereunder and as used in this Statement of Additional Information,
means the lesser of (1) 67% or more of the voting securities present at such
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy, or (2) more than 50% of the
outstanding voting securities of the Fund.
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after and is caused by an acquisition or
encumbrance of securities or assets of, or borrowings by, the Fund.
The Fund has elected to be classified as a diversified series of an
open-end investment company. In addition, as a matter of fundamental policy, the
Fund will not:
(1) borrow money, except as permitted under the 1940 Act, 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 1940
Act, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(3) concentrate its investments in a particular industry, as that
term is used in the 1940 Act, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
(4) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
(6) purchase physical commodities or contracts related to physical
commodities; or
(7) make loans except as permitted under the 1940 Act, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
Nonfundamental policies may be changed by the Trustees of the Trust and
without shareholder approval. As a matter of nonfundamental policy, the Fund
does not currently intend to:
(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(3) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
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<PAGE>
(4) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(5) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit;
(6) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
(7) lend portfolio securities in an amount greater than 5% of its
total assets.
PURCHASES
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, TWX, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have a certified Tax Identification Number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call, the investor will be asked to
indicate the Fund name, amount to be wired ($2,500 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the taxpayer identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, State Street Bank and Trust Company, Boston, MA
02110, ABA Number 011000028, DDA Account Number: 9903-5552. The investor must
give the Scudder fund name, account name and the new account number. Finally,
the investor must send the completed and signed application to the Fund
promptly.
The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500
($1,000 for fiduciary accounts such as IRAs, and custodial accounts such as
Uniform Gift to Minor Act, and Uniform Trust to Minor Act accounts), which
amount may be changed by the Board of Trustees. A shareholder may open an
account with at least $1,000 ($500 for fiduciary/custodial accounts), if an
automatic investment plan (AIP) of $100/month ($50/month for fiduciary/custodial
accounts) is established. Scudder group retirement plans and certain other
accounts have similar or lower minimum share balance requirements.
The Fund reserves the right, following 60 days' written notice to
applicable shareholders, to:
o assess an annual $10 per fund charge (with the fee to be paid
to the fund) for any non-fiduciary/non-custodial account
without an automatic investment plan (AIP) in place and a
balance of less than $2,500; and
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<PAGE>
o redeem all shares in Fund accounts below $1,000 where a
reduction in value has occurred due to a redemption, exchange
or transfer out of the account. The Fund will mail the
proceeds of the redeemed account to the shareholder.
Reductions in value that result solely from market activity will not
trigger an involuntary redemption. Shareholders with a combined household
account balance in any of the Scudder Funds of $100,000 or more, as well as
group retirement and certain other accounts will not be subject to a fee or
automatic redemption.
Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or
UTMA) with balances below $100 are subject to automatic redemption following 60
days' written notice to applicable shareholders.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD, and banks. Orders placed in this manner may be directed to any
office of the Distributor listed in the Fund's prospectus. A confirmation of the
purchase will be mailed out promptly following receipt of a request to buy.
Federal regulations require that payment be received within three business days.
If payment is not received within that time, the order is subject to
cancellation. In the event of such cancellation or cancellation at the
purchaser's request, the purchaser will be responsible for any loss incurred by
the Fund or the principal underwriter by reason of such cancellation. If the
purchaser is a shareholder, the Trust shall have the authority, as agent of the
shareholder, to redeem shares in the account in order to reimburse the Fund or
the principal underwriter for the loss incurred. Net losses on such transactions
which are not recovered from the purchaser will be absorbed by the principal
underwriter. Any net profit on the liquidation of unpaid shares will accrue to
the Fund.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
New York Stock Exchange, Inc. (the "Exchange"), normally 4 p.m. eastern time.
Proceeds in the amount of your purchase will be transferred from your bank
checking account two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
purchased at the net asset value per share calculated at the close of trading on
the day of your call. QuickBuy requests received after the close of regular
trading on the Exchange will begin their processing and be purchased at the net
asset value calculated the following business day. If you purchase shares by
QuickBuy and redeem them within seven days of the purchase, the Fund may hold
the redemption proceeds for a period of up to seven business days. If you
purchase shares and there are insufficient funds in your bank account the
purchase will be canceled and you will be subject to any losses or fees incurred
in the transaction. QuickBuy transactions are not available for most retirement
plan accounts. However, QuickBuy transactions are available for Scudder IRA
accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing a QuickBuy Enrollment Form. After sending in an enrollment form,
shareholders should allow 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
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Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares of the Fund are purchased by a check which proves to be
uncollectible, the Trust reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Trust or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Trust will have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from, or restricted in, placing future orders in any of the
Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by State
Street Bank and Trust Company (the "Custodian") of "wired funds," but the right
to charge investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on each day during
which the Exchange is open for trading. Orders received after the close of
regular trading on the Exchange will receive the next business day's net asset
value. If the order has been placed by a member of the NASD, other than the
Distributor, it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to Scudder Service Corporation (the
"Transfer Agent") by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of the Trust's management to afford ease of
redemption, certificates will not be issued to indicate ownership in the Fund.
Share certificates now in a shareholder's possession may be sent to the Transfer
Agent for cancellation and credit to such shareholder's account. Shareholders
who prefer may hold the certificates in their possession until they wish to
exchange or redeem such shares.
Other Information
The Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Fund's shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on the Fund's behalf. Orders for purchase or redemption will be deemed to
have been received by the Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between the Fund and the
broker, ordinarily orders will be priced at the Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of the Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Trustees and the Distributor, also the Fund's principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Trustees and the Distributor may suspend or terminate the
offering of shares of the Fund at any time for any reason.
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The Board of Trustees and the Distributor each has the right to limit,
for any reason, the amount of purchases by, and to refuse to, sell to any
person, and each may suspend or terminate the offering of shares of the Fund at
any time for any reasons.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g. from exempt organizations, certification of exempt status)
will be returned to the investor. The Fund also reserves the right, following 30
days' notice, to redeem all shares in accounts without a correct certified
Social Security or tax identification number. A shareholder may avoid
involuntary redemption by providing the Fund with a tax identification number
during the 30-day notice period.
The Trust may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
EXCHANGES AND REDEMPTIONS
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange may be
either 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, tax
identification number, address, and account options/features as the account of
origin. Exchanges into an existing account must be for $100 or more. If the
account receiving the exchange proceeds is to be different in any respect, the
exchange request must be in writing and must contain an original signature
guarantee as described under "Transaction Information -- Signature guarantees"
in the Fund's prospectus.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder Fund to an
existing account in another Scudder Fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
However, shares that are exchanged may be subject to the Fund's 1% redemption
fee. (See "Special Redemption and Exchange Information." An exchange into
another Scudder fund is a redemption of shares, and therefore may result in tax
consequences (gain or loss) to the shareholder, and the proceeds of such an
exchange may be subject to backup withholding.
(See "TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Trust employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Trust does not follow such
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procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trust will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. The Trust, the Fund and the Transfer Agent each reserves the right to
suspend or terminate the privilege of exchanging by telephone or fax at any
time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder funds or classes thereof. For more information,
please call 1-800-225-5163.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Special Redemption and Exchange Information
In general, shares of the Fund may be exchanged or redeemed at net
asset value. However, shares of the Fund held for less than one year are
redeemable at a price equal to 99% of the then current net asset value per
share. This 1% discount, referred to in the prospectus and this statement of
additional information as a redemption fee, directly affects the amount a
shareholder who is subject to the discount receives upon exchange or redemption.
It is intended to encourage long-term investment in the Fund, to avoid
transaction and other expenses caused by early redemptions and to facilitate
portfolio management. The fee is not a deferred sales charge, is not a
commission paid to the Adviser or its subsidiaries, and does not benefit the
Adviser in any way. The Fund reserves the right to modify the terms of or
terminate this fee at any time.
The redemption discount will not be applied to (a) a redemption of
shares of the Fund outstanding for one year or more, (b) shares purchased
through certain Scudder retirement plans, including 401(k) plans, 403(b) plans,
457 plans, Keogh accounts, and Profit Sharing and Money Purchase Pension Plans
provided, however, if such shares are purchased through a broker, financial
institution or recordkeeper maintaining an omnibus account for the shares, such
waiver may not apply. (Before purchasing shares, please check with your account
representative concerning the availability of the fee waiver. In addition, this
waiver does not apply to IRA and SEP-IRA accounts.) (c) a redemption of
reinvestment shares (i.e., shares purchased through the reinvestment of
dividends or capital gains distributions paid by the Fund), (d) a redemption of
shares by the Fund upon exercise of its right to liquidate accounts (i) falling
below the minimum account size by reason of shareholder redemptions or (ii) when
the shareholder has failed to provide tax identification information, or (e) a
redemption of shares due to the death of the registered shareholder of a Fund
account, or, due to the death of all registered shareholders of a Fund account
with more than one registered shareholder, (i.e., joint tenant account), upon
receipt by Scudder Service Corporation of appropriate written instructions and
documentation satisfactory to Scudder Service Corporation. For this purpose and
without regard to the shares actually redeemed, shares will be treated as
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 redeeming shareholder acquires Fund shares through a transfer from
another shareholder, applicability of the discount, if any, will be determined
by reference to the date the shares were originally purchased, and not from the
date of transfer between shareholders.
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 also request to have the proceeds
mailed or wired to their predesignated bank account. In order to request wire
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
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redemption to a predesignated bank account or who want to
change the bank account previously designated to receive
redemption payments should either return a Telephone
Redemption Option Form (available upon request) or send a
letter identifying the account and specifying the exact
information to be changed. The letter must be signed exactly
as the shareholder's name(s) appears on the account. An
original signature and an original signature guarantee are
required for each person in whose name the account is
registered.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a
participant in the Federal Reserve System, redemption proceeds must be
wired through a commercial bank which is a correspondent of the savings
bank. As this may delay receipt by the shareholder's account, it is
suggested that investors wishing to use a savings bank discuss wire
procedures with their bank and submit any special wire transfer
information with the telephone redemption authorization. If appropriate
wire information is not supplied, redemption proceeds will be mailed to
the designated bank.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption requests by telephone (technically a repurchase by agreement
between the Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Redemption by QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickSell program may sell shares of the Fund by telephone. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, normally 4 p.m. eastern time, shares will be redeemed at the net asset
value per share calculated at the close of trading on the day of your call.
QuickSell requests received after the close of regular trading on the Exchange
will begin their processing and be redeemed at the net asset value calculated
the following business day. QuickSell transactions are not available for Scudder
IRA accounts and most other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing an QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
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.
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Redemption by Mail or Fax
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional 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 five business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays in
payment of more than seven days 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 please call 1-800-225-5163.
Redemption-In-Kind
The Trust reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Trust and valued as they are for purposes of computing the Fund's net asset
value (a redemption-in-kind). If payment is made in securities, a shareholder
may incur transaction expenses in converting these securities into cash. The
Fund has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Trust is obligated to redeem shares, with respect to any one
shareholder during any 90 day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
Other Information
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder will receive, in addition to the net asset
value thereof, all declared but unpaid dividends thereon. The value of shares
redeemed or repurchased may be more or less than the shareholder's cost
depending on the net asset value at the time of redemption or repurchase. A wire
charge may be applicable for redemption proceeds wired to an investor's bank
account. Redemptions of shares, including an exchange into another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and the
proceeds of such redemptions may be subject to backup withholding. (see
"TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The determination of net asset value and a shareholder's right to
redeem shares and to receive payment may be suspended at times and a
shareholder's right to redeem shares and to receive payment may be suspended at
times during which (a) the Exchange is closed, other than customary weekend and
holiday closings, (b) trading on the Exchange is restricted for any reason, (c)
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) a
governmental body having jurisdiction over the Fund may by order permit such a
suspension for the protection of the Trust's shareholders; provided that
applicable rules and regulations of the SEC (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in (b), (c) or
(d) exist.
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FEATURES AND SERVICES OFFERED BY THE FUND
The No-Load
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
Scudder pioneered the no-load concept when it created the nation's
first no-load fund in 1928, and later developed the nation's first family of
no-load mutual funds.
Investors are encouraged to review the fee tables in the Fund's
prospectus for more specific information about the rates at which management
fees and other expenses are assessed.
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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 -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
Dividends and Capital Gains Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of a Fund. A change of instructions for the method of
payment must be received by the Transfer Agent at least five days prior to a
dividend record date. Shareholders also may change their dividend option either
by calling 1-800-225-5163 or by sending written instructions to the Transfer
Agent. Please include your account number with your written request. See
"Investment Products and Services" in the Funds' prospectuses for the address.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of a Fund.
Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
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DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Reports to Shareholders
The Trust issues shareholders unaudited semiannual financial statements
and annual financial statements audited by independent accountants, including a
list of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights. The Trust presently intends to
distribute to shareholders informal quarterly reports during the intervening
quarters, containing a statement of the investments of the Funds.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.
THE SCUDDER FAMILY OF FUNDS
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds.
MONEY MARKET
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series
Scudder Government Money Market Series
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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*
- ---------------------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
U.S. INCOME
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 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
- ---------------------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
Scudder Pathway Series: Growth Portfolio
Scudder Pathway Series: International Portfolio
U.S. GROWTH AND INCOME
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder 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
- ---------------------------------------
** Only the Scudder Shares are part of the Scudder Family of Funds.
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Growth
Scudder Classic Growth Fund**
Scudder Large Company 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
- ---------------------------------------
** 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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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
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 1-800-225-5163.
SPECIAL PLAN ACCOUNTS
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRAs other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
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None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples if only one spouse has
earned income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
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Scudder Roth IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for a
Roth Individual Retirement Account which meets the requirements of Section 408A
of the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, excess medical expenses, the
purchase of health insurance for an unemployed individual and qualified higher
education expenses.
An individual with an income of $100,000 or less (who is not married,
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
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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 -- Signature guarantees" in the Fund's
prospectus. Any such requests must be received by the Fund's transfer agent ten
days prior to the date of the first automatic withdrawal. An Automatic
Withdrawal Plan may be terminated at any time by the shareholder, the Trust or
its agent on written notice, and will be terminated when all shares of the Fund
under the Plan have been liquidated or upon receipt by the Trust of notice of
death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Trust and its agents reserve the right to establish a maintenance
charge in the future depending on the services required by the investor.
The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
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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.
Scudder Savings Incentive Match Plans for Employees: SIMPLE IRA'S
Shares of the Fund may be purchased as the underlying investment for a
"SIMPLE IRA." A SIMPLE IRA is an IRA into which both an individual and the
individual's employer may make contributions. The individual may elect to make
pre-tax contributions, calculated as a percentage of compensation, to a SIMPLE
IRA, up to $6,000 a year. Subject to certain limits, the employer may either
match a portion of your contributions, or may make a contribution equal to 2% of
the employee's compensation without regard to the amount the employee
contributes under the SIMPLE IRA. Individuals will be immediately 100% vested in
all contributions made to a SIMPLE IRA.
If amounts are distributed from a SIMPLE IRA account during the two
year period beginning on the date the employee first participates in the SIMPLE
salary reduction arrangement, a 25% penalty tax will be imposed on such
distribution. Also during that two year period, the SIMPLE IRA account can be
rolled over tax-free only to another SIMPLE IRA account. After that two year
period has passed, distributions from a SIMPLE IRA instead will be subject
generally to the rules applicable to other IRAs; for example, they may be rolled
over tax-free into any individual retirement plan, they will be subject to the
10% penalty tax on early distributions that are made before the individual
reaches age 59 1/2, and they will be fully taxed when withdrawn.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund intends to follow the practice of distributing substantially
all of its investment company taxable income, which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
The Fund may allow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, the Fund may retain all or part of such gain for reinvestment, after
paying the related federal income taxes for which the shareholders may claim a
credit against their federal income tax liability. If the Fund does not
distribute the amount of capital gains and/or ordinary income required to be
distributed by an excise tax provision of the Code, the Fund may be subject to
that excise tax. In certain circumstances, the Fund may determine that it is in
the interest of shareholders to distribute less than the required amount. (See
"TAXES.")
The Fund intends to distribute investment company taxable income and
any net realized capital gains resulting from Fund investment activity in
November or December each year. Both types of distributions will be made in
shares of the Fund and confirmations will be mailed to each shareholder unless a
shareholder has elected to receive cash, in which case a check will be sent.
Distributions of investment company taxable income and net realized capital
gains are taxable, whether made in shares or cash (see "TAXES").
PERFORMANCE INFORMATION
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures will be calculated in the following manner:
Average Annual Total Return
Average Annual Total Return is the average annual compound rate of
return for the periods of one year and the life of the Fund, all ended on the
last day of a recent calendar quarter. Average annual total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by finding the average
annual compound rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):
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T = (ERV/P)1/n - 1
Where:
P = a hypothetical initial investment of $1,000
T = Average Annual Total Return
n = number of years
ERV = ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
Average Annual Total Return for the periods ended July 31, 1999
One Year Life of Fund^(1)
(4.84%) 14.36%
(1) For the period October 6, 1995 (commencement of operations) to
July 31, 1999
Cumulative Total Return
Cumulative Total Return is the cumulative rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
Total Return quotations reflect changes in the price of the Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative Total Return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (Cumulative Total Return is then expressed as
a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
Cumulative Total Return for the periods ended July 31, 1999
One Year Life of Fund^(1)
(4.84%) 66.85%
(1) For the period October 6, 1995 (commencement of operations) to
July 31, 1999
Total Return
Total Return is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative Total Return.
Quotations of the Fund's Performance are historical and are not
intended to indicate future performance. An investor's share when redeemed may
be worth more or less than their original cost. Performance of the Fund will
vary based on changes in market conditions and the level of Fund's expenses.
There may be quarterly periods following the periods reflected in the
performance bar chart in the fund's prospectus which may be higher or lower than
those included in the bar chart.
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Comparison of Fund Performance
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. From time to time, in advertising and marketing literature,
this Fund's performance may be compared to the performance of broad groups of
mutual funds with similar investment goals, as tracked by independent
organizations.
From time to time, in marketing and other Fund literature, Trustees and
officers of the Fund, the Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.
The Fund may be advertised as an investment choice in Scudder's college
planning program.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The
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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.
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FUND ORGANIZATION
The Fund is a series of Scudder Securities Trust, formerly Scudder
Development Fund, a Massachusetts business trust established under a Declaration
of Trust dated October 16, 1985. The Trust's predecessor was organized as a
Delaware corporation in 1970. The Trust's authorized capital consists of an
unlimited number of shares of beneficial interest of $0.01 par value, all of
which are of one class and have equal rights as to voting, dividends and
liquidation. The Trust's shares are currently divided into seven series, Scudder
Development Fund, Scudder Financial Services Fund, Scudder Health Care Fund,
Scudder Micro Cap Fund, Scudder Small Company Value Fund, Scudder Technology
Fund and Scudder 21st Century Growth Fund. The Trustees have the authority to
issue additional series of shares and to designate the relative rights and
preferences as between the different series. Each share of each series has equal
rights with each other share of that series as to voting, dividends and
liquidations. All shares issued and outstanding will be fully paid and
nonassessable by the Trust, and redeemable as described in this Statement of
Additional Information and in each series' prospectus.
The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Trust entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting that
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series.
The Trustees, in their discretion, may authorize the division of shares
of the Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution. The Trustees have no present
intention of taking the action necessary to effect the division of shares into
separate classes, nor of changing the method of distribution of shares of the
Fund.
The Declaration of Trust provides that obligations of the Fund are not
binding upon the Trustees individually but only upon the property of the Fund,
that the Trustees and officers will not be liable for errors of judgment or
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mistakes of fact or law, and that the Fund will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Fund. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
INVESTMENT ADVISER
Scudder Kemper Investments, Inc., 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, Scudder
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Scudder Global Fund,
Inc., Scudder Global High Income Fund, Inc., Scudder GNMA Fund, Scudder
Portfolio Trust, Scudder Institutional Fund, Inc., Scudder International Fund,
Inc., Scudder Investment Trust, Scudder Municipal Trust, Scudder Mutual Funds,
Inc., Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc., Scudder
Pathway Series, Scudder Securities Trust, Scudder State Tax Free Trust, Scudder
Tax Free Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund,
Scudder Variable Life Investment Fund, The Argentina Fund, Inc., The Brazil
Fund, Inc., The Korea Fund, Inc., The Japan Fund, Inc. and Scudder Spain and
Portugal Fund, Inc. Some of the foregoing companies or trusts have two or more
series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between the Adviser and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
Scudder has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by Scudder with respect to assets invested by AMA members in Scudder
funds in connection with the AMA InvestmentLink(SM) Program. Scudder will also
pay AMA Solutions, Inc. a general monthly fee, currently in the amount of $833.
