This prospectus sets forth concisely the information about Scudder Capital
Growth Fund, a series of Scudder Equity Trust, an open-end management investment
company, that a prospective investor should know before investing. Please retain
it for future reference.
If you require more detailed information, a combined Statement of Additional
Information dated February 1, 1995, as amended from time to time, may be
obtained without charge by writing Scudder Investor Services, Inc., Two
International Place, Boston, MA 02110-4103 or calling 1-800-225-2470. The
Statement, which is incorporated by reference into this prospectus, has been
filed with the Securities and Exchange Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents_see page 4.
Scudder
Capital Growth Fund
Prospectus
February 1, 1995
A pure no-load(tm) (no sales charges) mutual fund which seeks to maximize
long-term capital growth.
Expense information
How to compare a Scudder pure no-load(tm) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder Capital Growth Fund (the "Fund"). By reviewing
this table and those in other mutual funds' prospectuses, you can compare the
Fund's fees and expenses with those of other funds. With Scudder's pure
no-load(tm) funds, you pay no commissions to purchase or redeem shares, or to
exchange from one fund to another. As a result, all of your investment goes to
work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended September 30,
1994.
Investment management fee 0.67%
12b-1 fees NONE
Other expenses 0.30%
Total Fund operating expenses 0.97%
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not pay
these expenses directly; they are paid by the Fund before it distributes its net
investment income to shareholders. (As noted above, the Fund has no redemption
fees of any kind.)
1 Year 3 Years 5 Years 10 Years
$10 $31 $54 $119
See "Fund organization_Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than those
shown.
* You may redeem by writing or calling the Fund. If you wish to receive your
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction information_Redeeming
shares."
Financial highlights
The following table includes selected data for a share outstanding throughout
each period and other performance information derived from the audited financial
statements.
If you would like more detailed information concerning the Fund's performance, a
complete portfolio listing and audited financial statements are available in the
Fund's Annual Report dated September 30, 1994 and may be obtained without charge
by writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------
1994 1993(b) 1992 1991 1990 1989 1988 1987 1986 1985
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . . . . . . . . $23.06 $19.12 $19.30 $14.77 $22.30 $16.10 $20.41 $17.17 $15.35 $13.70
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss). . . . (.02) .06 .12 .20 .30(a) .21 .09 .16 .26 .26
Net realized and unrealized
gain (loss) on investment
transactions. . . . . . . . . . . (.88) 5.23 .90 6.05 (6.22) 6.61 (1.82) 5.77 3.67 2.19
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations. . (.90) 5.29 1.02 6.25 (5.92) 6.82 (1.73) 5.93 3.93 2.45
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income . . . . . . . -- (.10) (.22) (.37) (.16) (.07) (.20) (.23) (.23) (.29)
Net realized gains on
investment transactions . . . . . (2.62) (1.25) (.98) (1.35) (1.45) (.55) (2.38) (2.46) (1.88) (.51)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions . . . . . . . . (2.62) (1.35) (1.20) (1.72) (1.61) (.62) (2.58) (2.69) (2.11) (.80)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period . . . . . . . . . . . $19.54 $23.06 $19.12 $19.30 $14.77 $22.30 $16.10 $20.41 $17.17 $15.35
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) . . . . . . . . . . (4.72) 28.83 5.61 45.85 (28.20) 44.05 (5.61) 39.03 28.46 18.88
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
($ millions) . . . . . . . . . . . 1,338 1,387 1,054 1,058 712 1,013 491 583 414 302
Ratio of operating expenses to
average net assets (%). . . . . . . .97 .96 .98 1.04 .94 .88 .95 .88 .84 .86
Ratio of net investment income
(loss) to average
net assets (%) . . . . . . . . . . (.12) .22 .57 1.24 1.56 1.22 .63 .86 1.50 1.74
Portfolio turnover rate (%). . . . . 75.8 92.2 92.4 93.2 87.9 55.7 48.5 58.2 55.8 57.6
<FN>
(a) Net investment income per share includes nonrecurring dividend income amounting to $.14 per share.
(b) Effective October 1, 1992, the Fund discontinued using equalization accounting.
</TABLE>
A message from Scudder's chairman
Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund in
1928. Today, we manage in excess of $90 billion for many private accounts and
over 50 mutual fund portfolios. We manage the mutual funds in a special program
for the American Association of Retired Persons, as well as the fund options
available through Scudder Horizon Plan, a tax-advantaged variable annuity. We
also advise The Japan Fund and nine closed-end funds that invest in countries
around the world.
The Scudder Family of Funds is designed to make investing easy and less costly.
It includes money market, tax free, income and growth funds as well as IRAs,
401(k)s, Keoghs and other retirement plans.
Services available to all shareholders include toll-free access to professional
service representatives at Scudder Service Corporation and the Scudder Investor
Information department, easy exchange among funds, shareholder reports,
informative newsletters and the walk-in convenience of Scudder Funds Centers.
All Scudder mutual funds are pure no-load(tm). This means you pay no commissions
to purchase or redeem your shares or to exchange from one fund to another. There
are no "12b-1" fees either, which many other funds now charge to support their
marketing efforts. All of your investment goes to work for you. We look forward
to welcoming you as a shareholder.
/s/Daniel Pierce
Scudder Capital Growth Fund
Investment objective
* to maximize long-term capital growth
Investment characteristics
* a broad and flexible investment program emphasizing common stocks
* above-average capital growth potential
* the possibility for above-average stock market risk
* daily liquidity at current net asset value
Contents
Investment objective and policies 5
Why invest in the Fund? 5
Investment results 6
Additional information about policies and investments 7
Distribution and performance information 9
Purchases 10
Exchanges and redemptions 11
Fund organization 12
Transaction information 13
Shareholder benefits 16
Investment products and services 19
How to contact Scudder Back cover
Trustees and Officers Back cover
Investment objective and policies
Scudder Capital Growth Fund (the "Fund"), a diversified series of Scudder Equity
Trust, seeks to maximize long-term capital growth through a broad and flexible
investment program. The Fund invests in marketable securities, principally
common stocks and, consistent with its objective of long-term capital growth,
preferred stocks. Additionally, the Fund may invest in debt securities and
engage in strategic transactions as described under "Investment restrictions."
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. Shareholders
will receive written notice of any changes in the Fund's objective. If there is
a change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.
Investments
The Fund is free to invest in a wide range of marketable securities which the
Fund's investment adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"),
believes offer the potential for long-term, above-average growth. This makes the
Fund different from growth funds with more specialized investment policies.
The Fund's investment flexibility enables it to pursue investment value in all
sectors of the stock market, including:
* companies that generate or apply new technologies, new and improved
distribution techniques or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
* companies that own or develop natural resources, such as energy exploration
companies;
* companies that may benefit from changing consumer demands and lifestyles,
such as financial service organizations and telecommunications companies;
* foreign companies, including those in countries with more rapid economic
growth than the U.S.;
* companies whose earnings growth is projected at a pace well in excess of
the average (growth companies); and
* companies whose earnings are temporarily depressed and are currently out of
favor with most investors.
Why invest in the Fund?
The expansion of the U.S. and world economies and ongoing technological
development continuously create new investment opportunities. Through its
investments in common stocks, the Fund gives investors the chance to participate
in these opportunities and the potential they offer to maximize long-term
capital growth.
In seeking capital growth, the Fund looks for companies whose securities appear
to present a favorable relationship between market price and opportunity. These
may include securities of companies whose fundamentals or products may be of
only average promise.
Market misconceptions, temporary bad news, and other factors may cause a
security to be out of favor in the stock market and to trade at a price below
its potential value. These "undervalued" securities can provide the opportunity
for above-average market performance.
In addition, the Fund offers all the benefits of the Scudder Family of Funds.
Scudder, Stevens & Clark, Inc. manages a diverse family of pure no-load(tm)
funds and provides a wide range of services to help investors meet their
investment needs. Please refer to "Investment products and services" for
additional information.
Investment results
The Fund is designed for long-term investors who can accept stock market risk.
The value of the Fund's portfolio securities fluctuates with market and economic
conditions, causing returns and principal value to fluctuate. Depending upon
when shares are sold, their value may be higher or lower than when purchased. In
return for accepting stock market risk, there may be a greater return on
investment than from a money market or income fund.
<TABLE>
<CAPTION>
Annual capital changes*
Standard & Poor's
Scudder Capital Growth Fund 500 Stock Index
--------------------------------------------- -----------------
Net Asset Capital Gains Capital Price Capital
September 30, Value/Share Dividends Distributions Change Level Change
- ------------ ------------ --------- ------------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
1984 $13.70 _ _ _ 166 _
1985 15.35 $0.29 $0.51 +16.4% 182 +9.6%
1986 17.17 0.23 1.88 +26.7 231 +26.9
1987 20.41 0.23 2.46 +37.3 322 +39.4
1988 16.10 0.20 2.38 -6.8 272 -15.5
1989 22.30 0.07 0.55 +43.4 349 +28.3
1990 14.77 0.16 1.45 -28.8 306 -12.3
1991 19.30 0.37 1.35 +42.6 388 +26.7
1992 19.12 0.22 0.98 +4.4 418 +7.7
1993 23.06 0.10 1.25 +28.2 459 +9.8
1994 19.54 _ 2.62 -4.7 463 +0.9
</TABLE>
<TABLE>
<CAPTION>
Growth of a $10,000 investment
Standard and Poor's
Scudder Capital Growth Fund 500 Stock Index
------------------------------------- -----------------------------------------
Total Return Total Return
------------------ --------------------
Years Ended Value of Initial Average Value of Initial Average
September 30, 1994 $10,000 Investment Cumulative Annual $10,000 Investment Cumulative Annual
- ------------------ ------------------ ---------- -------- ------------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
One Year $9,528 -4.72% -4.72% $10,368 +3.68% +3.68%
Five Years 13,576 +35.76 +6.30 15,489 +54.89 +9.14
Ten Years 39,190 +291.90 +14.64 39,059 +290.59 +14.59
All total return calculations assume that income dividends and capital gains
distributions, if any, were reinvested.
The performance of Scudder Capital Growth Fund is compared with that of Standard
& Poor's 500 Stock Index, an unmanaged index of 500 industrial, transportation,
utility and financial companies, widely regarded as representative of the equity
market in general. The Standard & Poor's 500 Stock Index does not take into
account the brokerage and other transaction costs investors incur when investing
directly in stocks on the index. The Fund's performance reflects actual
investment experience, net of all operating expenses, which are paid from the
Fund's gross investment income.
*For definition of "capital change" please see "Distribution and performance
information."
Performance figures are historical and are not intended to indicate future
investment performance.
</TABLE>
Additional information about policies and investments
Investment restrictions
The Fund has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to reduce the Fund's
investment risk.
The Fund may not borrow money except as a temporary measure for extraordinary or
emergency purposes and may not make loans except through the lending of
portfolio securities, the purchase of debt securities or through repurchase
agreements.