The AMA and AMA Solutions, Inc. are not engaged in the business of providing
investment advice and neither is registered as an investment adviser or
broker/dealer under federal securities laws. Any person who participates in the
AMA InvestmentLink(SM) Program will be a customer of Scudder (or of a subsidiary
thereof) and not the AMA or AMA Solutions, Inc. AMA InvestmentLink(SM) is a
service mark of AMA Solutions, Inc.
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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. In this work, the Adviser
utilizes certain reports and statistics from a wide variety of sources,
including brokers and dealers who may execute portfolio transactions for the
Fund and other clients of the Adviser, but conclusions are based primarily on
investigations and critical analyses by the Adviser's own research specialists.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view toward 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 the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Adviser in the interest of achieving
the most favorable net results to the Fund.
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 the Adviser) and the financial services businesses of B.A.T
Industries p.l.c. ("B.A.T") were combined to form a new global insurance and
financial services company known as Zurich Financial Services Group. By way of a
dual holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services Group, with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, the Fund's existing investment
management agreement with the Adviser was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement (the "Agreement") with the Adviser, which is substantially identical
to the current investment management agreement, except for the date of execution
and termination. This Agreement became effective upon the termination of the
then current investment management agreement and was approved by shareholders at
a special meeting heldin December 1998.
The Agreement dated September 7, 1998, was approved by the Trustees of
the Fund on August 6, 1998. The Agreement will continue in effect until
September 30, 2000 and from year to year thereafter only if its continuance is
approved annually by the vote of a majority of those Trustees who are not
parties to such Agreement or interested persons of the Adviser or the Fund, cast
in person at a meeting called for the purpose of voting on such
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approval, and either by a vote of the Trust's Trustees or of a majority of the
outstanding voting securities of the Fund. The Agreement may be terminated at
any time without payment of penalty by either party on sixty days' written
notice, and automatically terminates in the event of its assignment.
Under the Agreement, the Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objective, policies and restrictions and determines what securities
shall be purchased, held or sold and what portion of the Fund's assets shall be
held uninvested, subject always to the provisions of the Trust's Declaration of
Trust and By-Laws, the 1940 Act, the Code and to the Fund's investment
objective, policies and restrictions, and subject, further, to such policies and
instructions as the Board of Trustees of the Fund may from time to time
establish. The Adviser also advises and assists the officers of the Fund in
taking such steps as are necessary or appropriate to carry out the decisions of
its Trustees and the appropriate committees of the Trustees regarding the
conduct of the business of the Fund.
Under the Agreement, the Adviser renders significant administrative
services (not otherwise provided by third parties) necessary for the Fund's
operations as an open-end investment company including, but not limited to,
preparing reports and notices to the Trustees and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to the Fund (such as the Fund's transfer agent, pricing
agents, custodian, accountants and others); preparing and making filings with
the SEC and other regulatory agencies; assisting in the preparation and filing
of the Fund's federal, state and local tax returns; preparing and filing the
Fund's federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of the Fund under applicable
federal and state securities laws; maintaining the Fund's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of the Fund; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Fund's operating budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging for, the payment of distributions and dividends and otherwise
assisting the Fund in the conduct of its business, subject to the direction and
control of the Trustees.
The Adviser pays the compensation and expenses (except those for
attending Board and committee meetings outside New York, New York and Boston,
Massachusetts) of all Trustees, officers and executive employees of the Fund
affiliated with the Adviser, and makes available, without expense to the Fund,
the services of such directors, officers and employees of the Adviser as may
duly be elected officers of the Fund, subject to their individual consent to
serve and to any limitations imposed by law, and provides the Fund's office
space and facilities.
For these services the Fund pays the Adviser a fee equal to an annual
rate of 0.75% of the Fund's average daily net assets payable monthly, provided
the Fund will make such interim payments as may be requested by the Adviser not
to exceed 75% of the amount of the fee then accrued on the books of the Fund and
unpaid. The Adviser agreed until November 30, 2000 to maintain the total
annualized expenses of the Fund at no more than 1.50% of the average daily net
assets of the Fund. For the period October 6, 1995 (commencement of operations)
to August 31, 1997, the Adviser waived a portion of its management fee amounting
to $89,398. The investment advisory fees paid to the Adviser for the fiscal
years ending August 31, 1997 and 1998 were $436,985 and $1,778,500,
respectively. For the eleven months ended July 31, 1999, the Adviser did not
impose a portion of its management fee which amounted to $670,202, and the
amount imposed amounted to $1,164,515.
Under the Agreement, the Fund is responsible for all of its other
expenses including: fees and expenses incurred in connection with membership in
investment company organizations; broker's commissions, legal, auditing and
accounting expenses; the calculation of net asset value; taxes and governmental
fees; the fees and expenses of the Transfer Agent; the cost of preparing share
certificates or any other expenses including expenses of issuance, redemption or
repurchase of shares; the expenses of and the fees for registering or qualifying
securities for sale; the fees and expenses of Trustees, officers and employees
of the Fund who are not affiliated with the Adviser; the cost of printing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians. The Fund may arrange to have third parties assume all or part of
the expenses of sale, underwriting and distribution of shares of the Fund. The
Fund is also responsible for expenses of shareholders' meetings, the cost of
responding to shareholders' inquiries and expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees with respect thereto.
37
<PAGE>
The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Trust's investment products and services.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees of the Fund who are not
"interested persons" of the Adviser are represented by independent counsel at
the Fund's expense.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.
None of the Trustees or officers of the Fund may have dealings with the
Fund as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the 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,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
Lynn S. Birdsong (52)++* President and Trustee Managing Director of Scudder Kemper Director, Vice
Investments, Inc. President and
Assistant Treasurer
Paul Bancroft III (69) Trustee Venture Capitalist and Consultant; --
79 Pine Lane Retired, President, Chief Executive
Box 6639 Officer and Director, Bessemer
Snowmass Village, CO 81615 Securities Corporation
38
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------------- ------------------ ---------------------- --------------
Sheryle J. Bolton (53) Trustee CEO and Director, Scientific Learning --
Scientific Learning Corporation Corporation; Former President and
1995 University Ave Chief Operating Officer, Physicians
Suite 400 Online, Inc. (electronic transmission
San Francisco, CA 94704 of clinical information for
physicians (1994-1995)
William T. Burgin (56) Trustee General Partner, Bessemer Venture --
83 Walnut Street Partners; General Partner, Deer &
Wellesley, MA 02481-2101 Company; Director, Fort James Corp.;
Director of various privately held
companies
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 President, The Metropolitan Museum of --
The Metropolitan Art (1986 to present)
Museum of Art
1000 Fifth Avenue
New York, NY 10028
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 Managing Director of Scudder Kemper Director, Senior Vice
President and Investments, Inc. President and
Assistant Secretary Assistant Clerk
Thomas J. Devine (73) Honorary Trustee Consultant --
149 East 73rd Street
New York, NY 10022
Wilson Nolen (73) Honorary Trustee Consultant (1989 to present); --
1120 Fifth Avenue Corporate Vice President, Becton,
New York, NY 10128-0144 Dickinson & Company (manufacturer of
medical and scientific products)
until 1989
Robert G. Stone, Jr. (76) Honorary Trustee Chairman Emeritus and Director, Kirby --
405 Lexington Avenue Corporation (inland and offshore
39th Floor marine transportation and diesel
New York, NY 10174 repairs)
39
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------------- ------------------ ---------------------- --------------
Edmund R. Swanberg (78)++ Honorary Trustee Advisory Managing Director of Scudder --
Kemper Investments, Inc.
Peter Chin (57)++ Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
J. Brooks Dougherty (40)+ Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
James M. Eysenbach (37)# Vice President Managing Director of Scudder Kemper --
Investments, Inc.
James E. Fenger (40)## Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Philip S. Fortuna (42)# Vice President Managing Director of Scudder Kemper Vice President
Investments
Ann M. McCreary (42)++ Vice President Managing Director of Scudder Kemper --
Investments
Thaddeus Paluszek (42)++ Vice President Vice President of Scudder Kemper --
Investments, Inc.
Kurt R. Stalzer (41)## Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Peter Taylor (62)++ Vice President Managing Director of Scudder Kemper --
Investments, Inc.
John R. Hebble (41)+ Treasurer Senior Vice President of Scudder --
Kemper Investments, Inc.
Richard W. Desmond (63)++ Assistant Secretary Vice President of Scudder Kemper Vice President
Investments, Inc.
40
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------------- ------------------ ---------------------- --------------
John Millette (36)+ Vice President and Assistant Vice President of Scudder --
Secretary Kemper Investments, Inc. since
September 1994; previously employed
by the law firm Kaye, Scholer,
Fierman, Hays & Handler
--
Caroline Pearson (37)+ Assistant Secretary Senior Vice President of Scudder
Kemper Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
</TABLE>
* Mr. Birdsong and Ms. Quirk are considered by the Fund and its counsel
to be persons who are "interested persons" of the Adviser or of the
Fund within the meaning of the 1940 Act.
** Unless otherwise stated, all officers and trustees have been associated
with their respective companies for more than five years, but not
necessarily in the same capacity.
@ Mr. Birdsong and Ms. Quirk are members of the Executive Committee which
may exercise substantially all of the powers of the Board of Trustees
when it is not in session.
+ Address: Two International Place, Boston, Massachusetts 02110
++ Address: 345 Park Avenue, New York, New York 10154
# Address: 101 California Street, Suite 4100, San Francisco, CA
94111-5886
## Address: 222 South Riverside Plaza, Chicago, IL 60606-5808
The Trustees and Officers of the Trust also serve in similar capacities
with other Scudder Funds.
REMUNERATION
Responsibilities of the Board -- Board and Committee Meetings
The Board of Trustees is responsible for the general oversight of the
Fund's business. A majority of the Board's members are not affiliated with
Scudder Kemper Investments, Inc. These "Independent Trustees" have primary
responsibility for assuring that the Fund is managed in the best interests of
its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of the Fund and other operational matters, including policies and
procedures designed to ensure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for
41
<PAGE>
investment advisory services and other administrative and shareholder services.
In this regard, they evaluate, among other things, the Fund's investment
performance, the quality and efficiency of the various other services provided,
costs incurred by the Adviser and its affiliates and comparative information
regarding fees and expenses of competitive funds. They are assisted in this
process by the Fund's independent public accountants and by independent legal
counsel selected by the Independent Trustees.
All the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects the Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Trustees from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Trustees
The Independent Trustees receive the following compensation from the
Funds of Scudder Securities Trust: an annual trustee's fee of $3,500; a fee of
$325 for attendance at each board meeting, audit committee meeting or other
meeting held for the purposes of considering arrangements between the Trust on
behalf of the Fund and the Adviser or any affiliate of the Adviser; $100 for all
other committee meetings; and reimbursement of expenses incurred for travel to
and from Board Meetings. No additional compensation is paid to any Independent
Trustee for travel time to meetings, attendance at directors' educational
seminars or conferences, service on industry or association committees,
participation as speakers at directors' conferences or service on special
trustee task forces or subcommittees. Independent Trustees do not receive any
employee benefits such as pension or retirement benefits or health insurance.
Notwithstanding the schedule of fees, the Independent Trustees have in the past
and may in the future waive a portion of their compensation.
The Independent Trustees also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type and complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1997 from the Trust and from all of the Scudder funds as a group.
<TABLE>
<CAPTION>
Scudder Securities Trust* All Scudder Funds
------------------------- -----------------
Paid by Paid by Paid by Paid by
Name The Trust The Adviser the Funds the Adviser(1)
---- --------- ----------- --------- --------------
<S> <C> <C> <C> <C>
Paul Bancroft III, $44,625 $0 $174,200 $8,925
Trustee (23 funds)
Sheryle J. Bolton, $43,225 $0 $149,050 $0
Trustee** (21 funds)
William T. Burgin, $45,125 $2,975 $150,950 $8,925
Trustee (21 funds)
Thomas J. Devine, $45,125 $2,975 $162,450 (22 funds) $8,925 (22 funds)
Honorary Trustee+
42
<PAGE>
Scudder Securities Trust* All Scudder Funds
------------------------- -----------------
Paid by Paid by Paid by Paid by
Name The Trust The Adviser the Funds the Adviser(1)
---- --------- ----------- --------- --------------
Keith R. Fox, Trustee $47,475 $2,975 $156,800 $8,925
(21 funds)
William H. Luers, $37,975 $2,975 $157,050 $8,925
Trustee** (24 funds)
Wilson Nolen, Honorary $45,125 $2,975 $189,075 (24 funds) $6,375 (24 funds)
Trustee+
Joan E. Spero,*** Trustee $7,360 $0.00 $29,736(21 funds) $0.00 (21 funds)
</TABLE>
* Scudder Securities Trust consists of seven funds: Scudder Development
Fund, Scudder Financial Services Fund, Scudder Health Care Fund,
Scudder Technology Fund, Scudder Micro Cap Fund, Scudder Small Company
Value Fund and Scudder 21st Century Growth Fund.
** Elected as Trustee of the Trust in October 1997.
*** Elected as Trustee of the Trust in September 1998.
+ Elected as Honorary Trustee in December 1998, after serving as Trustee.
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 the Fund.
DISTRIBUTOR
The Trust has an underwriting agreement with Scudder Investor Services,
Inc., Two International Place, Boston, MA 02110 (the "Distributor"), a
Massachusetts corporation, which is a subsidiary of the Adviser, a Delaware
corporation. The Trust's underwriting agreement dated September 7, 1998 will
remain in effect until September 30, 2000 and from year to year thereafter only
if its continuance is approved annually by a majority of the Trustees who are
not parties to such agreement or interested persons of any such party and either
by a vote of a majority of the Trustees or a majority of the outstanding voting
securities of the Fund. The underwriting agreement was last approved by the
Trustees on August 6, 1998.
Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of its registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering the Fund as a broker or dealer in the
various states as required; the fees and expenses of preparing, printing and
mailing prospectuses annually to existing shareholders (see below for expenses
relating to prospectuses paid by the Distributor), notices, proxy statements,
reports or other communications to shareholders of the Fund; the cost of
printing and mailing confirmations of purchases of shares and any prospectuses
accompanying such confirmations; any issuance taxes and/or any initial transfer
taxes; a portion of shareholder toll-free telephone charges and expenses of
shareholder service representatives; the cost of wiring funds for share
purchases and redemptions (unless paid by the
43
<PAGE>
shareholder who initiates the transaction); the cost of printing and postage of
business reply envelopes; and a portion of the cost of computer terminals used
by both the Fund and the Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of the shares of the Fund to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a 12b-1 Plan is in effect which
provides that the Fund shall bear some or all of such expenses.
NOTE: Although the Fund does not currently have a 12b-1 Plan, the
Fund would also pay those fees and expenses permitted to be
paid or assumed by the Fund pursuant to a 12b-1 Plan, if any,
were adopted by the Fund, notwithstanding any other provision
to the contrary in the underwriting agreement.
As agent, the Distributor currently offers the Fund's shares on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
TAXES
The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code or a predecessor statute, and has qualified as
such since its inception. It intends to continue to qualify for such treatment.
Such qualification does not involve governmental supervision or management of
investment practices or policy.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90% of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
If for any taxable year the Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such event,
dividend distributions, would be taxable to shareholders to the extent of
current accumulated earnings and profits, and would be eligible for the
dividends received deduction in the case of corporate shareholders.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund. Presently, the Fund has
no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a relative share of federal income taxes paid by
the Fund on such
44
<PAGE>
gains as a credit against personal federal income tax liability, and will be
entitled to increase the adjusted tax basis on Fund shares by the difference
between such reported gains and the individual tax credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are expected to comprise a
substantial part of the Fund's gross income. To the extent that such dividends
constitute a portion of the Fund's gross income, a portion of the income
distributions of the Fund may be eligible for the deduction for dividends
received by corporations. Shareholders will be informed of the portion of
dividends which so qualify. The dividends-received deduction is reduced to the
extent the shares of the Fund with respect to which the dividends are received
are treated as debt-financed under federal income tax law, and is eliminated if
either those shares or the shares of the Fund are deemed to have been held by
the Fund or the shareholder, as the case may be, for less than 46 days during
the 90-day period beginning 45 days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of the Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
A qualifying individual may make a deductible IRA contribution for any
taxable year only if (i) neither the individual nor his or her spouse (unless
filing separate returns) is an active participant in an employer's retirement
plan, or (ii) the individual (and his or her spouse, if applicable) has an
adjusted gross income below a certain level ($40,050 for married individuals
filing a joint return, with a phase-out of the deduction for adjusted gross
income between $40,050 and $50,000; $25,050 for a single individual, with a
phase-out for adjusted gross income between $25,050 and $35,000). However, an
individual not permitted to make a deductible contribution to an IRA for any
such taxable year may nonetheless make nondeductible contributions up to $2,000
to an IRA (up to $2,000 per individual for married couples if only one spouse
has earned income) for that year. There are special rules for determining how
withdrawals are to be taxed if an IRA contains both deductible and nondeductible
amounts. In general, a proportionate amount of each withdrawal will be deemed to
be made from nondeductible contributions; amounts treated as a return of
nondeductible contributions will not be taxable. Also, annual contributions may
be made to a spousal IRA even if the spouse has earnings in a given year if the
spouse elects to be treated as having no earnings (for IRA contribution
purposes) for the year.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
45
<PAGE>
Equity options (including covered call options on portfolio stock) and
over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general, no loss is
recognized by the Fund upon payment of a premium in connection with the purchase
of a put or call option. The character of any gain or loss recognized (i.e.,
long-term or short-term) will generally depend, in the case of a lapse or sale
of the option, on the Fund's holding period for the option, and in the case of
an exercise of a put option, on the Fund's holding period for the underlying
stock. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying stock or substantially identical stock in the Fund's portfolio. If
the Fund writes a put or call option, no gain is recognized upon its receipt of
a premium. If the option lapses or is closed out, any gain or loss is treated as
a short-term capital gain or loss. If a call option is exercised, any resulting
gain or loss is a short-term or long-term capital gain or loss depending on the
holding period of the underlying stock. The exercise of a put option written by
the Fund is not a taxable transaction for the Fund.
Many futures contracts and certain foreign currency forward contracts
entered into by the Fund and all listed non-equity options written or purchased
by the Fund (including options on futures contracts and options on broad-based
stock indices) will be governed by Section 1256 of the Code. Absent a tax
election to the contrary, gain or loss attributable to the lapse, exercise or
closing out of any such position generally will be treated as 60% long-term and
40% short-term capital gain or loss, and on the last trading day of the Fund's
fiscal year, all outstanding Section 1256 positions will be marked to market
(i.e. treated as if such positions were closed out at their closing price on
such day), with any resulting gain or loss recognized as 60% long-term and 40%
short-term. Under certain circumstances, entry into a futures contract to sell a
security may constitute a short sale for federal income tax purposes, causing an
adjustment in the holding period of the underlying security or a substantially
identical security in the Fund's portfolio.
Positions of the Fund which consist of at least one stock and at least
one other position with respect to a related security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for certain "qualified
covered call options" on stock written by the Fund.
Positions of the Fund which consist of at least one position not
governed by Section 1256 and at least one futures or forward contract or
non-equity option governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, certain tax elections exist for them which reduce or
eliminate the operation of these rules. The Fund intends to monitor its
transactions in options and futures and may make certain tax elections in
connection with these investments.
Notwithstanding any of the foregoing, recent tax law changes may
require the Fund to recognize gain (but not loss) from a constructive sale of
certain "appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
The Fund will be required to report to the Internal Revenue Service all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications
46
<PAGE>
regarding their status under the federal income tax law. Withholding may also be
required if the Fund is notified by the IRS or a broker that the taxpayer
identification number furnished by the shareholder is incorrect or that the
shareholder has previously failed to report interest or dividend income. If the
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in additional shares, will be reduced by the
amounts required to be withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
The Fund is organized as a series of a Massachusetts business trust and
is not liable for any income or franchise tax in the Commonwealth of
Massachusetts, provided that it qualifies as a regulated investment company for
federal income tax purposes.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Dividend and interest income received by the Fund from sources outside
the U.S. 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 these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
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.