As a matter of nonfundamental policy, the Fund may not invest more than 10% of
its net assets, in the aggregate, in securities which are not readily
marketable, in restricted securities and repurchase agreements maturing in more
than seven days. The Fund may not invest more than 5% of its total assets in
restricted securities. The Fund may invest: 1) for temporary defensive purposes,
in debt securities and short term indebtedness as market or economic conditions
may warrant, and 2) up to 20% of its net assets in debt securities when
management anticipates that the capital appreciation on debt securities is
likely to equal or exceed the capital appreciation on common stocks over a
selected time, such as during periods of unusually high interest rates. As
interest rates fall, the prices of debt securities tend to rise.
A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's combined Statement of Additional
Information.
Debt securities
The Fund may purchase investment-grade debt securities, which are those rated
Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's"), or AAA, AA, A
or BBB by Standard & Poor's ("S&P") or, if unrated, of equivalent quality as
determined by the Adviser. The Fund may also purchase debt securities which are
rated below investment-grade. (See "Risk factors.")
Repurchase agreements
As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements with selected banks and broker/dealers. Under a
repurchase agreement, the Fund acquires securities, subject to the seller's
agreement to repurchase them at a specified time and price.
Foreign securities
In addition to investments in companies domiciled in the United States, the Fund
may invest in listed and unlisted foreign securities that meet the same criteria
as the Fund's domestic holdings. The Fund may invest in foreign securities 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.
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 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 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 for speculative purposes. Please refer to "Risk factors_Strategic
Transactions and derivatives" for more information.
Risk factors
The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Fund may use from time to time.
Debt securities. The Fund may invest in bonds rated Baa or BBB. Moody's
considers bonds it rates Baa to have speculative elements as well as
investment-grade characteristics. The Fund may also invest up to 20% of its net
assets in debt securities which are rated below investment-
grade, or of equivalent quality as determined by the Adviser (commonly referred
to as "junk bonds"). The lower the ratings of such debt securities, the greater
their risks render them like equity securities. The Fund will invest no more
than 10% of its net assets in securities rated B or lower by Moody's or S&P, but
may invest in securities rated C by Moody's or D by S&P, which may be in default
with respect to payment of principal or interest. Also, longer maturity bonds
tend to fluctuate more in price as interest rates change than do short-term
bonds, providing both opportunity and risk.
Repurchase agreements. If the seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted. In
the event of the commencement of bankruptcy or insolvency proceedings of the
seller of the securities before repurchase of the securities under a repurchase
agreement, the Fund may encounter delay and incur costs, including a decline in
value of the securities, before being able to sell the securities.
Foreign securities. Investments in foreign securities involve special
considerations, due to more limited information, higher brokerage costs and
different accounting standards. They may also entail certain risks, such as
possible imposition of dividend or interest withholding or confiscatory taxes,
possible currency blockages or transfer restrictions, expropriation,
nationalization or other adverse political or economic developments and the
difficulty of enforcing obligations in other countries. Foreign securities may
be less liquid and more volatile than comparable domestic securities, and there
is less government regulation of stock exchanges, brokers, listed companies and
banks than in the U.S. Purchases of foreign securities are usually made in
foreign currencies and, as a result, the Fund may incur currency conversion
costs and may be affected favorably or unfavorably by changes in the value of
foreign currencies against the U.S. dollar.
Strategic Transactions and derivatives. 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 contracts 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. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Fund's combined Statement of Additional Information.
Distribution and performance information
Dividends and capital gains distributions
The Fund intends to distribute any dividends from its net investment income and
any net realized capital gains after utilization of capital loss carryforwards,
if any, in November or December to prevent application of federal excise tax,
although an additional distribution may be made if required, at a later date.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such a month and paid during the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared. According to preference,
shareholders may receive distributions in cash or have them reinvested in
additional shares of the Fund. If an investment is in the form of a retirement
plan, all dividends and capital gains distributions must be reinvested into the
shareholder's account.
(Continued on page 12)
Purchases
Opening an account
Minimum initial investment: $1,000; IRAs $500
Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks payable to "The Scudder Funds."
* By Mail
Send your completed and signed application and check
by regular mail to: or by express,
registered,
or certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 1099 Hingham Street
Boston, MA Rockland, MA
02107-2291 02370-1052
* By Wire
Please see Transaction information_Purchasing shares_By wire following
these tables for details, including the ABA wire transfer number. Then call
1-800-225-5163 for instructions.
* In Person
Visit one of our Funds Centers to complete your application with the help
of a Scudder representative. Funds Center locations are listed under
Shareholder benefits.
Purchasing additional shares
Minimum additional investment: $100; IRAs $50
Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
Make checks payable to "The Scudder Funds."
* By Mail
Send a check with a Scudder investment slip, or with a letter of
instruction including your account number and the complete Fund name, to
the appropriate address listed above.
* By Wire
Please see Transaction information_Purchasing shares_By wire following
these tables for details, including the ABA wire transfer number.
* In Person
Visit one of our Funds Centers to make an additional investment in your
Scudder fund account. Funds Center locations are listed under Shareholder
benefits.
* By Telephone
You may purchase additional shares in an amount of $10,000 or more. Please
call 1-800-225-5163 for more details.
* By Automatic Investment Plan ($50 minimum)
You may arrange to make investments on a regular basis through automatic
deductions from your bank checking account. Please call 1-800-225-5163 for
more information and an enrollment form.
Exchanges and redemptions
Exchanging shares
Minimum investments: $1,000 to establish a new account; $100 to exchange among
existing accounts
* By Telephone
To speak with a service representative, call 1-800-225-5163 from 8 a.m. to
8 p.m. eastern time or to access SAIL(tm), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).
* By Mail or Fax
Print or type your instructions and include:
- the name of the Fund and the account number you are exchanging from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into; and
- your signature(s) as it appears on your account and a daytime phone
number.
Send your instructions
by regular mail to: or by express, or by fax to:
registered, or
certified mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 1099 Hingham Street
Boston, MA Rockland, MA
02107-2291 02370-1052
Redeeming shares
* By Telephone
To speak with a service representative, call 1-800-225-5163 from 8 a.m. to
8 p.m. eastern time or to access SAIL(tm), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may have
redemption proceeds sent to your predesignated bank account, or redemption
proceeds of up to $50,000 sent to your address of record.
* By Mail or Fax
Send your instructions for redemption to the appropriate address or fax
number above and include:
- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem; and
- your signature(s) as it appears on your account and a daytime phone
number.
A signature guarantee is required for redemptions over $50,000. See Transaction
information_Redeeming shares following these tables.
* By Automatic Withdrawal Plan
You may arrange to receive automatic cash payments periodically if the
value of your account is $10,000 or more. Call 1-800-225-5163 for more
information and an enrollment form.
(Continued from page 9)
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable as
long-term capital gains regardless of the length of time shareholders have owned
their shares. Short-term capital gains and any other taxable income
distributions are taxable as ordinary income. A portion of dividends from net
investment income may qualify for the dividends-received deduction for
corporations.
The Fund sends detailed tax information about the amount and type of its
distributions to shareholders by January 31 of the following year.
Performance information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. "Total return" is the change in value
of an investment in the Fund for a specified period. The "average annual total
return" of the Fund is the average annual compound rate of return of an
investment in the Fund assuming the investment has been held for one year, five
years and ten years as of a stated ending date. "Cumulative total return"
represents the cumulative change in value of an investment in the Fund for
various periods. Total return calculations assume that all dividends and capital
gains distributions during the period were reinvested in shares of the Fund.
"Capital change" measures return from capital, including reinvestment of any
capital gains distributions but does not include the reinvestment of dividends.
Performance will vary based upon, among other things, changes in market
conditions and the level of the Fund's expenses.
Fund organization
Scudder Capital Growth Fund is a diversified series of Scudder Equity Trust (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). The Trust's predecessor was
organized as a Delaware corporation in May 1966. The Trust was reorganized as a
Massachusetts business trust in October 1985.
The Fund's activities are supervised by the Trust's Board of Trustees.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Fund is not required to hold and has no current intention
of holding annual shareholder meetings, although special meetings may be called
for purposes such as electing or removing Trustees, changing fundamental
investment policies or approving an investment management contract. Shareholders
will be assisted in communicating with other shareholders in connection with
removing a Trustee as if Section 16(c) of the 1940 Act were applicable.
Investment adviser
The Fund retains the investment management firm of Scudder, Stevens & Clark,
Inc., a Delaware corporation, to manage the Fund's daily investment and business
affairs subject to the policies established by the Board of Trustees. The
Trustees have overall responsibility for the management of the Fund under
Massachusetts law.
For the fiscal year ended September 30, 1994, the Adviser received an investment
management fee of 0.67% of the Fund's average daily net assets on an annual
basis. The fee is graduated so that increases in the Fund's net assets may
result in a lower fee and decreases in the Fund's net assets may result in a
higher fee. The fee is payable monthly, provided that 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.
All the Fund's expenses are paid out of gross investment income. Shareholders
pay no direct charges or fees for investment or administrative services.
Scudder, Stevens & Clark, Inc. is located at Two International Place, Boston,
Massachusetts.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
wholly-owned subsidiary of the Adviser, is the transfer, shareholder servicing
and dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a wholly-owned subsidiary of the Adviser, is
the Fund's principal underwriter. Scudder Investor Services, Inc. confirms, as
agent, all purchases of shares of the Fund. Scudder Investor Information is a
telephone information service provided by Scudder Investor Services, Inc.
Custodian
State Street Bank and Trust Company is the Fund's custodian.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share after
the Fund's transfer agent in Boston receives the purchase request in good order.
Purchases are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared,
which may take up to seven business days. If you purchase shares by federal
funds wire, you may avoid this delay. Redemption or exchange requests by
telephone prior to the expiration of the seven-day period will not be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application to the transfer agent in Boston. Accounts cannot
be opened without a completed, signed application and a Scudder fund account
number. Contact your bank to arrange a wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
_ the name of the fund in which the money is to be invested,
_ the account number of the fund, and
_ the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. You must
include with your payment the order number given at the time the order is
placed. A confirmation with complete purchase information is sent shortly after
your order is received. If payment by check or wire is not received within seven
business days, the order will be cancel ed and the shareholder will be
responsible for any loss to the Fund resulting from this cancellation. Telephone
orders are not available for shares held in Scudder IRA accounts and most other
Scudder retirement plan accounts.
By exchange. Your new account will have the same registration and address as
your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
Redeeming shares
The Fund allows you to redeem shares (i.e., sell them back to the Fund) without
redemption fees.
By telephone. This is the quickest and easiest way to sell Fund shares. If you
elected telephone redemption to your bank on your application, you can call to
request that federal funds be sent to your authorized bank account. If you did
not elect telephone redemption to your bank on your application, call
1-800-225-5163 for more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
Fund's transfer agent has received your completed and signed application.
Telephone redemption is not available for shares held in Scudder IRA accounts
and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $50,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and the
right to redeem by telephone up to $50,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be sent to
a predesignated bank account. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
confirmation of telephone transactions. If 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.
Share price
Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation, a wholly-owned subsidiary of the Adviser,
determines net asset value per share as of the close of regular trading on the
Exchange, normally 4 p.m. eastern time, on each day the Exchange is open for
trading. Net asset value per share is calculated by dividing the value of total
Fund assets, less all liabilities, by the total number of shares outstanding.
Processing time
All purchase and redemption requests received in good order by the Fund's
transfer agent in Boston by the close of regular trading on the Exchange are
executed at the net asset value per share calculated at the close of regular
trading that day.
Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Service Corporation by calling 1-800-225-5163.
The Fund will normally send your redemption proceeds within one business day
following the redemption request, but may take up to seven days (or longer in
the case of shares recently purchased by check).
Short-term trading
Purchases and sales should be made for long-term investment purposes only. The
Fund and Scudder Investor Services, Inc. each reserves the right to restrict
purchases of Fund shares (including exchanges) when a pattern of frequent
purchases and sales made in response to short-term fluctuations in the Fund's
share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or tax identification number and certain
other certified information or upon notification from the IRS or a broker that
withholding is required. The Fund reserves the right to reject new account
applications without a certified Social Security or tax identification number.
The Fund also reserves the right, following 30 days' notice, to redeem all
shares in accounts without a 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.
Minimum balances
Shareholders should maintain a share balance worth at least $1,000, which amount
may be changed by the Board of Trustees. Scudder retirement plans have similar
or lower minimum share balance requirements. The Fund reserves the right,
following 60 days' written notice to shareholders, to redeem all shares in
sub-minimum accounts, including accounts of new investors, where a reduction in
value has occurred due to a redemption or exchange out of the account.
Reductions in value that result solely from market activity will not trigger an
involuntary redemption. The Fund will mail the proceeds of the redeemed account
to the shareholder. The shareholder may restore the share balance to $1,000 or
more during the 60-day notice period and must maintain it at no lower than that
minimum to avoid involuntary redemption.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is made
at an investor's election through a member of the National Association of
Securities Dealers, Inc., other than Scudder Investor Services, Inc., that
member may, at its discretion, charge a fee for that service.
Redemption-in-kind
The Fund 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 to 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.
Shareholder benefits
Experienced professional management
Scudder, Stevens & Clark, Inc., one of the nation's most experienced investment
management firms, actively manages your Scudder fund investment. Professional
management is an important advantage for investors who do not have the time or
expertise to invest directly in individual securities.
A team approach to investing
Scudder Capital Growth Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management process.
Team members work together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by Scudder's large staff
of economists, research analysts, traders and other investment specialists who
work in Scudder's offices across the United States and abroad. Scudder believes
its team approach benefits Fund investors by bringing together many disciplines
and leveraging Scudder's extensive resources.
Lead Portfolio Manager Steven P. Aronoff assumed responsibility for the Fund's
day-to-day management in 1989. Mr. Aronoff joined Scudder in 1969 and has 27
years of experience in stock research and investing. Julia D. Cox, Portfolio
Manager, lends expertise in the sectors of technology and banking. Ms. Cox, who
joined the Fund's team in 1984, has been involved in the investment industry
since 1969. William F. Gadsden also serves as Portfolio Manager for the Fund.
Mr. Gadsden, who has 13 years of investment experience, came to Scudder in 1983
and joined the Fund's team in 1989.
SAIL(tm)_Scudder Automated Information Line
For touchtone access to account information, prices and yields, or to perform
transactions in existing Scudder fund accounts, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890. During periods of extreme
economic or market changes, or other conditions, it may be difficult for you to
effect telephone transactions in your account. In such an event you should write
to the Fund; please see "How to contact Scudder" for the address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, tax free and
growth funds with a simple toll-free call or, if you prefer, by sending your
instructions through the mail or by fax. Telephone and fax redemptions and
exchanges are subject to termination and their terms are subject to change at
any time by the Fund or the transfer agent. In some cases, the transfer agent or
Scudder Investor Services, Inc. may impose additional conditions on telephone
transactions.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Fund's Annual Report, may be mailed to your household (same surname,
same address). Please call 1-800-225-5163 if you wish to receive additional
shareholder reports.
Newsletters
Four times a year, Scudder sends you At the Helm, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Funds Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Funds Centers in Boca Raton, Boston, Chicago,
Cincinnati, Los Angeles, New York, Portland (OR), San Diego, San Francisco and
Scottsdale.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
* Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of $2,000 per person for anyone with earned income. Many
people can deduct all or part of their contributions from their taxable
income, and all investment earnings accrue on a tax deferred basis. The
Scudder No-Fee IRA charges no annual custodial fee.
* 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
* Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make annual,
tax-deductible contributions of up to $30,000 for each person covered by
the plans. Plans may be adopted individually or paired to maximize
contributions. These are sometimes known as Keogh plans.
* 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
* SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation.
* Scudder Horizon Plan. A no-load variable annuity that lets you build assets
by deferring taxes on your investment earnings. You can start with $2,500
or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA,
Profit Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan,
please call 1-800-225-2470. For information about 401(k)s or
403(b)s please call 1-800-323-6105. To effect transactions in existing
IRA, SEP-IRA, Profit Sharing or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company +++S 1802(tm)).
The contract is offered by Scudder Insurance Agency, Inc. (in New York State,
Nevada and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is
the Principal Underwriter. Scudder Horizon Plan is not available in all states.
Investment products and services
The Scudder Family of Funds
Money market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax free money market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Short Term Global Income Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Development Fund
Scudder Global Fund
Scudder Global Small Company Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans
Closed-end Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities Fund, Inc.
Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++
For complete information on any of the above Scudder funds, including management
fees and expenses, call or write for a free prospectus. Read it carefully before
you invest or send money. +A portion of the income from the tax-free funds may
be subject to federal, state and local taxes. *Not available in all states. +++A
no-load variable annuity contract provided by Charter National Life Insurance
Company and its affiliate, offered by Scudder's insurance agencies,
1-800-225-2470. #These funds, advised by Scudder, Stevens & Clark, Inc., are
traded on various stock exchanges. ++For information on Scudder Treasurers
Trust(tm), an institutional cash management service that utilizes certain
portfolios of Scudder Fund, Inc. ($100,000 minimum), call: 1-800-541-7703.
How to contact Scudder
Account Service and Information:
For existing account service and transactions
Scudder Service Corporation
1-800-225-5163
For account updates, prices, yields, exchanges and redemptions
Scudder Automated Information Line (SAIL)
1-800-343-2890
Investment Information:
To receive information about the Scudder Funds, for additional applications
and prospectuses, or for investment questions
Scudder Investor Information
1-800-225-2470
For establishing 401(k) and 403(b) plans
Scudder Group Retirement Services
1-800-323-6105
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Trustees and Officers
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and Consultant
Thomas J. Devine
Trustee; Consultant
David S. Lee*
Vice President and Trustee
Douglas M. Loudon*
Vice President and Trustee
Wilson Nolen
Trustee; Consultant
Juris Padegs*
Vice President and Trustee
Gordon Shillinglaw
Trustee; Professor Emeritus of Accounting, Columbia University Graduate
School of Business
Robert G. Stone, Jr.
Trustee; Chairman of the Board and Director, Kirby Corporation
Robert W. Lear
Honorary Trustee; Executive-in-Residence, Columbia University Graduate
School of Business
Steven P. Aronoff*
Vice President
Donald E. Hall*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President, Secretary and Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Vice President and Assistant Secretary
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
Scudder Investor Information is a service provided through Scudder Investor
Services, Inc., Distributor.
<PAGE>
This prospectus sets forth concisely the information about Scudder Value
Fund, a series of Scudder Equity Trust, an open-end management investment
company, that a prospective investor should know before investing. Please
retain it for future reference.
If you require more detailed information, a combined Statement of
Additional Information dated February 1, 1995, as amended from time to
time, may be obtained without charge by writing Scudder Investor Services,
Inc., Two International Place, Boston, MA 02110-4103 or calling
1-800-225-2470. The Statement, which is incorporated by reference into this
prospectus, has been filed with the Securities and Exchange Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Contents_see page 4.
Scudder
Value
Fund
Prospectus
February 1, 1995
A pure no-load(tm) (no sales charges) mutual fund which seeks long-term
growth of capital through investment in undervalued equity securities.
Expense information
How to compare a Scudder pure no-load(tm) fund
This information is designed to help you understand the various costs and
expenses of investing in Scudder Value Fund (the "Fund"). By reviewing this
table and those in other mutual funds' prospectuses, you can compare the
Fund's fees and expenses with those of other funds. With Scudder's pure
no-load(tm) funds, you pay no commissions to purchase or redeem shares, or
to exchange from one fund to another. As a result, all of your investment
goes to work for you.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Fund operating expenses (after expense maintenance): Expenses
paid by the Fund before it distributes its net investment income,
expressed as a percentage of the Fund's average daily net assets for
the fiscal year ended September 30, 1994.
Investment management fee 0.34%
12b-1 fees NONE
Other expenses 0.91%**
-----
Total Fund operating expenses 1.25%**
=====
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment, assuming a 5% annual return and
redemption at the end of each period, are listed below. Investors do not
pay these expenses directly; they are paid by the Fund before it
distributes its net investment income to shareholders. (As noted above, the
Fund has no redemption fees of any kind.)
1 Year 3 Years 5 Years 10 Years
$13 $40 $69 $151
See "Fund organization_Investment adviser" for further information about
the investment management fee. This example assumes reinvestment of all
dividends and distributions and that the percentage amounts listed under
"Annual Fund operating expenses" remain the same each year. This example
should not be considered a representation of past or future expenses or
return. Actual Fund expenses and return vary from year to year and may be
higher or lower than those shown.
* You may redeem by writing or calling the Fund. If you wish to receive
your redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction
information_Redeeming shares."
** Until January 31, 199 6 , the Adviser has agreed
to maintain the total annualized expenses of the Fund at not more than
1.25% of average daily net assets of the Fund. If the Adviser had not
decided to maintain the Fund's expenses, the total annualized expenses
of the Fund would have amounted to 1.61% (of which 0.70% would have
consisted of investment management fees).
Financial highlights
The following table includes selected data for a share outstanding
throughout each period and other performance information derived from the
audited financial statements.
If you would like more detailed information concerning the Fund's
performance, a complete portfolio listing and audited financial statements
are available in the Fund's Annual Report dated September 30, 1994 and may
be obtained without charge by writing or calling Scudder Investor Services,
Inc.
<TABLE>
<CAPTION>
For the Period
December 31, 1992
Year Ended (commencement
September 30, of operations) to
1994 September 30, 1993
------------- ------------------
<S> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . $13.38 $12.00
------ ------
Income from investment operations:
Net investment income (a) . . . . . . . . . . . . . . . . . . . . . . . . .13 .10
Net realized and unrealized gain on investments . . . . . . . . . . . . . .11 1.28
------ ------
Total from investment operations . . . . . . . . . . . . . . . . . . . . . .24 1.38
------ ------
Less distributions from:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . (.11) --
Net realized gains on investment transactions . . . . . . . . . . . . . . (.43) --
------ ------
Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . (.54) --
------ ------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . $13.08 $13.38
====== ======
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.88 11.50**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . . . . . . . . . . . . . . . . . 35 29
Ratio of operating expenses, net to average daily net assets (%) (a) . . . 1.25 1.25*
Ratio of net investment income to average daily net assets (%) . . . . . . 1.16 1.56*
Portfolio turnover rate (%) . . . . . . . . . . . . . . . . . . . . . . . 74.6 60.8*
<FN>
(a) Reflects a per share amount of management fee and
other fees not imposed . . . . . . . . . . . . . . . . . . . . . . . . $ .04 $ .06
Operating expense ratio including expenses
reimbursed, management fee and other expenses
not imposed (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.61 2.16*
* Annualized
** Not annualized
</TABLE>
A message from Scudder's chairman
Scudder, Stevens & Clark, Inc., investment adviser to the Scudder Family of
Funds, was founded in 1919. We offered America's first no-load mutual fund
in 1928. Today, we manage in excess of $90 billion for many private
accounts and over 50 mutual fund portfolios. We manage the mutual funds in
a special program for the American Association of Retired Persons, as well
as the fund options available through Scudder Horizon Plan, a
tax-advantaged variable annuity. We also advise The Japan Fund and nine
closed-end funds that invest in countries around the world.