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, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply 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
47
<PAGE>
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
48
<PAGE>
For the fiscal years ended August 31, 1997 and 1998, and the eleven
month period ended July 31, 1999, the Fund paid brokerage commissions of
$150,026, $250,097, and $xxx,xxx, respectively. For the fiscal year ended August
31, 1999, $xxx,xxx (xx% of the total brokerage commissions paid) resulted from
orders placed, consistent with the policy of obtaining the most favorable net
results, with brokers and dealers who provided supplementary research market and
statistical information to the Fund or the Adviser. The total amount of
brokerage transactions aggregated $xxx,xxx,xxx, of which $xx,xxx,xxx (xx% of all
brokerage transactions) were transactions which included research commissions.
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 years ended August
30, 1997 and 1998, and the eleven month period ended July 31, 1999, were 43.6% ,
22.6%, and 33.7%, respectively.
NET ASSET VALUE
The net asset value of shares of the Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively. Net asset value per share is determined by
dividing the value of the total assets of the Fund, less all liabilities, by the
total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price on the exchange it is traded as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated Mean") on such exchange as
of the Value Time. Lacking a Calculated Mean quotation, the security is valued
at the most recent bid quotation on such exchange as of the Value Time. An
equity security which is traded on The National Association of Securities
Dealers Automated Quotation (Nasdaq) system will be valued at its most recent
sale price on such system as of the Value Time. Lacking any sales, the security
will be valued at the most recent bid quotation as of the Value Time. The value
of an equity security not quoted on the Nasdaq System, but traded in another
over-the-counter market, is its most recent sale price, if there are any sales
of such security on such market as of the Value Time. Lacking any sales, the
security is valued at the Calculated Mean quotation for such security as of the
Value Time. Lacking a Calculated Mean quotation, the security is valued at the
most recent bid quotation as of the Value Time.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less shall be valued by the amortized cost
method, which the Board believes
49
<PAGE>
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 currency exchange rates as of
the date on which the net asset value per share is to be determined.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
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 Fund's 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.
Shareholder Indemnification
The Trust is an organization of the type commonly known as a
Massachusetts business trust. Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Fund's property or
the acts, obligations or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of the Fund's property of any shareholder held
personally liable for the claims and liabilities which a shareholder may become
subject by reason of being or having been a shareholder. Thus, the risk of a
50
<PAGE>
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
Other Information
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in light of the objective and policies of the
Fund, and other factors such as its other portfolio holdings and tax
considerations, and should not be construed as recommendations for similar
action by other investors.
The name "Scudder Securities Trust" is a designation of the Trustees
for the time being under a Declaration of Trust dated October 16, 1985, as
amended from time to time, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Fund. No series
of the Trust shall be liable for the obligations of any other series. Upon the
initial purchase of shares of the Fund, the shareholder agrees to be bound by
the Trust's Declaration of Trust, as amended from time to time. The Declaration
of Trust is on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts.
The Fund has a fiscal year end of July 31.
The CUSIP number of the Fund is 811196-20-3.
The Fund employs State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 as custodian.
The firm of Dechert Price & Rhoads is counsel to the Fund.
Costs incurred by the Fund in conjunction with its organization are
being amortized over the five year period beginning October 6, 1995.
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net
asset value for the Fund. The Fund pays SFAC 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, 0.0045% of such assets in excess of $1 billion, plus
holding and transaction charges for this service. For the period October 6, 1995
(commencement of operations) to August 31, 1996, SFAC did not impose a portion
of their fee amounting to $31,965, and the fee imposed amounted to $36,531. For
the fiscal years ended August 31, 1997 and 1998, and the eleven month period
ended July 31, 1999, the amounts charged to the Fund by SFAC aggregated $57,935,
$81,326, and $67,799 respectively, of which $5,319, $6,320, and $13,084 was
unpaid at August 31, 1997 and 1998, and July 31, 1999, respectively.
Scudder Service Corporation ("SSC"), P.O. Box 2291, Boston,
Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer and
dividend paying agent for the Fund. The Fund pays SSC an annual fee for each
account maintained for a participant. For the period October 6, 1995
(commencement of operations) to August 31, 1996, SSC did not impose a portion of
their fee amounting to $50,693, and the fee imposed amounted to $57,935. For the
fiscal years ended August 31, 1997 and 1998, and the eleventh month period ended
July 31, 1999, the amounts charged by SSC aggregated $285,621, $736,233, and
$696,431, respectively, of which $31,498, $72,297 and $59,497 was unpaid at
August 31, 1997 and 1998, and July 31, 1999, respectively.
The Fund, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the period October 6, 1995
51
<PAGE>
(commencement of operations) to August 31, 1996, STC did not impose a portion of
their fee amounting to $1,082, and the fee imposed amounted to $1,236. For the
fiscal years ended August 31, 1997 and 1998, and the eleven month period ended
July 31, 1999, the amounts charged to the Fund by STC aggregated $20,160,
$255,111, and $743,277, of which $3,172, $77,328, and $170,877 was unpaid at
August 31, 1997 and 1998, and July 31, 1999, respectively.
The Fund's prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement which the Fund has
filed with the SEC under the Securities Act of 1933 and reference is hereby made
to the Registration Statement for further information with respect to the Fund
and the securities offered hereby. This Registration Statement and its
amendments are available for inspection by the public at the SEC in Washington,
D.C.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio, of
Scudder Small Company Value Fund, together with the Report of Independent
Accountants, Financial Highlights and notes to financial statements in the
Annual Report to the Shareholders of the Fund dated July 31, 1999, are
incorporated herein by reference, and are hereby deemed to be a part of this
Statement of Additional Information.
<PAGE>
SCUDDER
- ------------------------
EQUITY/GROWTH
- ------------------------
Scudder 21st
Century Growth
Fund Fund #050
Prospectus
December 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 21st Century Growth Fund
How the fund works
4 Investment Approach
6 Main Risks to Investors
7 The Fund's Track Record
8 How Much Investors Pay
9 Other Policies and Risks
10 Who Manages and Oversees the Fund
12 Financial Highlights
How to invest in the fund
14 How to Buy Shares
15 How to Exchange or Sell Shares
16 Policies You Should Know About
21 Understanding Distributions and Taxes
<PAGE>
How the fund works
On the next few pages, you'll find information about this fund's investment
goal, the main strategies it uses to pursue that goal, and the main risks that
could affect its performance.
You'll also be able to look at the fund's track record and get an idea of the
costs you should expect to pay as a fund shareholder.
Whether you are considering investing in the fund or are already a shareholder,
you'll probably want to look this information over carefully. You may want to
keep it on hand for reference as well.
Remember that mutual funds are investments, not bank deposits. They're not
insured or guaranteed by the FDIC or any other government agency. Their share
prices will go up and down, so be aware that you could lose money.
You can access all Scudder fund prospectuses online at: www.scudder.com
<PAGE>
- --------------------------------------------------------------------------------
ticker symbol | SCTGX fund number | 050
Scudder 21st Century Growth Fund
- --------------------------------------------------------------------------------
Investment Approach
The fund seeks long-term growth of capital by investing primarily in common
stocks of emerging growth companies that the fund's investment adviser believes
are poised to be leaders in the new century. The fund typically invests at least
80% of its total assets in common stocks.
In choosing stocks, the portfolio managers use a combination of three analytical
disciplines:
Bottom-up research. The managers look for small companies, such as those similar
in size to those included in the Russell 2000 Index, that have low debt,
exceptional management teams that hold a significant stake in the company,
strong current or potential competitive positioning, and which the managers
project will have annual earnings growth of at least 15%, among other factors.
Emerging growth orientation. The managers look for companies that may be able to
grow very rapidly by introducing innovative products or services.
Top-down analysis. The managers consider the economic outlooks for various
sectors and industries, favoring those where emerging growth companies tend to
be clustered, such as telecommunications, biotechnology, and high tech.
The managers intend to keep the fund's holdings diversified across industries
and companies, although, depending on their outlook, they may increase or reduce
the fund's exposure to a given industry or company.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING TWO PARAGRAPHS.
- --------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in common stocks, it may invest up to 100% of
total assets in investment grade and U.S. debt securities and money market
instruments.
Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, commodities,
currencies, or securities), the managers don't intend to use them as principal
investments, and may not use them at all.
4 | Scudder 21st Century Growth Fund
<PAGE>
The fund will normally sell a stock when it reaches a target price, when the
company no longer qualifies as a small company, when the managers believe other
investments offer better opportunities, or in the course of adjusting its
emphasis on a given industry.
Scudder 21st Century Growth Fund | 5
<PAGE>
- --------------------------------------------------------------------------------
[ICON] This fund may appeal to investors who are looking for a fund
that seeks out tomorrow's leaders and who can accept the
risks of small-company investing.
- --------------------------------------------------------------------------------
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. Stock prices can be hurt by poor management,
shrinking product demand, and other business risks. Smaller companies are
especially sensitive to these factors and may even become valueless. These may
affect single companies as well as groups of companies in which the fund
invests.
To the extent that the fund focuses on a given industry or a particular size of
company, many factors affecting that industry or size of company could affect
the value of portfolio securities. For example, a rise in unemployment could
hurt manufacturers of consumer goods, and an economic downturn could hurt small
companies more than mid-size and large ones.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies, industries,
economic trends, or other matters
o growth stocks could become unpopular
o some derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some investments or
to get an attractive price for them
6 | Scudder 21st Century Growth 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. This page is designed to look at fund
performance two different ways: year by year and over time.
- --------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how much fund returns have varied from year to year, which
may give some idea of risk. The table shows how the fund's returns over
different periods average out. For context, the table also includes a
broad-based market index (which, unlike the fund, does not have any fees or
expenses). All figures on this page assume reinvestment of dividends and
distributions.
- ---------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year
- ---------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
9.74 3.55
- --------------------------------------------------------------------------------
'97 '98
- --------------------------------------------------------------------------------
1999 Total Return as of September 30: 0.00%
Best Quarter: 21.34%, Q4 1998 Worst Quarter: -23.99%, Q3 1998
- ---------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1998
- ---------------------------------------------------------------
1 Year Since Inception
- ---------------------------------------------------------------
Fund 3.55 4.96*
- ---------------------------------------------------------------
Russell 2000 Growth Index 1.23 6.26**
- ---------------------------------------------------------------
The Russell 2000 Growth Index is an unmanaged capitalization- weighted measure
of 2,000 of the smallest capitalized U.S. companies with greater-than-average
growth orientation and whose common stocks trade on the NYSE, AMEX, or Nasdaq.
Total returns would have been lower if operating expenses hadn't been
maintained.
* Fund inception: 9/9/1996
** Since 9/30/1996
Scudder 21st Century Growth Fund | 7
<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 x.xx%
- -----------------------------------------------------------------
Distribution (12b-1) Fee None
- -----------------------------------------------------------------
Other Expenses x.xx%*
-------
- -----------------------------------------------------------------
Total Annual Operating Expenses x.xx%
- -----------------------------------------------------------------
* By contract, total operating expenses are capped at 1.75% through
11/30/2000.
- ---------------------------------------------------------------
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
- ---------------------------------------------------------------
$xx $xxx $xxx $xxxx
- ---------------------------------------------------------------
8 | Scudder 21st Century Growth Fund
<PAGE>
Other Policies and Risks
While the sections on the previous pages describe the main points of the fund's
strategy and risks, there are a few other issues to know about:
o Although major changes tend to be infrequent, the fund's Board could change
the fund's investment goals and other policies without seeking shareholder
approval.
o As a temporary measure, the fund could shift up to 100% of its assets into
defensive investments such as money market securities. This could prevent
losses, but would mean that the fund was not pursuing its goal.
o This fund 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, this fund could be affected by the inability of some
computer systems to recognize the year 2000. Also, because it may invest in
foreign securities, the fund could be affected by accounting differences,
changes in tax treatment or other issues related to the conversion of certain
European currencies into the euro, which is already underway. The investment
adviser has readiness programs designed to address these problems, and is also
researching the readiness of suppliers and business partners as well as issuers
of securities the fund owns. Still, there's some risk that one or both of these
problems could materially affect the fund's operations (such as its ability to
calculate net asset value and to handle purchases and redemptions), its
investments, or securities markets in general.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING TWO PARAGRAPHS.
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
This prospectus doesn't tell you about every policy or risk of investing in the
fund.
If you want more information on the fund's allowable securities and investment
practices and the characteristics and risks of each one, you may want to request
a copy of the SAI (the back cover has information on how to do this).
Keep in mind that there is no assurance that any mutual fund will achieve its
goal.
Other Policies and Risks | 9
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Scudder Kemper, the company with overall responsibility for
managing the fund, takes a team approach to asset
management.
- --------------------------------------------------------------------------------
Who Manages and Oversees the Fund
The investment adviser
The fund's investment adviser is Scudder Kemper Investments, Inc., located at
345 Park Avenue, New York, NY 10154-0010. Scudder Kemper has more than 80 years
of experience managing mutual funds, and currently has more than $290 billion in
assets under management.
The fund is managed by a team of investment professionals, who individually
represent different areas of expertise and who together develop investment
strategies and make buy and sell decisions. Supporting the fund managers are
Scudder Kemper's many economists, research analysts, traders, and other
investment specialists, located in offices across the United States and around
the world.
As payment for serving as investment adviser, Scudder Kemper receives a
management fee from the fund. For the most recent fiscal year, the actual amount
the fund paid in management fees was x.xx% of its average daily net assets.
The portfolio managers
The following people handle the day-to-day management of the fund.
Peter Chin Roy C. McKay
Lead Portfolio Manager o Began investment career
o Began investment career in in 1968
1974 o Joined the adviser in
o Joined the adviser in DATE DATE
o Joined the fund team in 1996 o Joined the fund team
in 1996
10 | Who Manages and Oversees the Fund
<PAGE>
The Board
A mutual fund's Board is responsible for the general oversight of the fund's
business. A majority of the Board is not affiliated with Scudder Kemper. The
independent members have primary responsibility for assuring that the fund is
managed in the best interests of its shareholders.
The following people comprise the fund's Board:
Trustees Kathryn L. Quirk
o Managing Director of
Lynn S. Birdsong Scudder Kemper
o Managing Director of Investments, Inc.
Scudder Kemper o Vice President and Assistant
Investments, Inc. Secretary of the funds
o President of the funds
Joan E. Spero
Paul Bancroft III o President, Doris Duke
o Venture capitalist and Charitable Foundation
consultant
Honorary Trustees
Sheryle J. Bolton
o Chief Executive Officer, Thomas J. Devine
Scientific Learning o Consultant
Corporation
Wilson Nolen
William T. Burgin o Consultant
o General Partner, Bessemer
Venture Partners Robert G. Stone, Jr.
o Chairman Emeritus and
Keith R. Fox Director, Kirby Corporation
o Private equity investor
Edmund R. Swanberg
William H. Luers o Advisory Managing Director
o Chairman and President, of Scudder Kemper
U.N. Association of Investments, Inc.
the U.S.A.
Who Manages and Oversees the Fund | 11
<PAGE>
Financial Highlights
This table is designed to help you understand the fund's financial performance
in recent years. The figures in the first part of the table are for a single
share. The total return figures represent the percentage that an investor in the
fund would have earned (or lost), assuming all dividends and distributions were
reinvested. This information has been audited by PricewaterhouseCoopers LLP,
whose report, along with the fund's financial statements, is included in the
annual report (see "Shareholder reports" on the back cover).
The following table includes selected data for a share outstanding throughout
the period (a) and other performance information derived from the financial
statements.
Scudder 21st Century Growth Fund
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Years ended August 31, 1999(b) 1998(c) 1997(d)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $10.15 $13.11 $12.00
-----------------------------
- ---------------------------------------------------------------------------------------
Income from investment operations:
- ---------------------------------------------------------------------------------------
Net investment income (loss) (.19) (.19) (.15)
- ---------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 8.51 (2.78) 1.25
-----------------------------
- ---------------------------------------------------------------------------------------
Total from investment operations 8.32 (2.97) 1.10
- ---------------------------------------------------------------------------------------
Redemption fees .01 .01 .01
- ---------------------------------------------------------------------------------------
Net asset value, end of period $18.48 $10.15 $13.11
-----------------------------
- ---------------------------------------------------------------------------------------
Total Return (%) (e) (f) 82.07** (22.58) 9.25**
- ---------------------------------------------------------------------------------------
Ratios and Supplemental Data
- ---------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 72 27 23
- ---------------------------------------------------------------------------------------
Ratio of operating expenses, net to average daily net
assets (%) 1.75* 1.75 1.75*
- ---------------------------------------------------------------------------------------
Ratio of operating expenses before expense reductions,
to average daily net assets (%) 2.22* 2.17 3.52*
- ---------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average daily
net assets (%) (1.42)* (1.38) (1.27)*
- ---------------------------------------------------------------------------------------
Portfolio turnover rate (%) 147.6* 119.8 92.0*
- ---------------------------------------------------------------------------------------
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Eleven months ended July 31, 1999.
(c) Year ended August 31, 1998.
(d) For the period September 9, 1996 (commencement of operations) to August 31,
1997.
(e) Total return would have been lower had certain expenses not been reduced.
(f) 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
12 | Financial Highlights
<PAGE>
How to invest in the fund
The following pages tell you how to invest in the fund and what to expect as a
shareholder. If you're investing directly with Scudder, all of this information
applies to you.
If you're investing through a "third party provider" -- for example, a workplace
retirement plan, financial supermarket or financial adviser -- your provider may
have its own policies or instructions, and you should follow those.
<PAGE>
How to Buy Shares
Use these instructions to invest directly with Scudder. Make out your check to
"The Scudder Funds."
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
First investment Additional investments
- ------------------------------------------------------------------------------------
<S> <C> <C>
$2,500 or more for regular $100 or more for regular
accounts accounts
$1,000 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
- ------------------------------------------------------------------------------------
By mail or o Fill out and sign an o Send a check and a Scudder
express application investment slip to us at the
(see below) appropriate address below
o Send it to us at the
appropriate address, along o If you don't have an
with an investment check investment slip, simply include
a letter with your name,
account number, the full name
of the fund, and your
investment instructions
- ------------------------------------------------------------------------------------
By wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
By phone -- o Call 1-800-SCUDDER for
instructions
- ------------------------------------------------------------------------------------
With an automatic -- o To set up regular investments
investment plan from a bank checking account,
call 1-800-SCUDDER
- ------------------------------------------------------------------------------------
Using -- o Call 1-800-SCUDDER
QuickBuy
- ------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
14 | 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
only be ordered in writing; if
$100 or more for exchanges you're in doubt, see page 18
between existing accounts
- --------------------------------------------------------------------------------------
By phone or wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
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, Write a letter that includes: Write a letter that includes:
express or fax
(see previous o the fund, class, and account o the fund, class, and account
page) 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 on o a daytime telephone number
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>
How to Exchange or Sell Shares | 15
<PAGE>
- --------------------------------------------------------------------------------
[ICON] Questions? You can speak to a Scudder representative between
8 a.m. and 8 p.m. eastern time on any fund business day by
calling 1-800-SCUDDER.
- --------------------------------------------------------------------------------
Policies You Should Know About
Along with the instructions on the previous pages, the policies below may affect
you as a shareholder. Some of this information, such as the section on dividends
and taxes, applies to all investors, including those investing through
investment providers.
If you are investing through an investment provider, check the materials you got
from them. As a general rule, you should follow the information in those
materials wherever it contradicts the information given here. Please note that
an investment provider may charge its own fees.
Policies about transactions
The fund is open for business whenever the New York Stock Exchange is open. The
fund calculates its share price every business day, as of the close of regular
trading on the Exchange (typically 4 p.m. eastern time, but sometimes earlier,
as in the case of scheduled half-day trading or unscheduled suspensions of
trading).
You can place an order to buy or sell shares at any time. Once your order is
received by Scudder Service Corporation, and they have determined that it is a
"good order," it will be processed at the next share price calculated.
Because orders placed through investment providers must be forwarded to Scudder
Service Corporation before they can be processed, you'll need to allow extra
time. A representative of your investment provider should be able to tell you
when your order will be processed.
16 | 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.
- --------------------------------------------------------------------------------
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 to sell shares.
QuickBuy and QuickSell let you set up a link between a Scudder account and a
bank account. Once this link is in place, you can move money between the two
with a phone call. You'll need to make sure your bank has Automated Clearing
House (ACH) services. To set up QuickBuy or QuickSell on a new account, see the
account application; to add it to an existing account, call 1-800-SCUDDER.