The Scudder Family of Funds is designed to make investing easy and less
costly. It includes money market, tax free, income and growth funds as well
as IRAs, 401(k)s, Keoghs and other retirement plans.
Services available to all shareholders include toll-free access to
professional service representatives at Scudder Service Corporation and the
Scudder Investor Information department, easy exchange among funds,
shareholder reports, informative newsletters and the walk-in convenience of
Scudder Funds Centers.
All Scudder mutual funds are pure no-load(tm). This means you pay no
commissions to purchase or redeem your shares or to exchange from one fund
to another. There are no "12b-1" fees either, which many other funds now
charge to support their marketing efforts. All of your investment goes to
work for you. We look forward to welcoming you as a shareholder.
/s/ Daniel Pierce
Scudder Value Fund
Investment objective
* long-term growth of capital through investment in undervalued equity
securities
Investment characteristics
* a portfolio composed primarily of equity securities that are
considered undervalued relative to current and estimated future earnings
and dividends
* a highly disciplined investment management process incorporating both
traditional fundamental research and modern quantitative techniques
* a focus on medium- to large-sized companies
* daily liquidity at current net asset value
Contents
Investment objective and policies 5
Why invest in the Fund? 6
Additional information about policies and 6
investments
Distribution and performance information 9
Purchases 10
Exchanges and redemptions 11
Fund organization 12
Transaction information 13
Shareholder benefits 16
Investment products and services 19
How to contact Scudder Back cover
Trustees and Officers Back cover
Investment objective and policies
Scudder Value Fund (the "Fund"), a diversified series of Scudder Equity
Trust, seeks long-term growth of capital through investment in undervalued
equity securities. The Fund invests in the securities of companies that, in
the opinion of its investment adviser, Scudder, Stevens & Clark, Inc. (the
"Adviser"), are undervalued in the marketplace in relation to current and
estimated future earnings and dividends. These companies generally sell at
price-earnings ratios below the market average, as defined by the Standard
& Poor's 500 Composite Price Index.
The Fund invests at least 80% of its assets in equity securities, which
consist of common stocks, preferred stocks and securities convertible into
common stocks. The Fund changes its portfolio securities for long-term
investment considerations and not for trading purposes.
Except as otherwise indicated, the Fund's investment objective and policies
are not fundamental and may be changed without a vote of shareholders.
Shareholders will receive written notice of any changes in the Fund's
objective. If there is a change in investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light
of their then current financial position and needs. There can be no
assurance that the Fund's objective will be met.
Investments
The Fund invests primarily in the equity securities of medium- to
large-sized domestic companies with annual revenues or market
capitalization of at least $600 million. The Adviser uses in-depth
fundamental research and a proprietary computerized quantitative model to
identify companies that are currently undervalued in relation to current
and estimated future earnings and dividends. The investment process also
involves an assessment of business risk, including the Adviser's analysis
of the strength of a company's balance sheet, the accounting practices a
company follows, the volatility of a company's earnings over time, and the
vulnerability of earnings to changes in external factors, such as the
general economy, the competitive environment, governmental action, and
technological change.
The current share price or other valuation measures of these companies may
not reflect their business potential because investors may perform
incomplete analyses, have limited time horizons, or allow emotions to
influence their investment decisions. Other similar factors can also
influence short-term market behavior. The Adviser's quantitative approach
is designed to help avoid these pitfalls.
While a broad range of investments are considered, only those that, in the
Adviser's opinion, are selling at comparatively large discounts to
intrinsic value will be purchased for the Fund. It is anticipated that the
prices of the Fund's investments will rise as a result of both earnings
growth and rising price-earnings ratios over time.
While the Fund emphasizes U.S. investments, it can invest its assets in
securities of foreign companies which meet the same criteria applicable to
domestic investments. The Fund may invest up to 20% of its total assets in
debt obligations, including zero coupon securities and may enter into
repurchase agreements. In addition, the Fund may engage in strategic
transactions. See "Additional information about policies and investments"
for more information about these investment techniques.
From time to time, for temporary defensive or emergency purposes, the Fund
may invest a portion of its assets in cash and cash equivalents when the
Adviser deems such a position advisable in light of economic or market
conditions.
Why invest in the Fund?
Scudder Value Fund provides investors with convenient, low-cost access to a
diversified portfolio of stocks believed to be undervalued by the Adviser.
The Fund invests predominantly in the equity securities of financially
sound U.S. companies. These companies tend to have below-market
price-earnings ratios yet, in the opinion of the Adviser, will reward
investors with above-average appreciation over time.
The Fund is distinctive in the manner in which it combines systematic
valuation techniques with intensive, traditional fundamental research. The
Adviser's proprietary computer-based valuation model was developed and
tested over several years before being first implemented in 1987. In
addition to identifying undervalued securities, the quantitative model also
provides the discipline required to sell appreciated securities as their
prices rise to reflect their earnings potential. The model relies on the
Adviser's independent equity research effort for estimates of future
earnings and dividend growth and proprietary quality ratings. The Adviser
maintains one of the largest equity research departments in the industry
and has done so for more than 60 years. The Adviser oversees in excess of
$400 million in institutional assets using this price-sensitive approach.
The Fund is appropriate for investors who understand the risks of stock
market investing. Although the Fund emphasizes securities of companies the
Adviser believes are undervalued, movements of the stock market will affect
the Fund's share price.
While the Fund may invest in a broad range of industries, it is not, by
itself, a complete investment program. Nonetheless, it can serve as a core
component of an investment program that includes money market, bond and
specialized equity investments. Moreover, growth portfolios and value
portfolios generally do not move in tandem, so adding the Fund to your
portfolio of growth stocks or growth mutual funds should increase
diversification and reduce investment risk.
In addition, the Fund offers all the benefits of the Scudder Family of
Funds. Scudder, Stevens & Clark, Inc. manages a diverse family of pure
no-load(tm) funds and provides a wide range of services to help investors
meet their investment needs. Please refer to "Investment products and
services" for additional information.
Additional information about policies and investments
Investment restrictions
The Fund has adopted certain fundamental policies which may not be changed
without a vote of shareholders and which are designed to maintain the
portfolio's diversity and reduce investment risk.
The Fund may not borrow money except as a temporary measure for
extraordinary or emergency purposes and may not make loans except through
the lending of portfolio securities, the purchase of debt securities or
through repurchase agreements.
As a matter of nonfundamental policy, the Fund may not invest more than 10%
of its net assets, in the aggregate, in securities which are not readily
marketable, in restricted securities and repurchase agreements maturing in
more than seven days. The Fund may not invest more than 5% of its total
assets in restricted securities.
A complete description of these and other policies and restrictions is
contained under "Investment Restrictions" in the Fund's combined Statement
of Additional Information.
Debt securities
Consistent with the Fund's investment objective of long-term capital
growth, the Fund may purchase investment-grade debt securities, which are
those rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc.
("Moody's"), or AAA, AA, A or BBB by Standard & Poor's ("S&P") or, if
unrated, of equivalent quality as determined by the Adviser. The Fund may
also purchase debt securities which are rated below investment-grade.
Capital appreciation in such debt securities may arise from a favorable
change in relative interest rate levels, or in the creditworthiness of
issuers. Receipt of income from debt securities is incidental to the Fund's
objective of long-term growth of capital. (See "Risk factors.")
Repurchase agreements
As a means of earning income for periods as short as overnight, the Fund
may enter into repurchase agreements with selected banks and
broker/dealers. Under a repurchase agreement, the Fund acquires securities,
subject to the seller's agreement to repurchase at a specified time and
price.
Convertible securities
The Fund may invest in convertible securities (bonds, notes, debentures,
preferred stocks and other securities convertible into common stocks) that
may offer higher income than the common stocks into which they are
convertible. The convertible securities in which the Fund may invest
include fixed-income or zero coupon debt securities, which may be converted
or exchanged at a stated or determinable exchange ratio into underlying
shares of common stock. Prior to their conversion, convertible securities
may have characteristics similar to nonconvertible debt securities.
Foreign securities
While the Fund generally emphasizes investments in companies domiciled in
the United States, it may invest in listed and unlisted foreign securities
that meet the same criteria as the Fund's domestic holdings. The Fund may
invest in foreign securities 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.
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 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 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 for speculative purposes. Please refer to "Risk
factors_Strategic Transactions and derivatives" for more information.
Risk factors
The Fund's risks are determined by the nature of the securities held and
the portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques
that the Fund may use from time to time.
Debt securities. The Fund may invest up to 20% of its net assets in debt
securities, including securities which are rated below investment-grade or,
if unrated, are considered by the Adviser to be equivalent to below
investment-grade debt securities (commonly referred to as "junk bonds").
The lower the ratings of such debt securities, the greater their risks
render them like equity securities. The Fund will invest no more than 10%
of its net assets in securities rated B or lower by Moody's or S&P, and may
not invest more than 5% of its net assets in securities rated C by Moody's
or D by S&P, which may be in default with respect to payment of principal
or interest. Also, longer-maturity bonds tend to fluctuate more in price as
interest rates change than do short-term bonds, providing both opportunity
and risk.
Zero coupon bonds, which do not pay interest until maturity, and
pay-in-kind securities, which pay interest in the form of additional
securities, may be more speculative than debt securities which pay income
periodically in cash.
Repurchase agreements. If a seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted.
In the event of the commencement of bankruptcy or insolvency proceedings of
the seller of the securities before repurchase of the securities under a
repurchase agreement, the Fund may encounter delay and incur costs
including a decline in value of the securities before being able to sell
the securities.
Convertible securities. While convertible securities generally offer lower
yields than nonconvertible debt securities of similar quality, their prices
may reflect changes in the value of the underlying common stock.
Convertible securities entail less credit risk than the issuer's common
stock.
Foreign securities. Investments in foreign securities involve special
considerations, due to more limited information, higher brokerage costs and
different accounting standards. They may also entail certain risks, such as
possible imposition of dividend or interest withholding or confiscatory
taxes, possible currency blockages or transfer restrictions, expropriation,
nationalization or other adverse political or economic developments and the
difficulty of enforcing obligations in other countries. Foreign securities
may be less liquid and more volatile than comparable domestic securities,
and there is less government regulation of stock exchanges, brokers, listed
companies and banks than in the U.S. Purchases of foreign securities are
usually made in foreign currencies and, as a result, the Fund may incur
currency conversion costs and may be affected favorably or unfavorably by
changes in the value of foreign currencies against the U.S. dollar.
Strategic Transactions and derivatives. 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 contracts 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. The Strategic Transactions
that the Fund may use and some of their risks are described more fully in
the Fund's combined Statement of Additional Information.
Distribution and performance information
Dividends and capital gains distributions
The Fund intends to distribute any dividends from its net investment income
and net realized capital gains after utilization of capital loss
carryforwards, if any, annually in December to prevent application of
federal excise tax, although an additional distribution may be made if
required, at a later date. Any dividends or capital gains distributions
declared in October, November or December with a record date in such a
month and paid the following January will be treated by shareholders for
federal income tax purposes as if received on December 31 of the calendar
year declared. According to preference, shareholders may receive
distributions in cash or have them reinvested in additional shares of the
Fund. If an investment is in the form of a retirement plan, all dividends
and capital gains distributions must be reinvested into the shareholder's
account.
Generally, dividends from net investment income are taxable to shareholders
as ordinary income. Long-term capital gains distributions, if any, are
taxable as long-term capital gains regardless of the length of time
shareholders have owned their shares. Short-term capital gains and any
other taxable income distributions are taxable as ordinary income. A
portion of such dividends from net investment income may qualify for the
dividends-received deduction for corporations.
(Continued on page 12)
Purchases
Opening an account
Minimum initial investment: $1,000; IRAs $500
Group retirement plans (401(k), 403(b), etc.) have similar or lower
minimums. See appropriate plan literature.
Make checks payable to "The Scudder Funds."
* By Mail
Send your completed and signed application and check
by regular mail to: or by express,
registered, or
certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 1099 Hingham Street
Boston, MA Rockland, MA
02107-2291 02370-1052
* By Wire
Please see Transaction information_Purchasing shares_By wire following
these tables for details, including the ABA wire transfer number. Then
call 1-800-225-5163 for instructions.
* In Person
Visit one of our Funds Centers to complete your application with the
help of a Scudder representative. Funds Center locations are listed
under Shareholder benefits.
Purchasing additional shares
Minimum additional investment: $100; IRAs $50
Group retirement plans (401(k), 403(b), etc.) have similar or lower
minimums. See appropriate plan literature.
Make checks payable to "The Scudder Funds."
* By Mail
Send a check with a Scudder investment slip, or with a letter of
instruction including your account number and the complete Fund name,
to the appropriate address listed above.
* By Wire
Please see Transaction information_Purchasing shares_By wire following
these tables for details, including the ABA wire transfer number.
* In Person
Visit one of our Funds Centers to make an additional investment in
your Scudder fund account. Funds Center locations are listed under
Shareholder benefits.
* By Telephone
You may purchase additional shares in an amount of $10,000 or more.
Please call 1-800-225-5163 for more details.
* By Automatic Investment Plan ($50 minimum)
You may arrange to make investments on a regular basis through
automatic deductions from your bank checking account. Please call
1-800-225-5163 for more information and an enrollment form.
Exchanges and redemptions
Exchanging shares
Minimum investments: $1,000 to establish a new account; $100 to exchange
among existing accounts
* By Telephone
To speak with a service representative, call 1-800-225-5163 from 8
a.m. to 8 p.m. eastern time or to access SAIL(tm), Scudder's
Automated Information Line, call 1-800-343-2890 (24 hours a day).
* By Mail or Fax
Print or type your instructions and include:
- the name of the Fund and the account number you are exchanging
from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to exchange;
- the name of the Fund you are exchanging into; and
- your signature(s) as it appears on your account and a daytime
phone number.
Send your instructions
by regular mail to: or by express, or by fax to:
registered, or
certified mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 1099 Hingham Street
Boston, MA Rockland, MA
02107-2291 02370-1052
Redeeming shares
* By Telephone
To speak with a service representative, call 1-800-225-5163 from 8
a.m. to 8 p.m. eastern time or to access SAIL(tm), Scudder's
Automated Information Line, call 1-800-343-2890 (24 hours a day). You
may have redemption proceeds sent to your predesignated bank account,
or redemption proceeds of up to $50,000 sent to your address of
record.
* By Mail or Fax
Send your instructions for redemption to the appropriate address or
fax number above and include:
- the name of the Fund and account number you are redeeming from;
- your name(s) and address as they appear on your account;
- the dollar amount or number of shares you wish to redeem; and
- your signature(s) as it appears on your account and a daytime
phone number.
A signature guarantee is required for redemptions over $50,000. See
Transaction information_Redeeming shares following these tables.
* By Automatic Withdrawal Plan
You may arrange to receive automatic cash payments periodically if the
value of your account is $10,000 or more. Call 1-800-225-5163 for more
information and an enrollment form.
(Continued from page 9)
The Fund sends detailed tax information about the amount and type of its
distributions to shareholders by January 31 of the following year.
Performance information
From time to time, quotations of the Fund's performance may be included in
advertisements, sales literature or shareholder reports. All performance
figures are historical, show the performance of a hypothetical investment
and are not intended to indicate future performance. "Total return" is the
change in value of an investment in the Fund for a specified period. The
"average annual total return" of the Fund is the average annual compound
rate of return of an investment in the Fund assuming the investment has
been held for one year and the life of the Fund, as of a stated ending
date. "Cumulative total return" represents the cumulative change in value
of an investment in the Fund for various periods. Total return calculations
assume that all dividends and capital gains distributions during the period
were reinvested in shares of the Fund. "Capital change" measures return
from capital, including reinvestment of any capital gains distributions but
does not include the reinvestment of dividends. Performance will vary based
upon, among other things, changes in market conditions and the level of the
Fund's expenses.
Fund organization
Scudder Value Fund is a diversified series of Scudder Equity Trust (the
"Trust"), an open-end management investment company registered under the
Investment Company Act of 1940 (the "1940 Act"). The Trust's predecessor
was organized as a Delaware corporation in May 1966. The Trust was
reorganized as a Massachusetts business trust in October 1985.
The Fund's activities are supervised by the Trust's Board of Trustees.
Shareholders have one vote for each share held on matters on which they are
entitled to vote. The Fund is not required and has no current intention of
holding annual shareholder meetings, although special meetings may be
called for purposes such as electing or removing Trustees, changing
fundamental investment policies or approving an investment management
contract. Shareholders will be assisted in communicating with other
shareholders in connection with removing a Trustee as if Section 16(c) of
the 1940 Act were applicable.
Investment adviser
The Fund retains the investment management firm of Scudder, Stevens &
Clark, Inc., a Delaware corporation, to manage its daily investment and
business affairs subject to the policies established by the Board of
Trustees. The Trustees have overall responsibility for the management of
the Fund under Massachusetts law.
The Fund pays the Adviser an annual fee of 0.70% of the Fund's average
daily net assets. The Adviser has agreed to maintain the annualized
expenses of the Fund at not more than 1.25% of the average daily net assets
of the Fund until January 31, 199 6 . For the fiscal year ended
September 30, 1994, the Adviser took action to reduce the Fund's total
expenses and as a result received an investment management fee
of 0.34% of the Fund's average daily net assets.
The fee is payable monthly, provided that 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.
All the Fund's expenses are paid out of gross investment income.
Shareholders pay no direct charges or fees for investment or administrative
services.
Scudder, Stevens & Clark, Inc. is located at Two International Place,
Boston, Massachusetts.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts
02107-2291, a wholly-owned subsidiary of the Adviser, is the transfer,
shareholder servicing and dividend-paying agent for the Fund.
Underwriter
Scudder Investor Services, Inc., a wholly-owned subsidiary of the Adviser,
is the Fund's principal underwriter. Scudder Investor Services, Inc.
confirms, as agent, all purchases of shares of the Fund. Scudder Investor
Information is a telephone information service provided by Scudder Investor
Services, Inc.
Custodian
State Street Bank and Trust Company is the Fund's custodian.
Transaction information
Purchasing shares
Purchases are executed at the next calculated net asset value per share
after the Fund's transfer agent in Boston receives the purchase request in
good order. Purchases are made in full and fractional shares. (See "Share
price.")
By check. If you purchase shares with a check that does not clear, your
purchase will be canceled and you will be subject to any losses or fees
incurred in the transaction. Checks must be drawn on or payable through a
U.S. bank. If you purchase shares by check and redeem them within seven
business days of purchase, the Fund may hold redemption proceeds until the
purchase check has cleared, which may take up to seven business days. If
you purchase shares by federal funds wire, you may avoid this delay.
Redemption or exchange requests by telephone prior to the expiration of the
seven-day period will not be accepted.
By wire. To open a new account by wire, first call Scudder at
1-800-225-5163 to obtain an account number. A representative will instruct
you to send a completed, signed application to the transfer agent in
Boston. Accounts cannot be opened without a completed, signed application
and a Scudder fund account number. Contact your bank to arrange a wire
transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
_ the name of the fund in which the money is to be invested,
_ the account number of the fund, and
_ the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By telephone order. Existing shareholders may purchase shares at a certain
day's price by calling 1-800-225-5163 before the close of regular trading
on the New York Stock Exchange (the "Exchange"), normally 4 p.m. eastern
time, on that day. Orders must be for $10,000 or more and cannot be for an
amount greater than four times the value of your account at the time the
order is placed. You must include with your payment the order number given
at the time the order is placed. A confirmation with complete purchase
information is sent shortly after your order is received. If payment by
check or wire is not received within seven business days, the order will be
canceled and the shareholder will be responsible for any loss to the Fund
resulting from this cancellation. Telephone orders are not available for
shares held in Scudder IRA accounts and most other Scudder retirement plan
accounts.
By exchange. Your new account will have the same registration and address
as your existing account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for
more information, including information about the transfer of special
account features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
Redeeming shares
The Fund allows you to redeem shares (i.e., sell them back to the Fund)
without redemption fees.
By telephone. This is the quickest and easiest way to sell Fund shares. If
you elected telephone redemption to your bank on your application, you can
call to request that federal funds be sent to your authorized bank account.
If you did not elect telephone redemption to your bank on your application,
call 1-800-225-5163 for more information.
Redemption proceeds will be wired to your bank unless otherwise requested.
If your bank cannot receive federal reserve wires, redemption proceeds will
be mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL, the
Scudder Automated Information Line, by calling 1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until
the Fund's transfer agent has received your completed and signed
application. Telephone redemption is not available for shares held in
Scudder IRA accounts and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
Signature guarantees. For your protection and to prevent fraudulent
redemptions, on written redemption requests in excess of $50,000 we require
an original signature and an original signature guarantee for each person
in whose name the account is registered. (The Fund reserves the right,
however, to require a signature guarantee for all redemptions.) You can
obtain a signature guarantee from most banks, credit unions or savings
associations, or from broker/dealers, municipal securities broker/dealers,
government securities broker/dealers, national securities exchanges,
registered securities associations or clearing agencies deemed eligible by
the Securities and Exchange Commission. Signature guarantees by notaries
public are not acceptable. Redemption requirements for corporations, other
organizations, trusts, fiduciaries, agents, institutional investors and
retirement plans may be different from those for regular accounts. For more
information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange by telephone and
the right to redeem by telephone up to $50,000 to their address of record.