When you call us to sell shares, we may record the call, ask you for certain
information, or take other steps designed to prevent fraudulent orders. It's
important to understand that as long as we take reasonable steps to ensure that
an order appears genuine, we are not responsible for any losses that may occur.
When you ask us to send or receive a wire, please note that while we don't
charge a fee to receive wires, we will deduct a $5 fee from all wires sent from
us to your bank. Your bank may charge its own fees for handling wires. The fund
can only accept wires of $100 or more.
17 | Policies You Should Know About
<PAGE>
Exchanges among Scudder funds are an option for shareholders who bought their
fund shares directly from Scudder and many other investors as well. Exchanges
are a shareholder privilege, not a right: we may reject any exchange order,
particularly when there appears to be a pattern of "market timing" or other
frequent purchases and sales. We may also reject purchase orders, for these or
other reasons.
When you want to sell more than $100,000 worth of shares, you'll usually need to
place your order in writing and include a signature guarantee. The only
exception is if you want money wired to a bank account that is already on file
with us; in that case, you don't need a signature guarantee. Also, you don't
need a signature guarantee for an exchange, although we may require one in
certain other circumstances.
A signature guarantee is simply a certification of your signature -- a valuable
safeguard against fraud. You can get a signature guarantee from most brokers,
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.
18 | 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.
- --------------------------------------------------------------------------------
How the fund calculates share price
For the fund the share price at which you buy shares is the net asset value per
share, or NAV. To calculate NAV, the fund uses the following equation:
TOTAL ASSETS - TOTAL LIABILITIES
------------------------------------ = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
The price at which you sell shares of the fund is also the 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 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 of
Trustees. In such a case, the fund's value for a security is likely to be
different from quoted market prices.
Because the fund 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.
Policies You Should Know About | 19
<PAGE>
Other rights we reserve
You should be aware that we may do any of the following:
o withhold 31% of your distributions as federal income tax if you have been
notified by the IRS that you are subject to backup withholding, or if you
fail to provide us with a correct taxpayer ID number or certification that
you are exempt from backup withholding
o charge you $10 a year if your account balance falls below $2,500, and close
your account and send you the proceeds if your balance falls below $1,000;
in either case, we will give you 60 days' notice so you can either increase
your balance or close your account (these policies don't apply to
retirement accounts, to investors with $100,000 or more in Scudder fund
shares, or in any case where a fall in share price created the low balance)
o reject a new account application if you don't provide a correct Social
Security or other tax ID number; if the account has already been opened, we
may give you 30 days' notice to provide the correct number
o pay you for shares you sell by "redeeming in kind," that is, by giving you
marketable securities (which typically will involve brokerage costs for you
to liquidate) rather than cash; in most cases, the fund won't make a
redemption-in-kind unless your requests over a 90-day period total more
than $250,000 or 1% of the fund's assets, whichever is less
o change, add, or withdraw various services, fees, and account policies (for
example, we may change or terminate the exchange privilege at any time)
20 | Policies You Should Know About
<PAGE>
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its shareholders virtually
all of its net earnings. The 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. (The fund's earnings are separate
from any gains or losses stemming from your own purchases and sales of shares.)
The fund may not always pay a distribution for a given period.
The fund intends to pay dividends and distributions to its shareholders in
November and 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.
Understanding Distributions and Taxes | 21
<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.
- --------------------------------------------------------------------------------
The tax status of the fund earnings you receive, and your own fund transactions,
generally depends on their type:
Generally taxed at ordinary income rates
- ---------------------------------------------------------------
o short-term capital gains from selling fund shares
- ---------------------------------------------------------------
o taxable income dividends you receive from the fund
- ---------------------------------------------------------------
o short-term capital gains distributions you receive from the
fund
- ---------------------------------------------------------------
Generally taxed at capital gains rates
- ---------------------------------------------------------------
o long-term capital gains from selling fund shares
- ---------------------------------------------------------------
o long-term capital gains distributions you receive from the
fund
- ---------------------------------------------------------------
The fund will send you detailed tax information every January. These statements
tell you the amount and the tax category of any dividends or distributions you
received. They also have certain details on your purchases and sales of shares.
The tax status of dividends and distributions is the same whether you reinvest
them or not. Dividends or distributions declared in the last quarter of a given
year are taxed in that year, even though you may not receive the money until the
following January.
If you invest right before the fund pays a dividend, you'll be getting some of
your investment back as a taxable dividend. You can avoid this, if you want, by
investing after the fund declares a dividend. In tax-advantaged retirement
accounts you don't need to worry about this.
Corporations may be able to take a dividends-received deduction for a portion of
income dividends they receive.
22 | Understanding Distributions and Taxes
<PAGE>
Notes
<PAGE>
Notes
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from the fund's management team
about recent market conditions and the effect of the fund's strategies on its
performance. They also have detailed performance figures, a list of everything
the fund owns, and the fund's financial statements. Shareholders get these
reports automatically. To reduce costs, we mail one copy per household. For more
copies, call 1-800-SCUDDER.
Statements of Additional Information (SAI) -- This tells you more about the
fund's features and policies, including additional risk information. The fund's
SAI is incorporated by reference into this document (meaning that its legally
part of this prospectus).
If you'd like to ask for copies of these documents, or if you're a shareholder
and have questions, please contact Scudder or the SEC (see below). Materials you
get from Scudder are free; those from the SEC involve a copying fee. If you
like, you can look over these materials in person at the SEC's Public Reference
Room in Washington, DC.
Scudder Funds SEC
PO Box 2291 450 Fifth Street, N.W.
Boston, MA 02107-2291 Washington, DC 20549-6009
1-800-SCUDDER 1-800-SEC-0330
www.scudder.com www.sec.gov
SEC File Number 811-2021
<PAGE>
SCUDDER 21st CENTURY GROWTH FUND
A series of Scudder Securities Trust
A No-Load (No Sales Charges) Diversified Mutual Fund Seeking
Long-Term Capital Appreciation Through Investment
Primarily in Securities of Emerging Growth Companies
Poised to be Leaders in the 21st Century
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
December 1, 1999
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus, and should be read
in conjunction with the prospectus of Scudder 21st Century Growth Fund dated
December 1, 1999, as amended from time to time, a copy 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 the Scudder 21st Century Growth Fund dated
July 31, 1999 is incorporated by reference and is hereby deemed to be part of
this Statement of Additional Information. This may also be obtained without
charge by calling 1-800-SCUDDER.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES..........................................................................1
General Investment Objective and Policies of Scudder 21st Century Growth Fund................................1
Master/feeder structure......................................................................................2
Special Considerations.......................................................................................2
Specialized Investment Techniques............................................................................4
Investment Restrictions.....................................................................................15
PURCHASES............................................................................................................16
Additional Information About Opening An Account.............................................................16
Minimum balances............................................................................................17
Additional Information About Making Subsequent Investments..................................................17
Additional Information About Making Subsequent Investments by QuickBuy......................................18
Checks......................................................................................................18
Wire Transfer of Federal Funds..............................................................................18
Share Price.................................................................................................19
Share Certificates..........................................................................................19
Other Information...........................................................................................19
EXCHANGES AND REDEMPTIONS............................................................................................20
Exchanges...................................................................................................20
Special Redemption and Exchange Information.................................................................21
Redemption by Telephone.....................................................................................21
Redemption by QuickSell.....................................................................................22
Redemption by Mail or Fax...................................................................................22
Redemption-in-Kind..........................................................................................23
Other Information...........................................................................................23
The Pure No-Load(TM)Concept.................................................................................24
Internet access.............................................................................................25
Dividends and Capital Gains Distribution Options............................................................25
Scudder Investor Centers....................................................................................26
Reports to Shareholders.....................................................................................26
Transaction Summaries.......................................................................................26
THE SCUDDER FAMILY OF FUNDS..........................................................................................26
SPECIAL PLAN ACCOUNTS................................................................................................33
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for Corporations and
Self-Employed Individuals.............................................................................33
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and Self-Employed Individuals.........33
Scudder IRA: Individual Retirement Account.................................................................33
Scudder Roth IRA: Individual Retirement Account............................................................34
Scudder 403(b) Plan.........................................................................................35
Automatic Withdrawal Plan...................................................................................35
Group or Salary Deduction Plan..............................................................................35
Automatic Investment Plan...................................................................................36
Uniform Transfers/Gifts to Minors Act.......................................................................36
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................37
PERFORMANCE INFORMATION..............................................................................................37
Average Annual Total Return.................................................................................37
Cumulative Total Return.....................................................................................38
Total Return................................................................................................38
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
Comparison of Fund Performance..............................................................................38
ORGANIZATION OF THE FUND.............................................................................................42
INVESTMENT ADVISER...................................................................................................43
Personal Investments by Employees of the Adviser............................................................46
TRUSTEES AND OFFICERS................................................................................................46
REMUNERATION.........................................................................................................50
Responsibilities of the Board -- Board and Committee Meetings...............................................50
Compensation of Officers and Trustees.......................................................................50
DISTRIBUTOR..........................................................................................................51
TAXES................................................................................................................52
PORTFOLIO TRANSACTIONS...............................................................................................56
Brokerage Commissions.......................................................................................56
Portfolio Turnover..........................................................................................58
NET ASSET VALUE......................................................................................................58
ADDITIONAL INFORMATION...............................................................................................59
Experts.....................................................................................................59
Shareholder Indemnification.................................................................................59
Other Information...........................................................................................60
FINANCIAL STATEMENTS.................................................................................................61
</TABLE>
ii
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE AND POLICIES
Scudder 21st Century Growth Fund (the "Fund") is a series of Scudder
Securities Trust. The Fund is a no-load, diversified, open-end management
investment company which continuously offers and redeems shares at net asset
value. The Fund is a company of the type commonly known as a mutual fund.
General Investment Objective and Policies of Scudder 21st Century Growth Fund
Scudder 21st Century Growth Fund pursues long-term growth of capital by
investing in emerging growth companies that are poised to be leaders in the next
century. The Fund is designed for investors in search of substantial long-term
growth who can accept above-average stock market risk and little or no current
income.
Due to the business characteristics and risks of emerging growth
companies, the Fund's share price can experience periods of volatility. As a
result, the Fund should be considered a long-term investment and only one part
of a well-diversified personal investment portfolio. To encourage a long-term
holding period and to facilitate portfolio management, a 1% redemption and
exchange fee, described in greater detail below, is payable to the Fund for the
benefit of remaining shareholders on shares held less than one year.
Except as otherwise indicated, the Fund's investment objective and
policies are not fundamental and may be changed without a vote of shareholders.
If there is a change in investment objective, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current financial position and needs. There can be no assurance that the Fund's
objective will be met.
The Fund normally invests at least 80% of its total assets in common
stocks. Companies in which the fund invests generally are similar in size to
those included in the Russell 2000(R) Index -- a widely used benchmark of small
stock performance. The Fund's investment adviser, Scudder Kemper Investments,
Inc. (the "Adviser"), believes these companies are well-positioned for
above-average earnings growth and/or greater market recognition. Such favorable
prospects may be a result of new or innovative products or services a given
company is developing or provides, products or services that have the potential
to impact significantly the industry in which the company competes or to change
dramatically customer behavior into the 21st century. The above-average earnings
growth potential and/or greater market recognition expected are factors believed
to offer significant opportunity for capital appreciation, and the Adviser will
attempt to identify these opportunities before their potential is recognized by
investors in general.
To help reduce risk in its search for high quality, emerging growth
companies, the Adviser allocates the Fund's investments among many companies and
different industries in the U. S. and, where opportunity warrants, abroad as
well. The Adviser seeks companies that, in the Adviser's opinion, have excellent
management which own a significant stake in the company, clean balance sheets,
conservative accounting, and either a commanding position in a growing market or
the real possibility of building a commanding position as the 21st century
approaches. Emerging growth companies are those with the ability, in the
Adviser's opinion, to expand earnings per share by at least 15% per annum over
the next three to five years at a minimum. In selecting specific industries and
companies for investment, the Adviser will make full use of its extensive
fundamental and field research capabilities in taking into account such other
factors as overall growth prospects and financial condition, competitive
situation, technology, research and development activities, productivity, labor
costs, raw material costs and sources, profit margins, return on investment,
structural changes in local economies, capital resources, the degree of
governmental regulation or deregulation facing a company, and quality and
experience of management.
For temporary defensive purposes the Fund may vary from its investment
policy during periods in which conditions in securities markets or other
economic or political conditions warrant. It is impossible to accurately predict
how long such alternate strategies may be utilized. In such cases, the Fund may
hold without limit, cash, high grade debt securities, without equity features,
which are rated Aaa, Aa or A by Moody's Investors Service, Inc. ("Moody's") or
<PAGE>
AAA, AA or A by Standard & Poor's Ratings Services ("S&P"), or, if unrated, are
deemed by the Adviser to be of equivalent quality, U.S. Government securities
and invest in money market instruments which are rated in the two highest
categories by Moody's or S&P, or, if unrated, are deemed by the Adviser to be of
equivalent quality. The Fund may borrow money for temporary, emergency or other
purposes, including investment leverage purposes, as determined by the Trustees.
The Fund may also borrow under reverse repurchase agreements. The Investment
Company Act of 1940, as amemded (the "1940 Act") requires borrowings to have
300% asset coverage.
In addition, the Fund may invest in preferred stocks when management
anticipates that the capital appreciation on such stocks is likely to equal or
exceed that of common stocks over a selected time.
The Fund may enter into repurchase agreements and may engage in
strategic transactions. More information about these investment techniques is
provided under "Specialized Investment Techniques."
The Fund offers participation in the potential growth of emerging
growth companies that may be destined to become leading companies in the new
century. The Fund offers the benefit of professional management to identify
investments in emerging growth companies with the greatest potential, in the
Adviser's opinion, to have a profound and positive impact on the lives of
consumers and businesses as we enter the new century. The Adviser anticipates
finding these companies in many rapidly changing sectors of the economy.
Examples include innovative retailing concepts, the on-going U.S. transition to
an increasingly service-based economy, advances in health care in areas such as
biotechnology, and the tremendous, rapid advances occurring in communications,
computing, software and technology generally. In return for accepting
above-average market risk, investors gain access to a broadly diversified
portfolio designed for above-average capital appreciation compared to that
available from larger companies such as those in the S&P 500 Stock Index.
Foreign securities such as those which may be purchased by the Fund may
be subject to foreign government taxes which could reduce the return on such
securities, although a shareholder of the Fund may, subject to certain
limitations, be entitled to claim a credit or deduction for U.S. federal income
tax purposes for his or her proportionate share of such foreign taxes paid by
the Fund. (See "TAXES.")
Master/feeder structure
The Board of Trustees has the discretion to retain the current
distribution arrangement for the Fund while investing in a master fund in a
master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and oher transaction
costs and realization of a taxable gain or loss, or by contributing its assets
to the master fund and avoiding transaction costs and, if proper procedures are
followed, the realization of taxable gain or loss.
Special Considerations
Historical small stock performance.
While, historically, small company stocks have outperformed the stocks
of large companies, the former have customarily involved more investment risk as
well. Small companies may have limited product lines, markets or financial
2
<PAGE>
resources; may lack management depth or experience; and may be more vulnerable
to adverse general market or economic developments than large companies. The
prices of small company securities are often more volatile than prices
associated with large company issues, and can display abrupt or erratic
movements at times, due to limited trading volumes and less publicly available
information.
Also, because small companies normally have fewer shares outstanding
and these shares trade less frequently than large companies, it may be more
difficult for the Fund to buy and sell significant amounts of such shares
without an unfavorable impact on prevailing market prices. Some of the companies
in which the Fund may invest may distribute, sell or produce products which have
recently been brought to market and may be dependent on key personnel. The
securities of small companies are often traded over-the-counter and may not be
traded in the volumes typical on a national securities exchange. Consequently,
in order to sell this type of holding, the Fund may need to discount the
securities from recent prices or dispose of the securities over a long period of
time.
Defining "emerging growth" companies. The Advisor's model of the corporate life
cycle begins with investment of venture capital, and proceeds to an `emerging
growth' stage. An `emerging growth' company is publicly traded, with a market
value of at least $50 million.
Emerging growth companies are part of the `small stock universe' as described
above.
Emerging growth companies grow into `established growth' companies with
market values exceeding $500 million. Companies become mature over time as
growth slows and market capitalizations grow beyond $1 billion.
Foreign Securities. While the Fund generally emphasizes investments in companies
domiciled in the U.S., it may invest in listed and unlisted foreign securities
of the same types as the domestic securities in which the Fund may invest when
the anticipated performance of foreign securities is believed by the Adviser to
offer more potential than domestic alternatives in keeping with the investment
objective of the Fund. However, the Fund has no current intention of investing
more than 20% of its net assets in foreign securities.
Investors should recognize that investing in foreign securities
involves certain special considerations, including those set forth below, which
are not typically associated with investing in U.S. securities and which may
favorably or unfavorably affect the Fund's performance. As foreign companies are
not generally subject to uniform accounting and auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign stock markets, while growing
in volume of trading activity, have substantially less volume than the New York
Stock Exchange, Inc. (the "Exchange"), and securities of some foreign companies
are less liquid and more volatile than securities of domestic companies.
Further, foreign markets have different clearance and settlement procedures and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary
periods when assets of the Fund are uninvested and no return is earned thereon.
The inability of the Fund to make intended security purchases due to settlement
problems could cause the Fund to miss attractive investment opportunities.
Inability to dispose of portfolio securities due to settlement problems either
could result in losses to the Fund due to subsequent declines in value of the
portfolio security or, if the Fund has entered into a contract to sell the
security, could result in possible liability to the purchaser. Fixed commissions
on some foreign stock exchanges are generally higher than negotiated commissions
on U.S. exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. Further, the Fund may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts. There is generally less government supervision and regulation of
business and industry practices, stock exchanges, brokers and listed companies
than in the U.S. It may be more difficult for the Fund's agents to keep
currently informed about corporate actions such as stock dividends or other
matters which may affect the prices of portfolio securities. Communications
between the U.S. and foreign countries may be less reliable than within the
U.S., thus increasing the risk of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities. Payment for securities without
delivery may be required in certain foreign markets. In addition, with respect
to certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect U.S. investments in those countries. Investments
in foreign securities may also entail certain risks, such as possible currency
blockages or transfer restrictions, and the difficulty of enforcing rights in
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other countries. Moreover, individual foreign economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross national
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in these countries than in developed
countries. The management of the Fund seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Investments in companies domiciled in developing countries may be
subject to potentially greater risks than investments in developed countries.
Investments in foreign securities usually are denominated currencies of
foreign countries. Moreover, the Fund temporarily may hold funds in bank
deposits in foreign currencies during the completion of investment programs.
Accordingly, the value of the assets for the Fund as measured in U.S. dollars
may be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs and
experience conversion difficulties and uncertainties in connection with
conversions between various currencies. Although the Fund values its assets
daily in terms of U.S. dollars, it does not intend to convert its holdings of
foreign currencies, if any, into U.S. dollars on a daily basis. It may do so
from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The Fund will conduct its foreign currency exchange
transactions, if any, either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through strategic
transactions involving currencies.
To the extent that the Fund invests in foreign securities, the Fund's
share price could reflect the movements of the stock markets in which it is
invested and the currencies in which the investments are denominated; the
strength or weakness of the U.S.dollar against foreign currencies could account
for part of the Fund's investment performance.
Specialized Investment Techniques
Common stocks. Under normal circumstances, the Fund invests primarily in common
stocks. Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, the
Fund participates in the success or failure of any company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
Foreign Currencies. The Fund may invest in foreign securities. Because
investments in foreign securities usually will involve currencies of foreign
countries, and because the Fund may hold foreign currencies and forward
contracts, futures contracts and options on futures contracts on foreign
currencies, the value of the assets of the Fund as measured in U.S. dollars may
be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. Although the Fund values
its assets daily in terms of U.S. dollars, it does not intend to convert its
holdings of foreign currencies into U.S. dollars on a daily basis. It will do so
from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should that Fund desire to resell that
currency to the dealer. The Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward or
futures contracts to purchase or sell foreign currencies.
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Depositary Receipts. The Fund may invest indirectly in securities of emerging
country issuers through sponsored or unsponsored American Depositary Receipts
("ADRs"), Global Depositary Receipts ("GDRs"), International Depositary Receipts
("IDRs") and other types of Depositary Receipts (which, together with ADRs, GDRs
and IDRs are hereinafter referred to as "Depositary Receipts"). Depositary
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 Depositary 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 Depositary
Receipts. ADRs are Depositary Receipts typically issued by a U.S. bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. GDRs, IDRs and other types of Depositary Receipts are typically
issued by foreign banks or trust companies, although they also may 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 the Fund's
investment policies, the 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. Certain Depositary
Receipts may not be listed on an exchange and therefore may be illiquid
securities.
Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve the Fund's objective of long-term capital appreciation, the
Fund may invest in debt securities including bonds of private issuers, bonds of
foreign governments and supranational organizations. Portfolio debt investments
will be selected on the basis of, among other things, credit quality, and the
fundamental outlooks for currency, economic and interest rate trends, taking
into account the ability to hedge a degree of currency or local bond price risk.
The Fund may purchase high quality bonds, rated Aaa, Aa or A by Moody's or AAA,
AA or A by S&P or, if unrated, judged to be of equivalent quality as determined
by the Adviser.
The principal risks involved with investments in bonds include interest
rate risk, credit risk and pre-payment risk. Interest rate risk refers to the
likely decline in the value of bonds as interest rates rise. Generally,
longer-term securities are more susceptible to changes in value as a result of
interest-rate changes than are shorter-term securities. Credit risk refers to
the risk that an issuer of a bond may default with respect to the payment of
principal and interest. The lower a bond is rated, the more it is considered to
be a speculative or risky investment. Pre-payment risk is commonly associated
with pooled debt securities, such as mortgage-backed securities and asset backed
securities, but may affect other debt securities as well. When the underlying
debt obligations are prepaid ahead of schedule, the return on the security will
be lower than expected. Pre-payment rates usually increase when interest rates
are falling.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of the fixed-income securities in the Fund's portfolio, or
to enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments,
purchase and sell financial futures contracts and options thereon, enter into
various interest rate transactions such as swaps, caps, floors or collars, and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of the fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
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particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not to create leveraged exposure in the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as 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.
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With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or currency,
although in the future cash settlement may become available. Index options and
Eurodollar instruments are cash settled for the net amount, if any, by which the
option is "in-the-money" (i.e., where the value of the underlying instrument
exceeds, in the case of a call option, or is less than, in the case of a put
option, the exercise price of the option) at the time the option is exercised.
Frequently, rather than taking or making delivery of the underlying instrument
through the process of exercising the option, listed options are closed by
entering into offsetting purchase or sale transactions that do not result in
ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although they are not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or are determined to be of equivalent
credit quality by the Adviser. The staff of the Securities and Exchange
Commission (the "SEC") currently takes the position that OTC options purchased
by the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 15% of its net assets in illiquid
securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
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The Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding.
Even though the Fund will receive the option premium to help protect it against
loss, a call sold by the Fund exposes 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 the Fund to hold a security or
instrument which it might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities), and on
securities indices and futures contracts other than futures on individual
corporate debt and individual equity securities. The Fund 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.The Fund may each also
purchase and sell put options in foreign sovereign debt, Eurodollar instruments
and currencies. The Fund will not sell put options if, as a result, more than
50% of the Fund's assets would be required to be segregated to cover its
potential obligations under such put options other than those with respect to
futures and options thereon. In selling put options, there is a risk that the
Fund may be required to buy the underlying security at a disadvantageous price
above the market price.
General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate or equity market changes, for duration
management and for risk management purposes. In addition, the Fund may enter
into financial futures contracts or purchase or sell put and call options on
such futures as a hedge against anticipated currency market changes. Futures are
generally bought and sold on the commodities exchanges where they are listed
with payment of initial and variation margin as described below. The sale of a
futures contract creates a firm obligation by the Fund, as seller, to deliver to
the buyer the specific type of financial instrument called for in the contract
at a specific future time for a specified price (or, with respect to index
futures and Eurodollar instruments, the net cash amount). Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the rules and regulations of the Commodity Futures Trading Commission and will
be entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of the
amount of its initial margin and premiums on open futures contracts and options
thereon would exceed 5% of the Fund's total assets (taken at current value);
however, in the case of an option that is in-the-money at the time of the
purchase, the in-the-money amount may be excluded in calculating the 5%
limitation. The segregation requirements with respect to futures contracts and
options thereon are described below.
Options on Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
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through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or (except for OTC currency options)
are determined to be of equivalent credit quality by the Adviser.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure
to an extent greater, after netting all transactions intended wholly or
partially to offset other transactions, than the aggregate market value (at the
time of entering into the transaction) of the securities held in its portfolio
that are denominated or generally quoted in or currently convertible into such
currency, other than with respect to proxy hedging as described below.
The Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, the Fund may also engage in
proxy hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
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Fund enters into a currency hedging transaction, that Fund will comply with the
asset segregation requirements described below.
Risks of Currency Transactions. The Fund is subject to currency transactions
risks different from those of other portfolio transactions. Because currency
control is of great importance to the issuing governments and influences
economic planning and policy, purchases and sales of currency and related
instruments can be negatively affected by government exchange controls,
blockages, and manipulations or exchange restrictions imposed by governments.
These can result in losses to the Fund if it is unable to deliver or receive
currency or funds in settlement of obligations and could also cause hedges it
has entered into to be rendered useless, resulting in full currency exposure as
well as incurring transaction costs. Buyers and sellers of currency futures are
subject to the same risks that apply to the use of futures generally. Further,
settlement of a currency futures contract for the purchase of most currencies
must occur at a bank based in the issuing nation. Trading options on currency
futures is relatively new, and the ability to establish and close out positions
on such options is subject to the maintenance of a liquid market which may not
always be available. Currency exchange rates may fluctuate based on factors
extrinsic to that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of their portfolios, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where they do not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Fund believes such obligations do not constitute senior securities under
the 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
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standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate 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 the Fund to pay or deliver securities or assets
must be covered at all times by the securities, instruments or currency required
to be delivered, or, subject to any regulatory restrictions, an amount of cash
or liquid high grade securities at least equal to the current amount of the
obligation must be segregated with the custodian. The segregated assets cannot
be sold or transferred unless equivalent assets are substituted in their place
or it is no longer necessary to segregate them. For example, a call option
written by the Fund will require the Fund to hold the securities subject to the
call (or securities convertible into the needed securities without additional
consideration) or to segregate liquid securities sufficient to purchase and
deliver the securities if the call is exercised. A call option sold by the Fund
on an index will require the Fund to own portfolio securities which correlate
with the index or to segregate liquid assets equal to the excess of the index
value over the exercise price on a current basis. A put option written by the
Fund requires the Fund to segregate liquid high grade assets equal to the
exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate liquid high grade assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when 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 the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, and the Fund will segregate an
amount of 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.
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In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating 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, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid high grade
securities having a value equal to the accrued excess. Caps, floors and collars
require segregation of assets with a value equal to the Fund's net obligation,
if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
Convertible Securities. The Fund may invest in convertible securities which are
bonds, notes, debentures, preferred stocks, and other securities which are
convertible into common stocks. Investments in convertible securities can
provide income through interest and dividend payments and/or an opportunity for
capital appreciation by virtue of their conversion or exchange features.
The convertible securities in which the Fund may invest may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any particular
convertible security may be adjusted from time to time due to stock splits,
dividends, spin-offs, other corporate distributions, or scheduled changes in the
exchange ratio. Convertible debt securities and convertible preferred stocks,
until converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities generally, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion or exchange feature, the market value 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. The Fund may enter into repurchase agreements with member
banks of the Federal Reserve System, any foreign bank or with any domestic or
foreign broker-dealer which is recognized as a reporting government securities
dealer if the creditworthiness of the bank or broker-dealer has been determined
by the Adviser to be at least as high as that of other obligations the Fund may
purchase. Some repurchase commitment transactions may not provide the Fund with
collateral marked-to-market during the term of the commitment.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price upon repurchase. In either case, the income to the
Fund is unrelated to the interest rate on the Obligation itself. Obligations
will be held by the Custodian or in the Federal Reserve Book Entry system. Some
repurchase commitment transactions may not provide the Fund with collateral
marked-to-market during the term of the commitment.
For purposes of the 1940 Act a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to the Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delay and incur costs
before being able to sell the security. Delays may involve loss of interest or
decline in price of the Obligation. If the court characterizes the transaction
as a loan and the Fund has not perfected a security interest in the Obligation,
the Fund may be required to return the Obligation to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured creditor, the
Fund would be at risk of losing some or all of the principal and income involved
in the transaction. As with any unsecured debt instrument purchased for the
Fund, the Adviser seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
Obligation, in which case the Fund may incur a loss if the proceeds to the Fund
of the sale to a third party are less than the repurchase price. However, if the
market value of the Obligation subject to the repurchase agreement becomes less
than the repurchase price (including interest), the Fund will direct the seller
of the Obligation to deliver additional securities so that the market value of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
A repurchase agreement with foreign banks may be available with respect to
government securities of the particular foreign jurisdiction, and such
repurchase agreements involve risks similar to repurchase agreements with U.S.
entities.
Borrowing. As a matter of fundamental policy, the Fund will not borrow money,
except as permitted under the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. While
the Trustees do not currently intend to borrow for investment leverage purposes,
if such a strategy were implemented in the future it would increase the Fund's
volatility and the risk of loss in a declining market. Borrowing by the Fund
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will involve special risk considerations. Although the principal of the Fund's
borrowings will be fixed, the Fund's assets may change in value during the time
a borrowing is outstanding, thus increasing exposure to capital risk.
Illiquid Securities. A Fund may purchase securities other than in the open
market. While such purchases may often offer attractive opportunities for
investment not otherwise available on the open market, the securities so
purchased are often "restricted securities" or "not readily marketable," i.e.,
securities which cannot be sold to the public without registration under the
Securities Act of 1933, as amended (the "1933 Act"), or the availability of an
exemption from registration (such as Rule 144A) or because they are subject to
other legal or contractual delays in or restrictions on resale. The absence of a
trading market can make it difficult to ascertain a market value for these
investments. This investment practice, therefore, could have the effect of
increasing the level of illiquidity of a Fund. It is a 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 the Fund's net assets. The Trust's Board of Trustees has
approved guidelines for use by the Adviser in determining whether a security is
illiquid.
Generally speaking, restricted securities may be sold (i) only to
qualified institutional buyers; (ii) in a privately negotiated transaction to a
limited number of purchasers; (iii) in limited quantities after they have been
held for a specified period of time and other conditions are met pursuant to an
exemption from registration; or (iv) in a public offering for which a
registration statement is in effect under the 1933 Act. Issuers of restricted
securities may not be subject to the disclosure and other investor protection
requirements that would be applicable if their securities were publicly traded.
If adverse market conditions were to develop during the period between a Fund's
decision to sell a restricted or illiquid security and the point at which the
Fund is permitted or able to sell such security, the Fund might obtain a price
less favorable than the price that prevailed when it decided to sell. Where a
registration statement is required for the resale of restricted securities, a
Fund may be required to bear all or part of the registration expenses. A Fund
may be deemed to be an "underwriter" for purposes of the 1933 Act when selling
restricted securities to the public and, in such event, the Fund may be liable
to purchasers of such securities if the registration statement prepared by the
issuer is materially inaccurate or misleading.
Since it is not possible to predict with assurance that the market for
securities eligible for resale under Rule 144A will continue to be liquid, the
Adviser will monitor such restricted securities subject to the supervision of
the Board of Trustees. Among the factors the Adviser may consider in reaching
liquidity decisions relating to Rule 144A securities are: (1) the frequency of
trades and quotes for the security; (2) the number of dealers wishing to
purchase or sell the security and the number of other potential purchasers; (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the market for the security (i.e., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
the transfer).
When-Issued Securities. The Fund may from time to time purchase equity and debt
securities on a "when-issued" or "forward delivery" basis. The price of such
securities, which may be expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment for the when-issued or
forward delivery securities takes place at a later date. During the period
between purchase and settlement, no payment is made by the Fund to the issuer
and no interest accrues to the Fund. To the extent that assets of the Fund are
held in cash pending the settlement of a purchase of securities, the Fund would
earn no income; however, it is the Fund's intention to be fully invested to the
extent practicable and subject to the policies stated above. While when-issued
or forward delivery securities may be sold prior to the settlement date, the
Fund intends to purchase such securities with the purpose of actually acquiring
them unless a sale appears desirable for investment reasons. At the time the
Fund makes the commitment to purchase a security on a when-issued or forward
delivery basis, it will record the transaction and reflect the value of the
security in determining its net asset value. The market value of the when-issued
or forward delivery securities may be more or less than the purchase price. The
Fund does not believe that its net asset value or income will be adversely
affected by its purchase of securities on a when-issued or forward delivery
basis.
Warrants. The Fund may invest in warrants up to 5% of the value of its total
assets. The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
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necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered speculative investments. Warrants pay
no dividends and confer no rights other than a purchase option. Thus, if a
warrant held by the Fund were not exercised by the date of its expiration, the
Fund would lose the entire purchase price of the warrant.
Reverse Repurchase Agreements. The Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed time and price. The Fund
maintains a segregated account in connection with outstanding reverse repurchase
agreements. The Fund will enter into reverse repurchase agreements only when the
Adviser believes that the interest income to be earned from the investment of
the proceeds of the transaction will be greater than the interest expense of the
transaction.
Lending of Portfolio Securities. The Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. The Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms deemed by the Adviser to be in good standing.
The value of the securities loaned will not exceed 5% of the value of the Fund's
total assets at the time any loan is made.
Investment Restrictions
Unless specified to the contrary, the following fundamental
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund involved which, under the 1940 Act and
the rules thereunder and as used in this Statement of Additional Information,
means the lesser of (1) 67% or more of the voting securities present at such
meeting, if the holders of more than 50% of the outstanding voting securities of
the Fund are present or represented by proxy, or (2) more than 50% of the
outstanding voting securities of the Fund.
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after and is caused by an acquisition or
encumbrance of securities or assets of, or borrowings by, the Fund.
The Fund has elected to be classified as a diversified series of an
open-end investment company. In addition, as a matter of fundamental policy, the
Fund will not:
(1) borrow money, except as permitted under the 1940 Act, 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 1940 Act,
as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(3) concentrate its investments in a particular industry, as that
term is used in the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time
to time;
(4) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages or
investments secured by real estate or interests therein, except
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<PAGE>
that the Fund reserves freedom of action to hold and to sell real
estate acquired as a result of the Fund's ownership of
securities;
(6) purchase physical commodities or contracts related to physical
commodities; or
(7) make loans except as permitted under the 1940 Act, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time.
Nonfundamental policies may be changed by the Trustees of the Trust and
without shareholder approval. As a matter of nonfundamental policy, the Fund
does not currently intend to:
(1) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or other
investments or transactions described in the Fund's registration
statement which may be deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(3) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments, (iv)
that transactions in futures contracts and options shall not be
deemed to constitute selling securities short, and (v) that the
Fund may obtain such short-term credits as may be necessary for
the clearance of securities transactions;
(4) purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its
total assets; or sell put options, if as a result, the aggregate
value of the obligations underlying such put options would exceed
50% of its total assets;
(5) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate
initial margin with respect to such futures contracts entered
into on behalf of the Fund and the premiums paid for such options
on futures contracts does not exceed 5% of the fair market value
of the Fund's total assets; provided that in the case of an
option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in computing the 5% limit;
(6) purchase warrants if as a result, such securities, taken at the
lower of cost or market value, would represent more than 5% of
the value of the Fund's total assets (for this purpose, warrants
acquired in units or attached to securities will be deemed to
have no value); and
(7) lend portfolio securities in an amount greater than 5% of its
total assets.
PURCHASES
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, TWX, or telephone.
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Shareholders of other Scudder funds who have submitted an account
application and have a certified Tax Identification Number, clients having a
regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser or of
any affiliated organization and their immediate families, members of the NASD,
and banks may open an account by wire. These investors must call 1-800-225-5163
to get an account number. During the call, the investor will be asked to
indicate the Fund name, amount to be wired ($2,500 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the taxpayer identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, State Street Bank and Trust Company, Boston, MA
02110, ABA Number 011000028, DDA Account Number: 9903-5552. The investor must
give the Scudder fund name, account name and the new account number. Finally,
the investor must send the completed and signed application to the Fund
promptly.
The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500
($1,000 for fiduciary accounts such as IRAs, and custodial accounts such as
Uniform Gift to Minor Act, and Uniform Trust to Minor Act accounts), which
amount may be changed by the Board of Trustees. A shareholder may open an
account with at least $1,000 ($500 for fiduciary/custodial accounts), if an
automatic investment plan (AIP) of $100/month ($50/month for fiduciary/custodial
accounts) is established. Scudder group retirement plans and certain other
accounts have similar or lower minimum share balance requirements.
The Fund reserves the right, following 60 days' written notice to
applicable shareholders, to:
o assess an annual $10 per fund charge (with the fee to be paid to
the fund) for any non-fiduciary/non-custodial account without an
automatic investment plan (AIP) in place and a balance of less
than $2,500; and
o redeem all shares in Fund accounts below $1,000 where a reduction
in value has occurred due to a redemption, exchange or transfer
out of the account. The Fund will mail the proceeds of the
redeemed account to the shareholder.
Reductions in value that result solely from market activity will not
trigger an involuntary redemption. Shareholders with a combined household
account balance in any of the Scudder Funds of $100,000 or more, as well as
group retirement and certain other accounts will not be subject to a fee or
automatic redemption.
Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or
UTMA) with balances below $100 are subject to automatic redemption following 60
days' written notice to applicable shareholders.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD, and banks. Orders placed in this manner may be directed to any
office of the Distributor listed in the Fund's prospectus. A confirmation of the
purchase will be mailed out promptly following receipt of a request to buy.
Federal regulations require that payment be received within three business days.
If payment is not received within that time, the order is subject to
cancellation. In the event of such cancellation or cancellation at the
purchaser's request, the purchaser will be responsible for any loss incurred by
the Fund or the principal underwriter by reason of such cancellation. If the
purchaser is a shareholder, the Trust shall have the authority, as agent of the
shareholder, to redeem shares in the account in order to reimburse the Fund or
the principal underwriter for the loss incurred. Net losses on such transactions
which are not recovered from the purchaser will be absorbed by the principal
underwriter. Any net profit on the liquidation of unpaid shares will accrue to
the Fund.
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Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of the Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
New York Stock Exchange, Inc. (the "Exchange"), normally 4 p.m. eastern time.
Proceeds in the amount of your purchase will be transferred from your bank
checking account two or three business days following your call. For requests
received by the close of regular trading on the Exchange, shares will be
purchased at the net asset value per share calculated at the close of trading on
the day of your call. QuickBuy requests received after the close of regular
trading on the Exchange will begin their processing and be purchased at the net
asset value calculated the following business day. If you purchase shares by
QuickBuy and redeem them within seven days of the purchase, the Fund may hold
the redemption proceeds for a period of up to seven business days. If you
purchase shares and there are insufficient funds in your bank account the
purchase will be canceled and you will be subject to any losses or fees incurred
in the transaction. QuickBuy transactions are not available for most retirement
plan accounts. However, QuickBuy transactions are available for Scudder IRA
accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing a QuickBuy Enrollment Form. After sending in an enrollment form,
shareholders should allow 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Checks
A certified check is not necessary, but checks are only accepted
subject to collection at full face value in U.S. funds and must be drawn on, or
payable through, a U.S. bank.
If shares of the Fund are purchased by a check which proves to be
uncollectible, the Trust reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Trust or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, the Trust will have the authority, as agent of the shareholder, to
redeem shares in the account in order to reimburse the Fund or the principal
underwriter for the loss incurred. Investors whose orders have been canceled may
be prohibited from, or restricted in, placing future orders in any of the
Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by State
Street Bank and Trust Company (the "Custodian") of "wired funds," but the right
to charge investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
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federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed as of the close of regular trading on each day during
which the Exchange is open for trading. Orders received after the close of
regular trading on the Exchange will receive the next business day's net asset
value. If the order has been placed by a member of the NASD, other than the
Distributor, it is the responsibility of that member broker, rather than the
Fund, to forward the purchase order to Scudder Service Corporation (the
"Transfer Agent") by the close of regular trading on the Exchange.
Share Certificates
Due to the desire of the Trust's management to afford ease of
redemption, certificates will not be issued to indicate ownership in the Fund.
Share certificates now in a shareholder's possession may be sent to the Transfer
Agent for cancellation and credit to such shareholder's account. Shareholders
who prefer may hold the certificates in their possession until they wish to
exchange or redeem such shares.