Shareholders also may, by telephone, request that redemption proceeds be
sent to a predesignated bank account. The Fund uses procedures designed to
give reasonable assurance that telephone instructions are genuine,
including recording telephone calls, testing a caller's identity and
sending written confirmation of telephone transactions. If 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.
Share price
Purchases and redemptions, including exchanges, are made at net asset
value. Scudder Fund Accounting Corporation, a wholly-owned subsidiary of
the Adviser, determines net asset value per share as of the close of
regular trading on the Exchange, normally 4 p.m. eastern time, on each day
the Exchange is open for trading. Net asset value per share is calculated
by dividing the value of total Fund assets, less all liabilities, by the
total number of shares outstanding.
Processing time
All purchase and redemption requests received in good order by the Fund's
transfer agent in Boston by the close of regular trading on the Exchange
are executed at the net asset value per share calculated at the close of
regular trading that day.
Purchase and redemption requests received after the close of regular
trading on the Exchange will be executed the following business day.
If you wish to make a purchase of $500,000 or more, you should notify
Scudder Service Corporation by calling 1-800-225-5163.
The Fund will normally send your redemption proceeds within one business
day following the redemption request, but may take up to seven days (or
longer in the case of shares recently purchased by check).
Short-term trading
Purchases and sales should be made for long-term investment purposes only.
The Fund and Scudder Investor Services, Inc. each reserves the right to
restrict purchases of Fund shares (including exchanges) when a pattern of
frequent purchases and sales made in response to short-term fluctuations in
the Fund's share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is
a sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and
redemption and exchange proceeds from accounts (other than those of certain
exempt payees) without a certified Social Security or tax identification
number and certain other certified information or upon notification from
the IRS or a broker that withholding is required. The Fund reserves the
right to reject new account applications without a certified Social
Security or tax identification number. The Fund also reserves the right,
following 30 days' notice, to redeem all shares in accounts without a
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.
Minimum balances
Shareholders should maintain a share balance worth at least $1,000, which
amount may be changed by the Board of Trustees. Scudder retirement plans
have similar or lower minimum share balance requirements. The Fund reserves
the right, following 60 days' written notice to shareholders, to redeem all
shares in sub-minimum accounts, including accounts of new investors, where
a reduction in value has occurred due to a redemption or exchange out of
the account. Reductions in value that result solely from market activity
will not trigger an involuntary redemption. The Fund will mail the proceeds
of the redeemed account to the shareholder. The shareholder may restore the
share balance to $1,000 or more during the 60-day notice period and must
maintain it at no lower than that minimum to avoid involuntary redemption.
Third party transactions
If purchases and redemptions of Fund shares are arranged and settlement is
made at an investor's election through a member of the National Association
of Securities Dealers, Inc., other than Scudder Investor Services, Inc.,
that member may, at its discretion, charge a fee for that service.
Redemption-in-kind
The Fund 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
to 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.
Shareholder benefits
Experienced professional management
Scudder, Stevens & Clark, Inc., one of the nation's most experienced
investment management firms, actively manages your Scudder fund investment.
Professional management is an important advantage for investors who do not
have the time or expertise to invest directly in individual securities.
A team approach to investing
Scudder Value Fund is managed by a team of Scudder investment professionals
who each play an important role in the Fund's management process. Team
members work together to develop investment strategies and select
securities for the Fund's portfolio. They are supported by Scudder's large
staff of economists, research analysts, traders and other investment
specialists who work in Scudder's offices across the United States and
abroad. Scudder believes its team approach benefits Fund investors by
bringing together many disciplines and leveraging Scudder's extensive
resources.
Lead Portfolio Manager Donald E. Hall has had responsibility for the Fund's
day-to-day management since its inception in 1992. Mr. Hall, who has 12
years of experience in the value style of investing, joined Scudder in
1982. William J. Wallace, Portfolio Manager, has been a member of the
Fund's team since 1992 and has 14 years of investment experience.
SAIL(tm)_Scudder Automated Information Line
For touchtone access to account information, prices and yields, or to
perform transactions in existing Scudder fund accounts, shareholders can
call Scudder's Automated Information Line (SAIL) at 1-800-343-2890. During
periods of extreme economic or market changes, or other conditions, it may
be difficult for you to effect telephone transactions in your account. In
such an event you should write to the Fund; please see "How to contact
Scudder" for the address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net
asset value. You can move your investments among money market, income, tax
free and growth funds with a simple toll-free call or, if you prefer, by
sending your instructions through the mail or by fax. Telephone and fax
redemptions and exchanges are subject to termination and their terms are
subject to change at any time by the Fund or the transfer agent. In some
cases, the transfer agent or Scudder Investor Services, Inc. may impose
additional conditions on telephone transactions.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in
additional Fund shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You receive a detailed account statement every time you purchase or redeem
shares. All of your statements should be retained to help you keep track of
account activity and the cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a
review of portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund
reports, such as the Fund's Annual Report, may be mailed to your household
(same surname, same address). Please call 1-800-225-5163 if you wish to
receive additional shareholder reports.
Newsletters
Four times a year, Scudder sends you At the Helm, an informative newsletter
covering economic and investment developments, service enhancements and
other topics of interest to Scudder fund investors.
Scudder Funds Centers
As a convenience to shareholders who like to conduct business in person,
Scudder Investor Services, Inc. maintains Funds Centers in Boca Raton,
Boston, Chicago, Cincinnati, Los Angeles, New York, Portland (OR), San
Diego, San Francisco and Scottsdale.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D.
(Telephone Device for the Deaf) service. If you have access to a T.D.D.,
call 1-800-543-7916 for investment information or specific account
questions and transactions.
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for
individuals, businesses and non-profit organizations. These flexible plans
are designed for use with the Scudder Family of Funds (except Scudder
tax-free funds, which are inappropriate for such plans). Scudder Funds
offer a broad range of investment objectives and can be used to seek almost
any investment goal. Using Scudder's retirement plans can help shareholders
save on current taxes while building their retirement savings.
* Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of $2,000 per person for anyone with earned income. Many
people can deduct all or part of their contributions from their taxable
income, and all investment earnings accrue on a tax deferred basis. The
Scudder No-Fee IRA charges no annual custodial fee.
* 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
* Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make annual,
tax-deductible contributions of up to $30,000 for each person covered by
the plans. Plans may be adopted individually or paired to maximize
contributions. These are sometimes known as Keogh plans.
* 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
* SEP-IRAs. Easily administered retirement plans for small businesses
and self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation.
* Scudder Horizon Plan. A no-load variable annuity that lets you build
assets by deferring taxes on your investment earnings. You can start with
$2,500 or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian
for some of these plans and is paid an annual fee for some of the above
retirement plans. For information about establishing a Scudder No-Fee IRA,
SEP-IRA, Profit Sharing Plan, Money Purchase Pension Plan or a
Scudder Horizon Plan, please call 1-800-225-2470. For information about
401(k)s or 403(b)s please call 1-800-323-6105. To effect
transactions in existing IRA, SEP-IRA, Profit Sharing or Pension Plan
accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life
Insurance Company (in New York State, Intramerica Life Insurance Company
+++S 1802(tm)). The contract is offered by Scudder Insurance Agency, Inc.
(in New York State, Nevada and Montana, Scudder Insurance Agency of New
York, Inc.). CNL, Inc. is the Principal Underwriter. Scudder Horizon Plan
is not available in all states.
Investment products and services
The Scudder Family of Funds
Money market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax free money market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Short Term Global Income Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Development Fund
Scudder Global Fund
Scudder Global Small Company Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan*+++ (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans
Closed-end Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities Fund, Inc.
Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from
the tax-free funds may be subject to federal, state and local taxes. *Not
available in all states. +++A no-load variable annuity contract provided by
Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder, Stevens & Clark, Inc., are traded on various stock exchanges.
++For information on Scudder Treasurers Trust(tm), an institutional cash
management service that utilizes certain portfolios of Scudder Fund, Inc.
($100,000 minimum), call: 1-800-541-7703.
How to contact Scudder
Account Service and Information:
For existing account service and transactions
Scudder Service Corporation
1-800-225-5163
For account updates, prices, yields, exchanges and redemptions
Scudder Automated Information Line (SAIL)
1-800-343-2890
Investment Information:
To receive information about the Scudder Funds, for additional
applications and prospectuses, or for investment questions
Scudder Investor Information
1-800-225-2470
For establishing 401(k) and 403(b) plans
Scudder Group Retirement Services
1-800-323-6105
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Trustees and Officers
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and Consultant
Thomas J. Devine
Trustee; Consultant
David S. Lee*
Vice President and Trustee
Douglas M. Loudon*
Vice President and Trustee
Wilson Nolen
Trustee; Consultant
Juris Padegs*
Vice President and Trustee
Gordon Shillinglaw
Trustee; Professor Emeritus of Accounting, Columbia University
Graduate School of Business
Robert G. Stone, Jr.
Trustee; Chairman of the Board and Director, Kirby Corporation
Robert W. Lear
Honorary Trustee; Executive-in-Residence, Columbia University Graduate
School of Business
Steven P. Aronoff*
Vice President
Donald E. Hall*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President, Secretary and Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Vice President and Assistant Secretary
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
Scudder Investor Information is a service provided through Scudder Investor
Services, Inc., Distributor.
<PAGE>
SCUDDER CAPITAL GROWTH FUND
A Pure No-Load(tm) (No Sales Charges) Diversified Mutual Fund
which Seeks to Maximize Long-Term Capital Growth
and
SCUDDER VALUE FUND
A Pure No-Load(tm) (No Sales Charges) Diversified Mutual Fund
which Seeks Long-Term Growth of Capital through
Investment in Undervalued Equity Securities
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1995
This combined Statement of Additional Information is not a prospectus
and should be read in conjunction with the prospectuses of Scudder Capital
Growth Fund and Scudder Value Fund each dated February 1, 1995, as amended
from time to time, copies of which may be obtained without charge by
writing to Scudder Investor Services, Inc., Two International Place,
Boston, Massachusetts 02110-4103.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES 1
General Investment Objective and Policies of Capital Growth Fund 1
General Investment Objective and Policies of Value Fund 2
Investments and Investment Techniques 3
Investment Restrictions 12
Other Investment Policies 13
PURCHASES 15
Additional Information About Opening An Account 15
Additional Information About Making Subsequent Investments 15
Checks 16
Wire Transfer of Federal Funds 16
Share Price 16
Share Certificates 16
Other Information 16
EXCHANGES AND REDEMPTIONS 17
Exchanges 17
Redemption by Telephone 18
Redemption by Mail or Fax 19
Redemption-in-Kind 19
Other Information 19
FEATURES AND SERVICES OFFERED BY THE FUNDS 20
The Pure No-Load(tm) Concept 20
Distribution Plans 21
Diversification 21
Scudder Funds Centers 22
Reports to Shareholders 22
Transaction Summaries 22
THE SCUDDER FAMILY OF FUNDS 22
SPECIAL PLAN ACCOUNTS 25
Scudder Retirement Plans: Profit-Sharing and Money Purchase 25
Pension Plans for Corporations and Self-Employed Individuals
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for 26
Corporations and Self-Employed Individuals
Scudder IRA: Individual Retirement Account 26
Scudder 403(b) Plan 27
Automatic Withdrawal Plan 27
Group or Salary Deduction Plan 27
Automatic Investment Plan 28
Uniform Transfers/Gifts to Minors Act 28
Scudder Trust Company 28
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS 28
PERFORMANCE INFORMATION 29
Average Annual Total Return 29
Cumulative Total Return 30
Total Return 30
Capital Change 30
Comparison of Fund Performance 31
ORGANIZATION OF THE FUNDS 34
INVESTMENT ADVISER 36
TRUSTEES AND OFFICERS 38
REMUNERATION 40
DISTRIBUTOR 41
TAXES 42
PORTFOLIO TRANSACTIONS 45
Brokerage Commissions 45
Portfolio Turnover 47
NET ASSET VALUE 47
ADDITIONAL INFORMATION 48
Experts 48
Shareholder Indemnification 48
Other Information 48
FINANCIAL STATEMENTS 49
APPENDIX
</TABLE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
(See "Investment objective and policies" and "Additional information
about policies and investments" in the Funds' prospectuses.)
Scudder Capital Growth Fund and Scudder Value Fund (each a "Fund,"
collectively, the "Funds") are diversified series of Scudder Equity Trust
(the "Trust"), a pure no-load(tm), open-end, management investment company
organized as a Massachusetts business trust.
General Investment Objective and Policies of Scudder Capital Growth Fund
Scudder Capital Growth Fund ("Capital Growth Fund") seeks to maximize
long-term growth of capital through a broad and flexible investment
program. The Fund seeks to achieve its objective by investing: (i) in
marketable securities, principally common stocks; (ii) up to 20% of its net
assets in debt securities where capital appreciation from debt securities
is expected to exceed the capital appreciation available from common
stocks; and (iii) for temporary defensive purposes, during periods when
market or economic conditions may warrant, in debt securities and short-
term indebtedness. The Fund may also invest in preferred stocks consistent
with its objective. The securities in which the Fund may invest are
described under "Investment objective and policies" in the Fund's
prospectus.
Investments in common stocks have a wide range of characteristics, and
management of the Fund believes that opportunity for long-term growth of
capital may be found in all sectors of the market for publicly traded
equity securities. Thus the search for equity investments for the Fund may
encompass any sector of the market and companies of all sizes. It is a
fundamental policy of the Fund, which may not be changed without approval
of a majority of the Fund's outstanding shares, that the Fund will not
concentrate its investments in any particular industry. However, the Fund
reserves the right to invest up to 25% of its total assets (taken at market
value) in any one industry. The use of this tactic is, in the opinion of
management, consistent with the Fund's flexible approach of seeking to
maximize long-term growth of capital.
The Fund may purchase, for capital appreciation, investment-grade debt
securities including zero coupon bonds. Investment-grade debt securities
are those rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc.
("Moody's"), or AAA, AA, A or BBB by Standard & Poor's ("S&P") or, if
unrated, of equivalent quality as determined by the Fund's investment
adviser, Scudder, Stevens & Clark, Inc. (the "Adviser"). Moody's considers
bonds it rates Baa to have speculative elements as well as investment-grade
characteristics.
The Fund may also purchase debt securities which are rated below
investment-grade (that is, rated below Baa by Moody's or below BBB by S&P),
and unrated securities of comparable quality in the Adviser's judgment,
which usually entail greater risk (including the possibility of default or
bankruptcy of the issuers of such securities), generally involve greater
volatility of price and risk of principal and income, and may be less
liquid and more difficult to value than securities in the higher rating
categories. The Fund may invest up to 10% of its net assets in securities
rated B or lower by Moody's or S&P and may invest in securities which are
rated as low as C by Moody's or D by S&P. Securities rated B or lower
involve a high degree of speculation with respect to the payment of
principal and interest and those securities rated C or D may be in default
with respect to payment of principal or interest. (See "High Yield, High
Risk Securities.")
Changes in portfolio securities are made on the basis of investment
considerations and it is against the policy of management to make changes
for trading purposes.
The objective of the Fund is not fundamental and may be changed by the
Trustees without a vote of shareholders. The Fund cannot guarantee a gain
or eliminate the risk of loss. The net asset value of the Fund's shares
will increase or decrease with changes in the market price of the Fund's
investments and there is no assurance that the Fund's objective will be
achieved.
General Investment Objective and Policies of Scudder Value Fund
Scudder Value Fund ("Value Fund") seeks long-term growth of capital
through investment in undervalued equity securities. This objective is not
fundamental and may be changed by the Trustees without a shareholder vote.
The Fund seeks to achieve its objective by investing in the equity
securities of companies that, in the opinion of its Adviser, are
undervalued in the marketplace in relation to current and estimated future
earnings and dividends. These companies generally sell at price-earnings
ratios below the market average, as defined by the Standard & Poor's 500
Composite Price Index (S&P 500). The securities in which the Fund may
invest are described under "Investment objective and policies" in the
Fund's prospectus.
The Fund invests at least 80% of its assets in equity securities
consisting of common stocks, preferred stocks and securities convertible
into common stocks. The Fund changes its portfolio securities for long-
term investment considerations and not for trading purposes.
The Fund invests primarily in the equity securities of medium-to-large
size domestic companies with annual revenues or market capitalization of at
least $600 million. The Adviser uses in-depth fundamental research and a
proprietary computerized quantitative model to identify companies that are
currently undervalued in relation to current and estimated future earnings
and dividends. The investment process also involves an assessment of
business risk, including the Adviser's analysis of the strength of a
company's balance sheet, the accounting practices a company follows, the
volatility of a company's earnings over time, and the vulnerability of
earnings to changes in external factors, such as the general economy, the
competitive environment, governmental action and technological change.
While a broad range of investments are considered, only those that, in
the Adviser's opinion, are selling at comparatively large discounts to
intrinsic value will be purchased for the Fund. It is anticipated that the
prices of the Fund's investments will rise as a result of both earnings
growth and rising price-earnings ratios over time.
Value investing, as measured by the Wilshire Large Company Value Index-
- -a well-known source of value-oriented portfolio returns--has provided an
average annual return of 14.32% for the ten-year period ended September 30,
1994. This compares to a 14.59% return for the S&P 500,
12.73% for the Lipper Growth Fund Average, and 12.82% for the Lipper Growth
and Income Fund Average over the same period. Using active investment
management, the Fund hopes to outperform passive indices. The performance
of the indices is not representative of the performance of the Fund or the
future performance of the Fund. The indices do not bear the transaction
and other costs that the Fund will bear.
While the Fund emphasizes U.S. investments, it can invest in
securities of foreign companies that meet the same criteria applicable to
domestic investments if the performance of foreign securities is believed
by the Adviser to offer more potential than domestic investments.
For capital appreciation, the Fund may use up to 20% of its assets to
purchase debt securities, including zero coupon bonds. Investment-grade
debt securities are those rated Aaa, Aa, A or Baa by Moody's, or AAA, AA, A
or BBB by S&P or, if unrated, of equivalent quality as determined by the
Adviser.
The Fund may also purchase debt securities which are rated below
investment-grade (that is, rated below Baa by Moody's or below BBB by S&P)
and unrated securities of equivalent quality as determined by the Adviser,
which usually entail greater risk (including the possibility of default or
bankruptcy of the issues of such securities), generally involve greater
volatility of price and risk of principal and income, and may be less
liquid and more difficult to value than securities in the higher rating
categories. The Fund may invest up to 20% of its net assets in such
securities ("high yield\high risk securities") but will invest no more than
10% of its net assets in securities rated B or lower by Moody's or S&P and
may not invest more than 5% of its net assets in securities which are rated
C by Moody's or D by S&P or of equivalent quality as determined by the
Adviser. Securities rated C or D may be in default with respect to payment
of principal or interest. Also, longer maturity bonds tend to fluctuate
more in price as interest rates change than do short-term bonds, providing
both opportunity and risk. (See "High Yield, High Risk Securities.")
The objective of the Fund is not fundamental and may be changed by the
Trustees without a vote of shareholders. The Fund cannot guarantee a gain
or eliminate the risk of loss. The net asset value of the Fund's shares
will increase or decrease with changes in the market price of the Fund's
investments, and there is no assurance that the Fund's objective will be
achieved.
Investments and Investment Techniques
Foreign Securities. While the Funds generally emphasize investments in
companies domiciled in the U.S., they may invest in listed and unlisted
foreign securities of the same types as the domestic securities in which
they 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 objectives of the Funds.
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 Funds' performance. As
foreign companies are not generally subject to uniform accounting, 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
(the "Exchange") and securities of some foreign companies are less liquid
and more volatile than securities of domestic companies. Similarly, volume
and liquidity in most foreign bond markets are less than the volume and
liquidity in the U.S. and at times, volatility of price can be greater than
in the U.S. 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 Funds are
uninvested and no return is earned thereon. The inability of the Funds to
make intended security purchases due to settlement problems could cause the
Funds to miss attractive investment opportunities. Inability to dispose of
portfolio securities due to settlement problems either could result in
losses to the Funds due to subsequent declines in value of the portfolio
security or, if the Funds have 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 Funds will endeavor
to achieve the most favorable net results on their portfolio transactions.
Further, the Funds 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 Funds' 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. thereby
increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities. Delivery of securities
without payment is required in some foreign markets. In addition, with
respect to certain foreign countries, there is the possibility of
nationalization, expropriation, the imposition of withholding or
confiscatory taxes, political, social, or economic 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 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 those countries than in
developed countries. The management of the Funds seeks to mitigate the
risks associated with these considerations through diversification and
active professional management. Although investments in companies
domiciled in developing countries may be subject to potentially greater
risks than investments in developed countries, the Funds will not invest in
any securities of issuers located in developing countries if the
securities, in the judgment of the Adviser, are speculative.
Investments in foreign securities usually will involve currencies of
foreign countries. Moreover, the Funds may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs
and the value of the assets for the Funds, 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 Funds may incur
costs in connection with conversions between various currencies. Although
the Funds value their assets daily in terms of U.S. dollars, the Funds do
not intend to convert their holdings of foreign currencies, if any, into
U.S. dollars on a daily basis. The Funds 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 Funds at one rate, while
offering a lesser rate of exchange should the Funds desire to resell that
currency to the dealer. The Funds will conduct their 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
forward foreign currency exchange contracts.
To the extent that the Funds invest in foreign securities, each Fund's
share price could reflect the movements of both the different stock and
bond 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 each Fund's investment
performance.
High Yield, High Risk Securities. Below investment-grade securities (rated
below Baa by Moody's and below BBB by S&P) or unrated securities of
equivalent quality in the Adviser's judgment, carry a high degree of risk
(including the possibility of default or bankruptcy of the issuers of such
securities), generally involve greater volatility of price and risk of
principal and income, may be less liquid and more difficult to value than
securities in the higher ratings categories and are considered speculative.
The lower the ratings of such debt securities the greater their risks
render them like equity securities. See the Appendix to this Statement of
Additional Information for a more complete description of the ratings
assigned by ratings organizations and their respective characteristics.
Each Fund may invest up to 20% of its net assets in debt securities
rated below investment-grade but will invest no more than 10% of its net
assets in securities rated B or lower by Moody's or by S&P.