Other Information
The Fund has authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Fund's shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on the Fund's behalf. Orders for purchase or redemption will be deemed to
have been received by the Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between the Fund and the
broker, ordinarily orders will be priced at the Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of the Fund's shares are arranged and
settlement is made at an investor's election through any other authorized NASD
member, that member may, at its discretion, charge a fee for that service. The
Board of Trustees and the Distributor, also the Fund's principal underwriter,
each has the right to limit the amount of purchases by, and to refuse to sell
to, any person. The Trustees and the Distributor may suspend or terminate the
offering of shares of the Fund at any time for any reason.
The Board of Trustees and the Distributor each has the right to limit,
for any reason, the amount of purchases by, and to refuse to, sell to any
person, and each may suspend or terminate the offering of shares of the Fund at
any time for any reasons.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g. from exempt organizations, certification of exempt status)
will be returned to the investor. The Fund also reserves the right, following 30
days' notice, to redeem all shares in accounts without a correct certified
Social Security or tax identification number. A shareholder may avoid
involuntary redemption by providing the Fund with a tax identification number
during the 30-day notice period.
The Trust may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
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EXCHANGES AND REDEMPTIONS
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder fund. The purchase side of the exchange either may
be an additional investment into an existing account or may involve opening a
new account in the other fund. When an exchange involves a new account, the new
account will be established with the same registration, tax identification
number, address, telephone redemption option, "Scudder Automated Information
Line" (SAIL) transaction authorization and dividend option as the existing
account. Other features will not carry over automatically to the new account.
Exchanges to a new fund account must be for a minimum of $2,500. When an
exchange represents an additional investment into an existing account, the
account receiving the exchange proceeds must have identical registration,
address, and account options/features as the account of origin. Exchanges into
an existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request must
be in writing and must contain an original signature guarantee as described in
the Fund's prospectus.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the net asset value
determined on that day. Exchange orders received after the close of regular
trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder fund to an
existing account in another Scudder fund at current net asset value through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the phone or in writing. Automatic
exchanges will continue until the shareholder requests by phone or in writing to
have the feature removed, or until the originating account is depleted. The
Trust and the Transfer Agent each reserve the right to suspend or terminate the
privilege of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
However, shares that are exchanged from the Fund may be subject to the Fund's 1%
redemption fee. (See "Special Redemption and Exchange Information.") An exchange
into another Scudder fund is a redemption of shares, and therefore may result in
tax consequences (gain or loss) to the shareholder, and the proceeds of such an
exchange may be subject to backup withholding. (See "TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Fund employs
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that they reasonably believe to be genuine. The Fund
and the Transfer Agent each reserve the right to suspend or terminate the
privilege of exchanging by telephone or fax at any time.
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder funds. For more information, please call
1-800-225-5163.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
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<PAGE>
Special Redemption and Exchange Information
In general, shares of the 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 the Fund's then current net asset value
per share. This 1% discount, referred to in the prospectus and this Statement of
Additional Information as a redemption fee, directly affects the amount a
shareholder who is subject to the discount receives upon exchange or redemption.
It is intended to encourage long-term investment in the Fund, to avoid
transaction and other expenses caused by early redemptions and to facilitate
portfolio management. The fee is not a deferred sales charge, is not a
commission paid to the Adviser or its subsidiaries, and does not benefit the
Adviser in any way. The Fund reserves the right to modify the terms of or
terminate this fee at any time.
The redemption fee will not be applied to (a) a redemption of shares
held in certain retirement plans, including 401(k) plans, 403(b) plans, 457
plans, Keogh accounts, and profit sharing and money purchase pension plans
(however, this fee waiver does not apply to IRA and SEP-IRA accounts), (b) a
redemption of any shares of 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), or (d)
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 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
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<PAGE>
wired through a commercial bank which is a correspondent of the savings
bank. As this may delay receipt by the shareholder's account, it is
suggested that investors wishing to use a savings bank discuss wire
procedures with their bank and submit any special wire transfer
information with the telephone redemption authorization. If appropriate
wire information is not supplied, redemption proceeds will be mailed to
the designated bank.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption requests by telephone (technically a repurchase by agreement
between the Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Redemption by QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickSell program may sell shares of the Fund by telephone. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, normally 4:00 p.m. eastern time, shares will be redeemed at the net
asset value per share calculated at the close of trading on the day of your
call. QuickSell requests received after the close of regular trading on the
Exchange will begin their processing and be redeemed at the net asset value
calculated the following business day. QuickSell transactions are not available
for Scudder IRA accounts and most other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which redemption proceeds will be credited. New
investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing a QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow 15 days for this service to be available.
The Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that the Fund does not follow such procedures, it may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Fund will not be
liable for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
Redemption by Mail or Fax
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request documents such as, but not restricted to, stock
powers, trust instruments, certificates of death, appointments as executor,
certificates of corporate authority and waivers of tax required in some states
when settling estates.
It is suggested that shareholders holding shares registered in other
than individual names contact the Transfer Agent prior to any redemptions to
ensure that all necessary documents accompany the request. When shares are held
in the name of a corporation, trust, fiduciary agent, attorney or partnership,
the Transfer Agent requires, in addition to the stock power, certified evidence
of authority to sign. These procedures are for the protection of shareholders
and should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within seven business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays of more
than seven days of payment for shares tendered for repurchase or redemption may
result, but only until the purchase check has cleared.
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<PAGE>
The requirements for IRA redemptions are different from those for
regular accounts. For more information call 1-800-225-5163.
Redemption-in-Kind
The Trust reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Fund and valued as they are for purposes of computing the Fund's net asset
value (a redemption-in-kind). If payment is made in securities, a shareholder
may incur transaction expenses in converting these securities into cash. The
Trust has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90 day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
Other Information
Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct repurchase requests to the
Fund through Scudder Investor Services, Inc. at Two International Place, Boston,
Massachusetts 02110-4103 by letter, fax, TWX, or telephone. A two-part
confirmation will be mailed out promptly after receipt of the repurchase
request. A written request in good order with a proper original signature
guarantee, as described in the Fund's prospectus should be sent with a copy of
the invoice to Scudder Funds, c/o Scudder Confirmed Processing, Two
International Place, Boston, Massachusetts 02110-4103. Failure to deliver shares
or required documents (see above) by the settlement date may result in
cancellation of the trade and the shareholder will be responsible for any loss
incurred by the Fund or the principal underwriter by reason of such
cancellation. Net losses on such transactions which are not recovered from the
shareholder will be absorbed by the principal underwriter. Any net gains so
resulting will accrue to the Fund. For this group, repurchases will be carried
out at the net asset value next computed after such repurchase requests have
been received. The arrangements described in this paragraph for repurchasing
shares are discretionary and may be discontinued at any time.
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder receives in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
or repurchased may be more or less than the shareholder's cost depending on the
net asset value at the time of redemption or repurchase. The Fund does not
impose a repurchase charge, although a wire charge may be applicable for
redemption proceeds wired to an investor's bank account. Redemption of shares,
including redemptions undertaken to effect an exchange for shares of another
Scudder fund, may result in tax consequences (gain or loss) to the shareholder
and the proceeds of such redemptions may be subject to backup withholding. (See
"TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The determination of net asset value and a shareholder's right to
redeem shares and to receive payment may be suspended at times (a) during which
the Exchange is closed, other than customary weekend and holiday closings, (b)
during which trading on the Exchange is restricted for any reason, (c) during
which an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or (d)
during which the SEC by order permits a suspension of the right of redemption or
a postponement of the date of payment or of redemption; provided that applicable
rules and regulations of the SEC (or any succeeding governmental authority)
shall govern as to whether the conditions prescribed in (b), (c) or (d) exist.
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<PAGE>
The No-Load Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
Scudder pioneered the no-load concept when it created the nation's
first no-load fund in 1928, and later developed the nation's first family of
no-load mutual funds.
Investors are encouraged to review the fee tables in the Fund's
prospectus for more specific information about the rates at which management
fees and other expenses are assessed.
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<PAGE>
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 -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
Dividends and Capital Gains Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of a Fund. A change of instructions for the method of
payment must be received by the Transfer Agent at least five days prior to a
dividend record date. Shareholders also may change their dividend option either
by calling 1-800-225-5163 or by sending written instructions to the Transfer
Agent. Please include your account number with your written request. See
"Investment Products and Services" in the Funds' prospectuses for the address.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of a Fund.
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Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal
Plan must reinvest any dividends or capital gains. For most retirement plan
accounts, the reinvestment of dividends and capital gains is also required.
Reports to Shareholders
The Trust issues shareholders unaudited semiannual financial statements
and annual financial statements audited by independent accountants, including a
list of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights. The Trust presently intends to
distribute to shareholders informal quarterly reports during the intervening
quarters, containing a statement of the investments of the Funds.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-225-5163.
THE SCUDDER FAMILY OF FUNDS
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds.
MONEY MARKET
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
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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
- -----------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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<PAGE>
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
- -----------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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<PAGE>
Scudder Zero Coupon 2000 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
Scudder Pathway Series: Growth Portfolio
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<PAGE>
Scudder Pathway Series: International Portfolio
U.S. GROWTH AND INCOME
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income 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
- -----------
** Only the Scudder Shares are part of the Scudder Family of Funds.
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Growth
Scudder Classic Growth Fund**
Scudder Large Company 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
- -----------
** 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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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
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
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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 1-800-225-5163.
SPECIAL PLAN ACCOUNTS
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
Shares of the Fund may also be a permitted investment under profit
sharing and pension plans and IRAs other than those offered by the Fund's
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder Profit-Sharing Plan (including a version of the
Plan which includes a cash-or-deferred feature) or a Scudder Money Purchase
Pension Plan (jointly referred to as the Scudder Retirement Plans) adopted by a
corporation, a self-employed individual or a group of self-employed individuals
(including sole proprietorships and partnerships), or other qualifying
organization. Each of these forms was approved by the IRS as a prototype. The
IRS's approval of an employer's plan under Section 401(a) of the Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Fund may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
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is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples if only one spouse has
earned income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
Scudder Roth IRA: Individual Retirement Account
Shares of the Fund may be purchased as the underlying investment for a
Roth Individual Retirement Account which meets the requirements of Section 408A
of the Internal Revenue Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
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jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, excess medical expenses, the
purchase of health insurance for an unemployed individual and qualified higher
education expenses.
An individual with an income of $100,000 or less (who is not married,
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
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 -- Signature guarantees" in the Fund's
prospectus. Any such requests must be received by the Fund's transfer agent ten
days prior to the date of the first automatic withdrawal. An Automatic
Withdrawal Plan may be terminated at any time by the shareholder, the Trust or
its agent on written notice, and will be terminated when all shares of the Fund
under the Plan have been liquidated or upon receipt by the Trust of notice of
death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
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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.
Scudder Savings Incentive Match Plans for Employees: SIMPLE IRA'S
Shares of the Fund may be purchased as the underlying investment for a
"SIMPLE IRA." A SIMPLE IRA is an IRA into which both an individual and the
individual's employer may make contributions. The individual may elect to make
pre-tax contributions, calculated as a percentage of compensation, to a SIMPLE
IRA, up to $6,000 a year. Subject to certain limits, the employer may either
match a portion of your contributions, or may make a contribution equal to 2% of
the employee's compensation without regard to the amount the employee
contributes under the SIMPLE IRA. Individuals will be immediately 100% vested in
all contributions made to a SIMPLE IRA.
If amounts are distributed from a SIMPLE IRA account during the two
year period beginning on the date the employee first participates in the SIMPLE
salary reduction arrangement, a 25% penalty tax will be imposed on such
distribution. Also during that two year period, the SIMPLE IRA account can be
rolled over tax-free only to another SIMPLE IRA account. After that two year
period has passed, distributions from a SIMPLE IRA instead will be subject
generally to the rules applicable to other IRAs; for example, they may be rolled
over tax-free into any individual retirement plan, they will be subject to the
10% penalty tax on early distributions that are made before the individual
reaches age 59 1/2, and they will be fully taxed when withdrawn.
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DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund intends to follow the practice of distributing all of its
investment company taxable income, which includes any excess of net realized
short-term capital gains over net realized long-term capital losses. The Fund
may follow the practice of distributing the entire excess of net realized
long-term capital gains over net realized short-term capital losses. However,
the Fund may retain all or part of such gain for reinvestment after paying the
related federal income taxes for which the shareholders may then be asked to
claim a credit against their federal income tax liability. (See "TAXES.")
If the Fund does not distribute an amount of capital gain and/or
ordinary income required to be distributed by an excise tax provision of the
Code, it may be subject to such tax. (See "TAXES.") In certain circumstances,
the Fund may determine that it is in the interest of shareholders to distribute
less than such an amount.
Earnings and profits distributed to shareholders on redemptions of Fund
shares may be utilized by the Fund, to the extent permissible, as part of the
Fund's dividend paid deduction on its federal tax return.
The Trust intends to distribute the Fund's investment company taxable
income and any net realized capital gains in December to avoid federal excise
tax, although an additional distribution may be made if necessary. Both types of
distributions will be made in shares of the Fund and confirmations will be
mailed to each shareholder unless a shareholder has elected to receive cash, in
which case a check will be sent. Distributions of investment company taxable
income and net realized capital gains are taxable (See "TAXES"), whether made in
shares or cash.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. The characterization of distributions on such
correspondence may differ from the characterization for federal tax purposes. In
January of each year the Fund issues to each shareholder a statement of the
federal income tax status of all distributions in the prior calendar year.
PERFORMANCE INFORMATION
From time to time, quotations of the Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures will be calculated in the following manner:
Average Annual Total Return
Average annual total return is the average annual compound rate of
return for the periods of one year and the life of the Fund, ended on the last
day of a recent calendar quarter. Average annual total return quotations reflect
changes in the price of the Fund's shares and assume that all dividends and
capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by finding the average
annual compound rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
T = Average Annual Total Return
P = a hypothetical initial payment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
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Average Annual Total Return for the periods ended July 31, 1999
One Year Life of Fund(1)
39.65% 16.15%
(1) The Fund commenced operations on September 9, 1996.
Cumulative Total Return
Cumulative total return is the compound rate of return on a
hypothetical initial investment of $1,000 for a specified period. Cumulative
total return quotations reflect changes in the price of the Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative total return is calculated by finding the
cumulative rate of return of a hypothetical investment over such periods,
according to the following formula (cumulative total return is then expressed as
a percentage):
C = (ERV/P) -1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
Cumulative Total Return for the periods ended July 31, 1999
One Year Life of Fund(1)
39.65% 54.08%
(1) The Fund commenced operations on September 9, 1996.
Total Return
Total return is the rate of return on an investment for a specified
period of time calculated in the same manner as cumulative total return.
Quotations of the Fund's performance are historical and are not
intended to indicate future performance. An investor's shares when redeemed may
be worth more or less than their original cost. Performance of the Fund will
vary based on changes in market conditions and the level of the Fund's expenses.
There may be quarterly periods following the periods reflected in the
performance bar chart in the Fund's prospectus which may be higher or lower than
those included in the bar chart.
Comparison of Fund Performance
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In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs.
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations.
From time to time, in marketing and other Fund literature, Trustees and
officers of the Fund, the Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.
The Fund may be advertised as an investment choice in Scudder's college
planning program.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Fund. The
description may include a "risk/return spectrum" which compares the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer 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
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funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
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ORGANIZATION OF THE FUND
The Fund is a series of Scudder Securities Trust, formerly Scudder
Development Fund, a Massachusetts business trust established under a Declaration
of Trust dated October 16, 1985. The Trust's predecessor was organized as a
Delaware corporation in 1970. The Trust's authorized capital consists of an
unlimited number of shares of beneficial interest of $0.01 par value, all of
which are of one class and have equal rights as to voting, dividends and
liquidation. The Trust's shares are currently divided into seven series, Scudder
Development Fund, Scudder Financial Services Fund, Scudder Health Care Fund,
Scudder Micro Cap Fund, Scudder Small Company Value Fund, Scudder Techonology
Fund and Scudder 21st Century Growth Fund. The Trustees have the authority to
issue additional series of shares and to designate the relative rights and
preferences as between the different series. Each share of each series has equal
rights with each other share of that series as to voting, dividends and
liquidations. All shares issued and outstanding will be fully paid and
nonassessable by the Trust, and redeemable as described in this Statement of
Additional Information and in each series' prospectus.
The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the shares of any series
are entitled to receive as a class the underlying assets of such shares
available for distribution to shareholders.
Shares of the Trust entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting that
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series.
The Trustees, in their discretion, may authorize the division of shares
of the Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution. The Trustees have no present
intention of taking the action necessary to effect the division of shares into
separate classes, nor of changing the method of distribution of shares of the
Fund.
The Declaration of Trust provides that obligations of the Fund are not
binding upon the Trustees individually but only upon the property of the Fund,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Fund will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Fund. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
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INVESTMENT ADVISER
Scudder Kemper Investments, Inc., 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 New Europe Fund, Inc., Scudder Pathway
Series, Scudder Securities Trust, Scudder State Tax Free Trust, Scudder Tax Free
Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder
Variable Life Investment Fund, The Argentina Fund, Inc., The Brazil Fund, Inc.,
The Korea Fund, Inc., The Japan Fund, Inc. and Scudder Spain and Portugal Fund,
Inc. Some of the foregoing companies or trusts have two or more series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between 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 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
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an adjunct to its own research activities. Scudder's international investment
management team travels the world, researching hundreds of companies. In
selecting the securities in which the Fund may invest, the conclusions and
investment decisions of the Adviser with respect to the Fund are based primarily
on the analyses of its own research department.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view to achieving their respective investment objectives
and after consideration of such factors as their current holdings, availability
of cash for investment and the size of their investments generally. Frequently,
a particular security may be bought or sold for only one client or in different
amounts and at different times for more than one but less than all clients.
Likewise, a particular security may be bought for one or more clients when one
or more other clients are selling the security. In addition, purchases or sales
of the same security may be made for two or more clients on the same day. In
such event, such transactions will be allocated among the clients in a manner
believed by the Adviser to be equitable to each. In some cases, this procedure
could have an adverse effect on the price or amount of the securities purchased
or sold by the Fund. Purchase and sale orders for the Fund may be combined with
those of other clients of the Adviser in the interest of achieving the most
favorable net results to the Fund.
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 the Adviser) and the financial services businesses of B.A.T
Industries p.l.c. ("B.A.T") were combined to form a new global insurance and
financial services company known as Zurich Financial Services Group. By way of a
dual holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services Group, with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, the Fund's existing investment
management agreement with the Adviser was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement (the "Agreement") with the Adviser, which is substantially identical
to the current investment management agreement, except for the date of execution
and termination. This Agreement became effective upon the termination of the
then current investment management agreement and was approved by shareholders'
approval at a special meeting held in December 1998.
The Agreement dated September 7, 1998, was approved by the Trustees of
the Fund on August 6, 1998. The Agreement will continue in effect until
September 30, 1999 and from year to year thereafter only if its continuance is
approved annually by the vote of a majority of those Trustees who are not
parties to such Agreement or interested persons of the Adviser or the Fund, cast
in person at a meeting called for the purpose of voting on such approval, and
either by a vote of the Trust's Trustees or of a majority of the outstanding
voting securities of the Fund. The Agreement may be terminated at any time
44
<PAGE>
without payment of penalty by either party on sixty days' written notice, and
automatically terminates in the event of its assignment.
Under the Agreement, the Adviser regularly provides the Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objective, policies and restrictions and determines what
securities shall be purchased, held or sold and what portion of the Fund's
assets shall be held uninvested, subject to the Fund's Declaration of Trust,
By-Laws, the 1940 Act, the Code and to the Fund's investment objective, policies
and restrictions, and subject, further, to such policies and instructions as the
Board of Trustees of the Fund may from time to time establish. The Adviser also
advises and assists the officers of the Fund in taking such steps as are
necessary or appropriate to carry out the decisions of its Trustees and the
appropriate committees of the Trustees regarding the conduct of the business of
the Fund.
Under the Agreement, the Adviser renders significant administrative
services (not otherwise provided by third parties) necessary for the Fund's
operations as an open-end investment company including, but not limited to,
preparing reports and notices to the Trustees and shareholders; supervising,
negotiating contractual arrangements with, and monitoring various third-party
service providers to the Fund (such as the Fund's transfer agent, pricing
agents, Custodian, accountants and others); preparing and making filings with
the SEC and other regulatory agencies; assisting in the preparation and filing
of the Fund's federal, state and local tax returns; preparing and filing the
Fund's federal excise tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and the calculation of net asset
value; monitoring the registration of shares of the Fund under applicable
federal and state securities laws; maintaining the Fund's books and records to
the extent not otherwise maintained by a third party; assisting in establishing
accounting policies of the Fund; assisting in the resolution of accounting and
legal issues; establishing and monitoring the Fund's operating budget;
processing the payment of the Fund's bills; assisting the Fund in, and otherwise
arranging for, the payment of distributions and dividends and otherwise
assisting the Fund in the conduct of its business, subject to the direction and
control of the Trustees.
The Adviser pays the compensation and expenses of all Trustees,
officers and executive employees (except expenses incurred attending Board and
committee meetings outside New York, New York or Boston, Massachusetts) of the
Trusts affiliated with the Adviser and makes available, without expense to the
Fund, the services of such Trustees, officers and employees of the Adviser as
may duly be elected officers of the Trust, subject to their individual consent
to serve and to any limitations imposed by law, and provides the Fund's office
space and facilities.
For these services, the Fund will pay the Adviser a fee equal to 1.00%
of the Fund's average daily net assets, payable monthly, provided the Fund will
make such interim payments as may be requested by the Adviser not to exceed 75%
of the amount of the fee then accrued on the books of the Fund and unpaid. Since
inception, the Adviser has agreed until November 30, 2000 to maintain the total
annualized expenses of the Fund at no more than 1.75% of the average daily net
assets of the Fund. For the eleven months ended July 31, 1999, the Adviser did
not impose a portion of its management fee amounting to $195,129 and the amount
imposed amounted to $221,548. For the fiscal year ended August 31, 1998, the
Adviser did not impose a portion of its management fee amounting to $136,802 and
the amount paid to the Adviser amounted to $187,185. For the period September 9,
1996 (commencement of operations) to August 31, 1997, the Adviser waived its
management fee amounting to $129,231.
Under the Agreement the Fund is responsible for all of its other
expenses including: organizational costs, fees and expenses incurred in
connection with membership in investment company organizations; brokers'
commissions; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the Transfer Agent; any other expenses of issue,
sale, underwriting, distribution, redemption or repurchase of shares; the
expenses of and the fees for registering or qualifying securities for sale; the
fees and expenses of Trustees, officers and employees of the Fund who are not
affiliated with the Adviser; the cost of printing and distributing reports and
notices to stockholders; and the fees and disbursements of custodians. The Fund
may arrange to have third parties assume all or part of the expenses of sale,
underwriting and distribution of shares of the Fund. The Fund is also
responsible for its expenses of shareholders' meetings, the cost of responding
45
<PAGE>
to shareholders' inquiries, and its expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees of the Fund with respect thereto.
The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Trust's investment products and services.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees who are not "interested persons"
of the Adviser are represented by independent counsel at the Fund's expense.
The Agreement provide that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the 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
the Fund as principals in the purchase or sale of securities, except as
individual subscribers to or holders of shares of the 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 Fund. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
Lynn S. Birdsong (52)++*= President and Trustee Managing Director of Scudder Kemper Director, Vice
Investments, Inc. President and Assistant
Treasurer
46
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------------- ------------------ ---------------------- --------------
Paul Bancroft III (69) Trustee Venture Capitalist and Consultant; --
79 Pine Lane Retired, President, Chief Executive
Box 6639 Officer and Director, Bessemer
Snowmass Village, CO Securities Corporation
81615
Sheryle J. Bolton (53) Trustee CEO and Director, Scientific Learning --
Scientific Learning Corporation; Former President and
Corporation Chief Operating Officer, Physicians
1995 University Avenue Online, Inc. (electronic transmission
Suite 400 of clinical information for
San Francisco, CA 94704 physicians (1994-1995)
William T. Burgin (56) Trustee General Partner, Bessemer Venture --
83 Walnut Street Partners; General Partner, Deer &
Wellesley, MA 02481 Company; Director, Fort James Corp.;
Director of various privately held
companies
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 President, The Metropolitan --
The Metropolitan Museum of Art
Museum of Art
1000 Fifth Avenue
New York, NY 10028
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 Managing Director of Scudder Kemper Director, Senior Vice
President and Investments, Inc. President and
Assistant Secretary Assistant Clerk
Thomas J. Devine (73) Honorary Trustee Consultant --
149 East 73rd Street
New York, NY 10021
Robert G. Stone, Jr. (76) Honorary Trustee Chairman Emeritus and Director, Kirby --
405 Lexington Avenue Corporation (inland and offshore
39th Floor marine transportation and diesel
New York, NY 10174 repairs)
47
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------------- ------------------ ---------------------- --------------
Wilson Nolen (73) Honorary Trustee Consultant (1989 to present); --
1120 Fifth Avenue Corporate Vice President, Becton,
New York, NY 10128-0144 Dickinson & Company (manufacturer of
medical and scientific products)
until 1989
Edmund R. Swanberg (78)++ Honorary Trustee Advisory Managing Director of Scudder --
Kemper Investments, Inc.
Peter Chin (57)++ Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
J. Brooks Dougherty (40)+ Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
James M. Eysenbach (37)# Vice President Senior Vice President of Scudder --
Kemper Investments, Inc.
James E. Fenger (40)## Vice President Managing Director of Scudder Kemper --
Investments, Inc.
Philip S. Fortuna (42)# Vice President Managing Director of Scudder Kemper Vice President
Investments
Ann M. McCreary (42)++ Vice President Managing Director of Scudder Kemper --
Investments
Thaddeus Paluszek (42)++ Vice President Vice President of Scudder Kemper --
Investments, Inc.
Kurt R. Stalzer (41)## Vice President Managing Director or 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.
48
<PAGE>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
- ---------------------- ------------------ ---------------------- --------------
Richard W. Desmond (63)++ Assistant Secretary Vice President of Scudder Kemper Vice President
Investments, Inc.
John Millette (36)+ Vice President and Assistant Vice President of Scudder --
Secretary Kemper Investments, Inc. since
September 1994; previously employed
by the law firm Kaye, Scholer,
Fierman, Hays & Handler
Caroline Pearson (37)+ Assistant Secretary Senior Vice President of Scudder
Kemper Investments, Inc.; Associate,
Dechert Price & Rhoads (law firm)
1989 - 1997
</TABLE>
* Mr. Birdsong and Ms. Quirk are considered by the Fund and its counsel to be
persons who are "interested persons" of the Adviser or of the Fund within
the meaning of the 1940 Act.
** Unless otherwise stated, all officers and trustees have been associated
with their respective companies for more than five years, but not
necessarily in the same capacity.
@ Mr. Birdsong and Ms. Quirk are members of the Executive Committee which may
exercise substantially all of the powers of the Board of Trustees when it
is not in session.
+ Address: Two International Place, Boston, Massachusetts 02110
++ Address: 345 Park Avenue, New York, New York 10154
# Address: 101 California Street, Suite 4100, San Francisco, CA 94111-5886
## Address: 222 South Riverside Plaza, Chicago, IL 60606-5808
The Trustees and Officers of the Trust also serve in similar capacities
with other Scudder Funds.
To the knowledge of the Trust, as of October 31, 1999, no person owned
beneficially more than 5% of the Fund's outstanding shares except as stated
above.
49
<PAGE>
REMUNERATION
Responsibilities of the Board -- Board and Committee Meetings
The Board of Trustees is responsible for the general oversight of the
Fund's business. A majority of the Board's members are not affiliated with
Scudder Kemper Investments, Inc. These "Independent Trustees" have primary
responsibility for assuring that the Fund is managed in the best interests of
its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of the Fund and other operational matters, including policies and
procedures designed to ensure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, the
Fund's investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by the Fund's independent public accountants and by
independent legal counsel selected by the Independent Trustees.
All the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects the Fund's independent public
accountants and reviews accounting policies and controls. In addition,
Independent Trustees from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Trustees
The Independent Trustees receive the following compensation from the
Funds of Scudder Securities Trust: an annual trustee's fee of $3,500; a fee of
$325 for attendance at each board meeting, audit committee meeting or other
meeting held for the purposes of considering arrangements between the Trust on
behalf of the Fund and the Adviser or any affiliate of the Adviser; $100 for all
other committee meetings; and reimbursement of expenses incurred for travel to
and from Board Meetings. No additional compensation is paid to any Independent
Trustee for travel time to meetings, attendance at directors' educational
seminars or conferences, service on industry or association committees,
participation as speakers at directors' conferences or service on special
trustee task forces or subcommittees. Independent Trustees do 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>
Scudder Securities Trust* All Scudder Funds
------------------------- -----------------
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, $44,625 $0 $174,200 $8,925
Trustee (23 funds)
Sheryle J. Bolton, $43,225 $0 $149,050 $0
Trustee** (21 funds)
50
<PAGE>
Scudder Securities Trust* All Scudder Funds
------------------------- -----------------
Paid by Paid by Paid by Paid by
Name the Trust the Adviser the Funds the Adviser(1)
---- --------- ----------- --------- --------------
William T. Burgin, $45,125 $2,975 $150,950 $8,925
Trustee (21 funds)
Thomas J. Devine, $45,125 $2,975 $162,450 (22 funds) $8,925 (22 funds)
Honorary Trustee+
Keith R. Fox, Trustee $47,475 $2,975 $156,800 $8,925
(21 funds)
William H. Luers, $37,975 $0 $157,050 $8,925
Trustee** (24 funds)
Wilson Nolen, Honorary $45,125 $2,975 $189,075 (24 funds) $6,375 (24 funds)
Trustee+
Joan E. Spero,*** Trustee $7,360 $0.00 $29,736(21 funds) $0.00 (21 funds)
</TABLE>
* Scudder Securities Trust consists of seven funds: Scudder Development
Fund, Scudder Financial Services Fund, Scudder Health Care Fund,
Scudder Technology Fund, Scudder Micro Cap Fund, Scudder Small Company
Value Fund and Scudder 21st Century Growth Fund.
** Elected as Trustee of the Trust in October 1997.
*** Elected as Trustee of the Trust in September 1998.
+ Elected as Honorary Trustee in December 1998, after serving as Trustee.
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 the Fund.
DISTRIBUTOR
The Trust has an underwriting agreement with Scudder Investor Services,
Inc., Two International Place, Boston, MA 02110 (the "Distributor"), a
Massachusetts corporation, which is a subsidiary of the Adviser, a Delaware
corporation. The Trust's underwriting agreement dated September 7, 1998 will
remain in effect until September 30, 2000 and from year to year thereafter only
if its continuance is approved annually by a majority of the Trustees who are
not parties to such agreement or interested persons of any such party and either
by a vote of a majority of the Trustees or a majority of the outstanding voting
51
<PAGE>
securities of the Fund. The underwriting agreement was last approved by the
Trustees on August 6, 1998.
Under the underwriting agreement, the Fund is responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of its registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering the Fund as a broker or dealer in the
various states as required; the fees and expenses of preparing, printing and
mailing prospectuses annually to existing shareholders (see below for expenses
relating to prospectuses paid by the Distributor), notices, proxy statements,
reports or other communications to shareholders of the Fund; the cost of
printing and mailing confirmations of purchases of shares and any prospectuses
accompanying such confirmations; any issuance taxes and/or any initial transfer
taxes; a portion of shareholder toll-free telephone charges and expenses of
shareholder service representatives; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
a portion of the cost of computer terminals used by both the Fund and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Fund's
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of the shares of the Fund to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Fund, unless a 12b-1 Plan is in effect which
provides that the Fund shall bear some or all of such expenses.
Note: Although the Fund does not currently have a 12b-1 Plan, the Fund would
also pay those fees and expenses permitted to be paid or assumed by the
Fund pursuant to a 12b-1 Plan, if any, were adopted by the Fund,
notwithstanding any other provision to the contrary in the underwriting
agreement.
As agent, the Distributor currently offers the Fund's shares on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
TAXES
The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code or a predecessor statute, and has qualified as
such since its inception. It intends to continue to qualify for such treatment.
Such qualification does not involve governmental supervision or management of
investment practices or policy.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90% of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
If for any taxable year the Fund does not qualify for the special
federal income tax treatment afforded regulated investment companies, all of its
taxable income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its shareholders). In such event,
dividend distributions, would be taxable to shareholders to the extent of
current accumulated earnings and profits, and would be eligible for the
dividends received deduction in the case of corporate shareholders.
The Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
52
<PAGE>
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund. Presently, the Fund has
no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by the Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a relative share of federal income taxes paid by
the Fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between such reported gains and the individual tax
credit..
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are expected to comprise a
substantial part of the Fund's gross income. To the extent that such dividends
constitute a portion of the Fund's gross income, a portion of the income
distributions of the Fund may be eligible for the deduction for dividends
received by corporations. Shareholders will be informed of the portion of
dividends which so qualify. The dividends-received deduction is reduced to the
extent the shares of the Fund with respect to which the dividends are received
are treated as debt-financed under federal income tax law, and is eliminated if
either those shares or the shares of the Fund are deemed to have been held by
the Fund or the shareholder, as the case may be, for less than 46 days during
the 90-day period beginning 45 days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of the Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
A qualifying individual may make a deductible IRA contribution for any
taxable year only if (i) neither the individual nor his or her spouse (unless
filing separate returns) is an active participant in an employer's retirement
plan, or (ii) the individual (and his or her spouse, if applicable) has an
adjusted gross income below a certain level ($40,050 for married individuals
filing a joint return, with a phase-out of the deduction for adjusted gross
income between $40,050 and $50,000; $25,050 for a single individual, with a
phase-out for adjusted gross income between $25,050 and $35,000). However, an
individual not permitted to make a deductible contribution to an IRA for any
such taxable year may nonetheless make nondeductible contributions up to $2,000
to an IRA (up to $2,000 per individual for married couples if only one spouse
has earned income) for that year. There are special rules for determining how
withdrawals are to be taxed if an IRA contains both deductible and nondeductible
amounts. In general, a proportionate amount of each withdrawal will be deemed to
53
<PAGE>
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.
Distributions by the Fund result in a reduction in the net asset value
of the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
The Fund may invest in shares of certain foreign corporations which may
be classified under the Code as passive foreign investment companies ("PFICs").
If the Fund receives a so-called "excess distribution" with respect to PFIC
stock, the Fund itself may be subject to a tax on a portion of the excess
distribution. Certain distributions from a PFIC as well as gains from the sale
of the PFIC shares are treated as "excess distributions." In general, under the
PFIC rules, an excess distribution is treated as having been realized ratably
over the period during which the Fund held the PFIC shares. The Fund will be
subject to tax on the portion, if any, of an excess distribution that is
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Excess
distributions allocated to the current taxable year are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The 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, the
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds the Fund's adjusted basis in these
shares; any mark to market losses and any loss from an actual disposition of
shares would be deductible as ordinary loss 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 gain on dispositions as ordinary income
which is not subject to a fund level tax when distributed to shareholders as a
dividend. Alternatively, the Fund may elect to include as income and gain its
share of the ordinary earnings and net capital gain of certain foreign
investment companies in lieu of being taxed in the manner described above.
Equity options (including covered call options on portfolio stock) and
over-the-counter options on debt securities written or purchased by the Fund
will be subject to tax under Section 1234 of the Code. In general, no loss is
recognized by the Fund upon payment of a premium in connection with the purchase
of a put or call option. The character of any gain or loss recognized (i.e.,
long-term or short-term) will generally depend, in the case of a lapse or sale
of the option, on the Fund's holding period for the option, and in the case of
an exercise of a put option, on the Fund's holding period for the underlying
stock. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying stock or substantially identical stock in the Fund's portfolio. If
the Fund writes a put or call option, no gain is recognized upon its receipt of
a premium. If the option lapses or is closed out, any gain or loss is treated as
a short-term capital gain or loss. If a call option is exercised, any resulting
gain or loss is a short-term or long-term capital gain or loss depending on the
holding period of the underlying stock. The exercise of a put option written by
the Fund is not a taxable transaction for the Fund.
Many futures contracts and certain foreign currency forward contracts
entered into by the Fund and all listed non-equity options written or purchased
by the Fund (including options on futures contracts and options on broad-based
stock indices) will be governed by Section 1256 of the Code. Absent a tax
election to the contrary, gain or loss attributable to the lapse, exercise or
closing out of any such position generally will be treated as 60% long-term and
40% short-term capital gain or loss, and on the last trading day of the Fund's
fiscal year, all outstanding Section 1256 positions will be marked to market
(i.e. treated as if such positions were closed out at their closing price on
such day), with any resulting gain or loss recognized as 60% long-term and 40%
short-term. Under Section 988 of the Code, discussed below, foreign currency
gain or loss from foreign currency-related forward contracts and similar
54
<PAGE>
financial instruments entered into or acquired by the Fund will be treated as
ordinary income. Under certain circumstances, entry into a futures contract to
sell a security may constitute a short sale for federal income tax purposes,
causing an adjustment in the holding period of the underlying security or a
substantially identical security in the Fund's portfolio.
Positions of the Fund which consist of at least one stock and at least
one other position with respect to a related security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for certain "qualified
covered call options" on stock written by the Fund.
Positions of the Fund which consist of at least one position not
governed by Section 1256 and at least one futures or forward contract or
non-equity option governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position will be treated as a
"mixed straddle." Although mixed straddles are subject to the straddle rules of
Section 1092 of the Code, certain tax elections exist for them which reduce or
eliminate the operation of these rules. The Fund intends to monitor its
transactions in options and futures and may make certain tax elections in
connection with these investments.
Notwithstanding any of the foregoing, recent tax law changes may
require the Fund to recognize gain (but not loss) from a constructive sale of
certain "appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
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.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues receivables or
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables, or pays such liabilities, generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of debt securities
denominated in a foreign currency, and on disposition of certain options,
futures contracts and forward contracts, 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 the Fund's
investment company taxable income to be distributed to its shareholders as
ordinary income.
The Fund will be required to report to the Internal Revenue Service all
distributions of taxable income and capital gains as well as gross proceeds from
the redemption or exchange of Fund shares, except in the case of certain exempt
shareholders. Under the backup withholding provisions of Section 3406 of the
Code, distributions of taxable income and capital gains and proceeds from the
redemption or exchange of the shares of a regulated investment company may be
subject to withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
Shareholders of the Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year the Fund issues to each
55
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shareholder a statement of the federal income tax status of all distributions.
The Fund is organized as a series of a Massachusetts business trust and
is not liable for any income or franchise tax in the Commonwealth of
Massachusetts, provided that it qualifies as a regulated investment company for
federal income tax purposes.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of the Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Dividend and interest income received by the Fund from sources outside
the U.S. 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 these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
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.
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, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply 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
56
<PAGE>
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.
57
<PAGE>
For the fiscal period from September 9, 1996 (commencement of
operations) to August 31, 1997, the fiscal year ended August 31, 1998, and the
eleven month period ended July 31, 1999 the Fund paid brokerage commissions of
$150,026, $32,583, and $xx,xxx, respectively. For the eleven month period ended
July 31, 1999, $xx,xxx (xx% of the total brokerage commissions paid) resulted
from orders placed, consistent with the policy of obtaining the most favorable
net results, with brokers and dealers who provided supplementary research market
and statistical information to the Fund or the Adviser. The total amount of
brokerage transactions aggregated $xx,xxx,xxx, of which $xx,xxx,xxx (xx% of all
brokerage transactions) were transactions which included research commissions.
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 eleven month period ended
July 31, 1999 was 142.6%, for the fiscal year ended August 30, 1998 was 119.8%,
and for the period September 9, 1996 to August 31, 1997 was 92.0%.
NET ASSET VALUE
The net asset value of shares of the Fund is computed as of the close
of regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas, and on the
preceding Friday or subsequent Monday when one of these holidays falls on a
Saturday or Sunday, respectively. Net asset value per share is determined by
dividing the value of the total assets of the Fund, less all liabilities, by the
total number of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price on the exchange it is traded as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated Mean") on such exchange as
of the Value Time. Lacking a Calculated Mean quotation, the security is valued
at the most recent bid quotation on such exchange as of the Value Time. An
equity security which is traded on the National Association of Securities
Dealers Automated Quotation ("Nasdaq") system will be valued at its most recent
sale price on such system as of the Value Time. Lacking any sales, the security
will be valued at the most recent bid quotation as of the Value Time. The value
of an equity security not quoted on the Nasdaq system, but traded in another
over-the-counter market, is its most recent sale price, if there are any sales
of such security on such market as of the Value Time. Lacking any sales, the
security is valued at the Calculated Mean. Lacking a Calculated Mean quotation,
the security is valued at the most recent bid quotation as of the Value Time.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
58
<PAGE>
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
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 Fund's 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.
Shareholder Indemnification
The Trust is an organization of the type commonly known as a
Massachusetts business trust. Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Fund's property or
the acts, obligations or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of the Fund's property of any shareholder held
personally liable for the claims and liabilities which a shareholder may become
subject by reason of being or having been a shareholder. Thus, the risk of a
59
<PAGE>
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
Other Information
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in light of the objective and policies of the
Fund, and other factors such as its other portfolio holdings and tax
considerations, and should not be construed as recommendations for similar
action by other investors.
The name "Scudder Securities Trust" is the designation of the Trustees
for the time being under a Declaration of Trust dated October 16, 1985, as
amended from time to time, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as neither the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Fund. No series
of the Trust shall be liable for the obligations of any other series. Upon the
initial purchase of shares, the shareholder agrees to be bound by the Trust's
Declaration of Trust, as amended from time to time. The Declaration of Trust is
on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts.
The CUSIP number of the Fund is 811196 40 1.
The Fund has a fiscal year end of July 31.
Dechert Price & Rhoads acts as general counsel for the Fund.
The Fund employs State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 as Custodian.
Costs of $23,340 incurred by the Fund, in conjunction with its
organization are amortized over the five year period beginning September 9,
1996.
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts, a subsidiary of the Adviser, computes net asset value for
the Fund. The Fund pays SFAC 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 eleven month period ended July 31,
1999, SFAC imposed fees amounting to $35,359, of which $7,091 was unpaid at July
31, 1999. For the fiscal year ended August 31, 1998, SFAC imposed fees amounting
to $37,500, of which $3,125 was unpaid at August 31, 1998. For the period
September 9, 1996 (commencement of operations) to August 31, 1997, SFAC imposed
fees amounting to $6,942, of which $6,942 was unpaid at August 31, 1997, and did
not impose fees amounting to $31,183.
Scudder Service Corporation ("SSC"), P.O. Box 2291, Boston,
Massachusetts, 02107-2291, is the transfer and dividend paying agent for the
Fund. The pays SSC an annual fee for each account maintained for a participant.
For the eleven month period ended July 31, 1999, SSC imposed fees amounting to
$140,376, of which $16,387 was unpaid at July 31, 1999. For the fiscal year
ended August 31, 1998, SSC imposed fees amounting to $109,029, of which $9,660
was unpaid at August 31, 1998. For the period September 9, 1996 (commencement of
operations) to August 31, 1997, SSC imposed fees amounting to $14,592, of which
$14,592 was unpaid at August 31, 1997, and did not impose fees amounting to
$65,550. The Fund, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. For the eleven month period ended
July 31, 1999, STC imposed fees amounting to $34,388, of which $8,169 was unpaid
at July 31, 1999. For the fiscal year ended August 31, 1998, STC imposed fees
60
<PAGE>
amounting to $10,812, of which $3,299 was unpaid at August 31, 1998. For the
period September 9, 1996 (commencement of operations) to August 31, 1997, STC
imposed fees amounting to $586, of which $586 was unpaid at August 31, 1997, and
did not impose fees amounting to $2,635.The Fund's prospectus and this Statement
of Additional Information omit certain information contained in the Registration
Statement which the Fund has filed with the SEC under the Securities Act of 1933
and reference is hereby made to the Registration Statement for further
information with respect to the Fund and the securities offered hereby. This
Registration Statement and its amendments are available for inspection by the
public at the SEC in Washington, D.C.
FINANCIAL STATEMENTS
The financial statements, including the Investment Portfolio of 21st
Century Growth Fund, together with the Report of Independent Accountants,
Financial Highlights and notes to financial statements in the Annual Report to
the Shareholders of the Fund dated July 31, 1999, are incorporated herein by
reference, and are hereby deemed to be a part of this Statement of Additional
Information.
61
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SCUDDER SECURITIES TRUST
PART C.
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OTHER INFORMATION
-----------------
<TABLE>
<CAPTION>
Item 23. Exhibits:
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<S> <C> <C>
(a) (a)(1) Amended and Restated Declaration of Trust dated December 21, 1987
is incorporated by reference to Post-Effective Amendment No. 43 to
the Registration Statement.
(a)(2) Amendment to Amended and Restated Declaration of Trust dated
December 13, 1990 is incorporated by reference to Post-Effective
Amendment No. 43 to the Registration Statement.
(a)(3) Amendment to Amended and Restated Declaration of Trust to change
the name of the Trust dated July 21, 1995 is incorporated by
reference to Post-Effective Amendment No. 35 to the Registration
Statement.
(a)(4) Amendment to Amended and Restated Declaration of Trust to add new
series dated July 21, 1995 is incorporated by reference to
Post-Effective Amendment No. 35 to the Registration Statement.
(a)(5) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Development
Fund, Scudder Small Company Value Fund, Scudder Micro Cap Fund, and
Scudder 21st Century Growth Fund dated June 6, 1996 is incorporated
by reference to Post-Effective Amendment No. 40 to the Registration
Statement.
(a)(6) Establishment and Designation of Series of Shares of Beneficial
Interest, $0.01 par value, with respect to Scudder Development
Fund, Scudder Financial Services Fund, Scudder Health Care Fund,
Scudder Micro Cap Fund, Scudder Small Company Value Fund, Scudder
Technology Fund, and Scudder 21st Century Growth Fund dated June 3,
1997 is incorporated by reference to Post-Effective Amendment No.
46 to the Registration Statement.
(b) (b)(1) By-Laws as of October 16, 1985 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.
Part C - Page 1
<PAGE>
(d) (d)(1) Investment Management Agreement between the Registrant (on behalf
of Scudder Development Fund) and Scudder Kemper Investments, Inc.
dated September 7, 1998 is incorporated by reference to
Post-Effective Amendment No. 62 to the Registration Statement.
(d)(2) Investment Management Agreement between the Registrant (on behalf
of Scudder Small Company Value Fund) and Scudder Kemper
Investments, Inc. dated September 7, 1998 is incorporated by
reference to Post-Effective Amendment No. 62 to the Registration
Statement.
(d)(3) Investment Management Agreement between the Registrant (on behalf
of Scudder Micro Cap Fund) and Scudder Kemper Investments, Inc.
dated September 7, 1998 is incorporated by reference to
Post-Effective Amendment No. 62 to the Registration Statement.
(d)(4) Investment Management Agreement between the Registrant (on behalf
of Scudder Financial Services Fund) and Scudder Kemper
Investments, Inc. dated September 7, 1998 is incorporated by
reference to Post-Effective Amendment No. 62 to the Registration
Statement.
(d)(5) Investment Management Agreement between the Registrant (on behalf
of Scudder Health Care Fund) and Scudder Kemper Investments, Inc.
dated September 7, 1998 is incorporated by reference to
Post-Effective Amendment No. 62 to the Registration Statement.
(d)(6) Investment Management Agreement between the Registrant (on behalf
of Scudder Technology Fund) and Scudder Kemper Investments, Inc.
dated September 7, 1998 is incorporated by reference to
Post-Effective Amendment No. 62 to the Registration Statement.
(d)(7) Investment Management Agreement between the Registrant (on behalf
of Scudder 21st Century Growth Fund) and Scudder Kemper
Investments, Inc. dated September 7, 1998 is incorporated by
reference to Post-Effective Amendment No. 62 to the Registration
Statement.
(e) (e)(1) Underwriting Agreement between the Registrant and Scudder Investor
Services, Inc. dated September 7, 1998, is incorporated by
reference to Post-Effective Amendment No. 62 to the Registration
Statement.
(f) Inapplicable.
(g) (g)(1) Custodian Contract between the Registrant and State Street Bank
and Trust Company dated September 6, 1995 is incorporated by
reference to Post-Effective Amendment No. 35 to the Registration
Statement.
(g)(2) Fee schedule for Exhibit (g)(1) is incorporated by reference to
Post-Effective Amendment No. 35 to the Registration Statement.
Part C - Page 2
<PAGE>
(g)(3) Amendment to Custody Contract between the Registrant and State
Street Bank dated March 1, 1999 is filed herein.
(g)(4) Subcustodian Agreement between Brown Brothers Harriman & Co. and
The Bank of New York, London office, dated January 30, 1979 is
incorporated by reference to Post-Effective Amendment No. 43 to
the Registration Statement.
(g)(5) Fee schedule for Exhibit (g)(4) is incorporated by reference to
Post-Effective Amendment No. 43 to the Registration Statement.
(h) (h)(1) Transfer Agency and Service Agreement between the Registrant and
Scudder Service Corporation dated October 2, 1989 is incorporated
by reference to Post-Effective Amendment No. 43 to the
Registration Statement.
(h)(2) Revised fee schedule for Exhibit (h)(1) is incorporated by
reference to Post-Effective Amendment No. 37 to the Registration
Statement.
(h)(3) Service Agreement between Copeland Associates, Inc. (on behalf of
Scudder Development Fund) and Scudder Service Corporation dated
June 8, 1995 is incorporated by reference to Post-Effective
Amendment No. 35 to the Registration Statement.
(h)(4) COMPASS Service Agreement between the Registrant and Scudder Trust
Company dated January 1, 1990 is incorporated by reference to
Post-Effective Amendment No. 43 to the Registration Statement.
(h)(5) Fee schedule for Exhibit (h)(4) is incorporated by reference to
Post-Effective Amendment No. 43 to the Registration Statement.
(h)(6) Shareholder Services Agreement between the Registrant and Charles
Schwab & Co., Inc. dated June 1, 1990 is incorporated by reference
to Post-Effective Amendment No. 43 to the Registration Statement.
(h)(7) Fund Accounting Services Agreement between the Registrant (on
behalf of Scudder Development Fund) and Scudder Fund Accounting
Corporation dated March 21, 1995 is incorporated by reference to
Post-Effective Amendment No. 35 to the Registration Statement.
(h)(8) Fund Accounting Services Agreement between the Registrant (on
behalf of Scudder Small Company Value Fund) and Scudder Fund
Accounting Corporation dated October 6, 1995 is incorporated by
reference to Post-Effective Amendment No. 37 to the Registration
Statement.
(h)(9) Fund Accounting Services Agreement between the Registrant (on
behalf of Scudder Micro Cap Fund) and Scudder Fund Accounting
Corporation dated August 12, 1996 is incorporated by reference to
Post-Effective Amendment No. 41 to the Registration Statement.
Part C - Page 3
<PAGE>
(h)(10) Fund Accounting Services Agreement between the Registrant (on
behalf of Scudder 21st Century Growth Fund) and Scudder Fund
Accounting Corporation dated September 9, 1996 is incorporated by
reference to Post-Effective Amendment No. 41 to the Registration
Statement.
(h)(11) Fund Accounting Services Agreement between the Registrant (on
behalf of Scudder Financial Services Fund) and Scudder Fund
Accounting Corporation dated September 11, 1997 is incorporated by
reference to Post-Effective Amendment No. 50 to the Registration
Statement.
(h)(12) Fund Accounting Services Agreement between the Registrant (on
behalf of Scudder Health Care Fund) and Scudder Fund Accounting
Corporation dated December 4, 1997 is incorporated by reference to
Post-Effective Amendment No. 62 to the Registration Statement.
(h)(13) Fund Accounting Services Agreement between the Registrant (on
behalf of Scudder Technology Fund) and Scudder Fund Accounting
Corporation dated December 4, 1997 is incorporated by reference to
Post-Effective Amendment No. 62 to the Registration Statement.
(i) Legal Opinion and Consent of Counsel to be filed by subsequent
amendment.
(j) Consent of Independent Auditors to be filed by subsequent
amendment.
(k) Inapplicable.
(l) Inapplicable.
(m) Inapplicable.
(n) Inapplicable
(o) Inapplicable
</TABLE>
Item 24. Persons Controlled by or under Common Control with Registrant
- -------- -------------------------------------------------------------
None
Item 25. Indemnification
- -------- ---------------
A policy of insurance covering Scudder Kemper Investments,
Inc., its subsidiaries including Scudder Investor Services,
Inc., and all of the registered investment companies advised
by Scudder Kemper Investments, Inc. insures the Registrant's
trustees and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent
act, error or accidental omission in the scope of their
duties.
Article IV, Sections 4.1 - 4.3 of the Registrant's Declaration
of Trust provide as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees,
Etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or
the acts,
Part C - Page 4
<PAGE>
obligations or affairs of the Trust. No Trustee, officer,
employee or agent of the Trust shall be subject to any
personal liability whatsoever to any Person, other than to the
Trust or its Shareholders, in connection with Trust Property
or the affairs of the Trust, save only that arising from bad
faith, willful misfeasance, gross negligence or reckless
disregard of his duties with respect to such Person; and all
such Persons shall look solely to the Trust Property for
satisfaction of claims of any nature arising in connection
with the affairs of the Trust. If any Shareholder, Trustee,
officer, employee, or agent, as such, of the Trust, is made a
party to any suit or proceeding to enforce any such liability
of the Trust, he shall not, on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each
Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by
reason of his being or having been a Shareholder, and shall
reimburse such Shareholder for all legal and other expenses
reasonably incurred by him in connection with any such claim
or liability. The indemnification and reimbursement required
by the preceding sentence shall be made only out of the assets
of the one or more Series of which the Shareholder who is
entitled to indemnification or reimbursement was a Shareholder
at the time the act or event occurred which gave rise to the
claim against or liability of said Shareholder. The rights
accruing to a Shareholder under this Section 4.1 shall not
impair any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not
specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee,
officer, employee, or agent thereof for any action or failure
to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of the duties involved
in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the Trust to the
fullest extent permitted by law against all liability and
against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which
he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal, administrative or other,
including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust, a Series
thereof, or the Shareholders by reason of a final adjudication
by a court or other body before which a proceeding was brought
that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in good faith
in the reasonable belief that his action was in the best
interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as provided in
paragraph (b)(i) or (b)(ii) resulting in a payment by a
Trustee or officer, unless there has been a determination that
such Trustee or officer did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office:
(A) by the court or other body approving the
settlement or other disposition; or
Part C - Page 5
<PAGE>
(B) based upon a review of readily available
facts (as opposed to a full trial-type inquiry) by
(x) vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the
matter) or (y) written opinion of independent legal
counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust,
shall be severable, shall not affect any other rights
to which any Trustee or officer may now or hereafter
be entitled, shall continue as to a person who has
ceased to be such Trustee or officer and shall insure
to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing
contained herein shall affect any rights to
indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense
to any claim, action, suit or proceeding of the
character described in paragraph (a) of this Section
4.3 may be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by
or on behalf of the recipient to repay such amount if
it is ultimately determined that he is not entitled
to indemnification under this Section 4.3, provided
that either:
(i) such undertaking is secured by a surety bond or
some other appropriate security provided by the recipient, or
the Trust shall be insured against losses arising out of any
such advances; or
(ii) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the Disinterested
Trustees act on the matter) or an independent legal counsel in
a written opinion shall determine, based upon a review of
readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested
Trustee" is one who is not (i) an "Interested Person" of the
Trust (including anyone who has been exempted from being an
"Interested Person" by any rule, regulation or order of the
Commission), or (ii) involved in the claim, action, suit or
proceeding.
Item 26. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and employees who are
denominated officers but do not as such have corporation-wide responsibilities.
Such persons are not considered officers for the purpose of this Item 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
Part C - Page 6
<PAGE>
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO, Member Group Executive Board, Zurich Financial Services, Inc. ##
CEO/Branch Offices, Zurich Life Insurance Company ##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Financial Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
</TABLE>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg,
R.C. Luxembourg B 34.564
Part C - Page 7
<PAGE>
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman,
British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
Item 27. Principal Underwriters
- -------- ----------------------
(a) Scudder Investor Services, Inc. acts as principal underwriter of
the Registrant's shares and also acts as principal underwriter for other funds
managed by Scudder Kemper Investments, Inc.
(b) The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide responsibilities and
are not considered officers for the purpose of this Item 27.
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C>
Lynn S. Birdsong Senior Vice President President & Trustee
345 Park Avenue
New York, NY 10154
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 Assistant Secretary
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154
Philip S. Fortuna Vice President Vice President
101 California Street
San Francisco, CA 94111
William F. Glavin Vice President None
Two International Place
Boston, MA 02110
Part C - Page 8
<PAGE>
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
John R. Hebble Assistant Treasurer Treasurer
Two International Place
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>
Scudder Investor None None None None
Services, Inc.
</TABLE>
Part C - Page 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.
Part C - Page 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(a) 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 30th 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 30, 1999
/s/ Paul Bancroft III
- ---------------------------------------
Paul Bancroft III Trustee September 30, 1999
/s/ Sheryle J. Bolton
- ---------------------------------------
Sheryle J. Bolton* Trustee September 30, 1999
/s/ William T. Burgin
- ---------------------------------------
William T. Burgin* Trustee September 30, 1999
/s/ Keith R. Fox
- ---------------------------------------
Keith R. Fox* Trustee September 30, 1999
/s/ William H. Luers
- ---------------------------------------
William H. Luers* Trustee September 30, 1999
/s/ Kathryn L. Quirk
- ---------------------------------------
Kathryn L. Quirk* Trustee, Vice President and Assistant September 30, 1999
Secretary
/s/ Joan Spero
- ---------------------------------------
Joan Spero* Trustee September 30, 1999
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ John Hebble
- ---------------------------------------
John R. Hebble Treasurer (Principal Financial September 30, 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. 64
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 48
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER SECURITIES TRUST
<PAGE>
SCUDDER SECURITIES TRUST
EXHIBIT INDEX
(g)(3)
2
Exhibit (g)(3)
AMENDMENT TO CUSTODY CONTRACT
Amendment dated March 1, 1999 by and between State Street Bank and
Trust Company (the "Bank") and Scudder Securities Trust (the "Trust") to the
custody contract (the "Custody Contract") between the Bank and the Trust dated
September 6, 1995.
WHEREAS the Bank serves as the custodian for the Trust pursuant to the
Custody Contract; and
WHEREAS the Trust may appoint one or more banks identified on Schedule
A attached hereto, as amended from time to time, to serve as an additional
custodian for the Trust (each, a "Repo Custodian") for the limited purpose of
engaging in tri-party repurchase agreement transactions ("Tri-party Repos"); and
WHEREAS the Trust may direct the Bank to make "free delivery" to one or
more Repo Custodians of cash or other assets maintained in custody by the Bank
for the Trust pursuant to the Custody Contract for purposes of engaging in
Tri-party Repos; and
WHEREAS the Bank and the Trust desire to amend the Custody Contract to
permit the Bank to make "free delivery" of cash and other assets of the Trust to
Repo Custodians from time to time;
NOW THEREFORE, the Bank and the Trust hereby agree to amended the
Custody Contract as follows:
1. Notwithstanding anything to the contrary in the Custody Contract, upon
receipt of Proper Instructions (as defined in the Custody Contract), the Bank
shall deliver cash and/or other assets of the Trust to any account identified on
Schedule A attached hereto, as amended from time to time, maintained for the
Trust by a Repo Custodian, which delivery may be made without contemporaneous
receipt by the Bank of cash or other assets in exchange therefor. Upon such
delivery of cash or other assets in accordance with such Proper Instructions,
the Bank shall have no further responsibility or obligation to the Trust as a
custodian of the Trust with respect to the cash or assets so delivered.
2. The Trust may amend Schedule A from time to time to add or delete a Repo
Custodian or change the identification of the account maintained by a Repo
Custodian for the Trust by delivering Special Instructions (as defined herein)
to the Bank. The term Special Instructions shall mean written instructions
executed by at least two officers of the Trust holding the office of Vice
President or higher.
3. In all other respects, the Custody Contract shall remain in full force and
effect and the Bank and the Trust shall perform their respective obligations in
accordance with the terms thereof.
<PAGE>
EXECUTED to be effective as of the date set forth above.
SCUDDER SECURITIES TRUST
By: /s/Thomas F. McDonough
------------------------------
Thomas F. McDonough
Vice President
STATE STREET BANK AND TRUST COMPANY
By: /s/Ronald E. Logue, MLP
-------------------------------
Ronald E. Logue
Executive Vice President
<PAGE>
SCHEDULE A
----------