An economic downturn could disrupt the high yield market and impair
the ability of issuers to repay principal and interest. Also, an increase
in interest rates could adversely affect the value of such obligations held
by the Funds. Prices and yields of high yield securities will fluctuate
over time and may affect each Fund's net asset value. In addition,
investments in high yield zero coupon or pay-in-kind bonds, rather than
income-bearing high yield securities, may be more speculative and may be
subject to greater fluctuations in value due to changes in interest rates.
The trading market for high yield securities may be thin to the extent
that there is no established retail secondary market or because of a
decline in the value of such securities. A thin trading market may limit
the ability of a Fund to accurately value high yield securities in the
Fund's portfolio and to dispose of those securities. Adverse publicity and
investor perceptions may decrease the value and liquidity of high yield
securities. These securities may also involve special registration
responsibilities, liabilities and costs.
Credit quality in the high-yield securities market can change suddenly
and unexpectedly and even recently issued credit ratings may not fully
reflect the actual risks posed by a particular high-yield security. For
these reasons, it is the policy of the Adviser not to rely exclusively on
ratings issued by established credit rating agencies, but to supplement
such ratings with its own independent and on-going review of credit
quality. The achievement of each Fund's investment objective may be more
dependent on the Adviser's credit analysis than is the case for higher
quality bonds. Should the rating of a portfolio security be downgraded the
Adviser will determine whether it is in the best interest of a Fund to
retain or dispose of the security.
Prices for below investment-grade securities may be affected by
legislative and regulatory developments. For example, federal rules
require savings and loan institutions to gradually reduce their holdings of
this type of security. Also, Congress has from time to time considered
legislation which would restrict or eliminate the corporate tax deduction
for interest payments in these securities and regulate corporate
restructurings. Such legislation may significantly depress the prices of
outstanding securities of this type. For more information regarding tax
issues related to high yield securities see "TAXES."
Convertible Securities. Value Fund may invest in convertible securities,
that is, bonds, notes, debentures, preferred stocks and other securities
which are convertible into common stock. Investments in convertible
securities can provide an opportunity for capital appreciation and/or
income through interest and dividend payments by virtue of their conversion
or exchange features. The Fund will limit its purchases of convertible
securities to debt securities convertible into common stocks.
The convertible securities in which the Fund may invest are either
fixed income or zero coupon debt securities which 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 non-convertible securities of similar quality because of their
conversion or exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds,
as corporate debt obligations, enjoy seniority in right of payment to all
equity securities, and convertible preferred stock is senior to common
stock, of the same issuer. However, because of the subordination feature,
convertible bonds and convertible preferred stock typically have lower
ratings than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that
pay current income or as zero coupon notes and bonds, including Liquid
Yield Option Notes ("LYONs"). Zero coupon securities pay no cash income
and are sold at substantial discounts from their value at maturity. When
held to maturity, their entire income, which consists of accretion of
discount, comes from the difference between the purchase price and their
value at maturity. Zero coupon convertible securities offer the
opportunity for capital appreciation as increases (or decreases) in market
value of such securities closely follows the movements in the market value
of the underlying common stock. Zero coupon convertible securities are
generally expected to be less volatile than the underlying common stocks as
they are usually issued with short to medium length maturities (15 years or
less) and are issued with options and/or redemption features exercisable by
the holder of the obligation entitling the holder to redeem the obligation
and receive a defined cash payment.
Repurchase Agreements. Each Fund may enter into repurchase agreements with
any member bank of the Federal Reserve System or 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 equal to that of issuers of commercial paper rated
within the two highest grades assigned by Moody's or by S&P.
A repurchase agreement provides a means for a Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which
a Fund acquires a debt security ("Obligation") and the seller agrees, at
the time of sale, to repurchase the Obligation at a specified time and
price. Obligations subject to a repurchase agreement are held in a
segregated account and the value of such Obligations 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 subject to the repurchase agreement. Obligations will be
held by the Fund's custodian or in the Federal Reserve Book Entry system.
For purposes of the Investment Company Act of 1940, as amended (the
"1940 Act"), a repurchase agreement is deemed to be a loan from a Fund to
the seller of the Obligation subject to the repurchase agreement and is
therefore subject to that Fund's investment restriction applicable to
loans. It is not clear whether a court would consider the Obligation
purchased by a Fund subject to a repurchase agreement as being owned by 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, a Fund may encounter delay and incur costs
before being able to sell the security. Delays may involve loss of interest
or decline in price of the Obligation. If the court characterizes the
transaction as a loan and 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 risk 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 involved 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 impose on the seller a contractual
obligation to deliver additional securities.
Strategic Transactions and Derivatives. Each Fund may, but is not required
to, utilize various other investment strategies as described below to hedge
various market risks (such as interest rates, currency exchange rates, and
broad or specific equity or fixed-income market movements), to manage the
effective maturity or duration of a Fund's portfolio, or to enhance
potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part
of modern portfolio management and are regularly utilized by many
mutual funds and other institutional investors. Techniques and instruments
may change over time as new instruments and strategies are developed or
regulatory changes occur.
In the course of pursuing these investment strategies, a Fund may
purchase and sell exchange-listed and over-the-counter put and call options
on securities, equity and fixed-income indices and other financial
instruments, purchase and sell financial futures contracts and options
thereon, enter into various interest rate transactions such as swaps, caps,
floors or collars, and enter into various currency transactions such as
currency forward contracts, currency futures contracts, currency swaps or
options on currencies or currency futures (collectively, all the above are
called "Strategic Transactions"). Strategic Transactions may be used
without limit to attempt to protect against possible changes in the market
value of securities held in or to be purchased for a Fund's portfolio
resulting from securities markets or currency exchange rate fluctuations,
to protect a 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 a Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to
enhance potential gain although no more than 5% of a Fund's assets will be
committed to Strategic Transactions entered into for non-hedging purposes.
Any or all of these investment techniques may be used at any time and in
any combination, and there is no particular strategy that dictates the use
of one technique rather than another, as use of any Strategic Transaction
is a function of numerous variables including market conditions. The
ability of a Fund to utilize these Strategic Transactions successfully will
depend on the Adviser's ability to predict pertinent market movements,
which cannot be assured. Each Fund will comply with applicable regulatory
requirements when implementing these strategies, techniques and
instruments. Strategic Transactions involving financial futures and
options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not for
speculative purposes.
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 a 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 a Fund can realize on its investments or cause a Fund to hold
a security it might otherwise sell. The use of currency transactions can
result in a Fund incurring losses as a result of a number of factors
including the imposition of exchange controls, suspension of settlements,
or the inability to deliver or receive a specified currency. The use of
options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of
a Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a Fund's position. In addition, futures
and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain
markets, a Fund might not be able to close out a transaction without
incurring substantial losses, if at all. Although the use of futures and
options transactions for hedging should tend to minimize the risk of loss
due to a decline in the value of the hedged position, at the same time they
tend to limit any potential gain which might result from an increase in
value of such position. Finally, the daily variation margin requirements
for futures contracts would create a greater ongoing potential financial
risk than would purchases of options, where the exposure is limited to the
cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such
losses can be greater than if the Strategic Transactions had not been
utilized.
General Characteristics of Options. Put options and call options typically
have similar structural characteristics and operational mechanics
regardless of the underlying instrument on which they are purchased or
sold. Thus, the following general discussion relates to each of the
particular types of options discussed in greater detail below. In
addition, many Strategic Transactions involving options require segregation
of Fund assets in special accounts, as described below under "Use of
Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the
underlying security, commodity, index, currency or other instrument at the
exercise price. For instance, a Fund's purchase of a put option on a
security might be designed to protect its holdings in the underlying
instrument (or, in some cases, a similar instrument) against a substantial
decline in the market value by giving a Fund the right to sell such
instrument at the option exercise price. A call option, upon payment of a
premium, gives the purchaser of the option the right to buy, and the seller
the obligation to sell, the underlying instrument at the exercise price. A
Fund's purchase of a call option on a security, financial future, index,
currency or other instrument might be intended to protect a Fund against an
increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any
time during the option period while a European style put or call option may
be exercised only upon expiration or during a fixed period prior thereto.
Each Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are
issued by a regulated intermediary such as the Options Clearing Corporation
("OCC"), which guarantees the performance of the obligations of the parties
to such options. The discussion below uses the OCC as an example, but is
also applicable to other financial intermediaries.
With certain exceptions, OCC issued and exchange listed options
generally settle by physical delivery of the underlying security or
currency, although in the future cash settlement may become available.
Index options and Eurodollar instruments are cash settled for the net
amount, if any, by which the option is "in-the-money" (i.e., where the
value of the underlying instrument exceeds, in the case of a call option,
or is less than, in the case of a put option, the exercise price of the
option) at the time the option is exercised. Frequently, rather than
taking or making delivery of the underlying instrument through the process
of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of
the new option.
A Fund's ability to close out its position as a purchaser or seller of
an OCC or exchange listed put or call option is dependent, in part, upon
the liquidity of the option market. Among the possible reasons for the
absence of a liquid option market on an exchange are: (i) insufficient
trading interest in certain options; (ii) restrictions on transactions
imposed by an exchange; (iii) trading halts, suspensions or other
restrictions imposed with respect to particular classes or series of
options or underlying securities including reaching daily price limits;
(iv) interruption of the normal operations of the OCC or an exchange; (v)
inadequacy of the facilities of an exchange or OCC to handle current
trading volume; or (vi) a decision by one or more exchanges to discontinue
the trading of options (or a particular class or series of options), in
which event the relevant market for that option on that exchange would
cease to exist, although outstanding options on that exchange would
generally continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the
hours during which the underlying financial instruments are traded. To the
extent that the option markets close before the markets for the underlying
financial 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. Each Fund will only sell OTC options (other
than OTC currency options) that are subject to a buy-back provision
permitting a Fund to require the Counterparty to sell the option back to a
Fund at a formula price within seven days. Each Fund expects generally to
enter into OTC options that have cash settlement provisions, although it is
not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails
to make or take delivery of the security, currency or other instrument
underlying an OTC option it has entered into with the Fund or fails to make
a cash settlement payment due in accordance with the terms of that option,
a Fund will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Accordingly, the Adviser must
assess the creditworthiness of each such Counterparty or any guarantor or
credit enhancement of the Counterparty's credit to determine the likelihood
that the terms of the OTC option will be satisfied. Each Fund will engage
in OTC option transactions only with U.S. government securities dealers
recognized by the Federal Reserve Bank of New York as "primary dealers" or
broker/dealers, domestic or foreign banks or other financial institutions
which have received (or the guarantors of the obligation of which have
received) a short-term credit rating of A-1 from S&P or P-1 from Moody's or
an equivalent rating from any nationally recognized statistical rating
organization ("NRSRO") or, in the case of OTC currency transactions, are
determined to be of equivalent credit quality by the Adviser. The staff of
the Securities and Exchange Commission ("SEC") currently takes the position
that OTC options purchased by a Fund, and portfolio securities "covering"
the amount of a Fund's obligation pursuant to an OTC option sold by it (the
cost of the sell-back plus the in-the-money amount, if any) are illiquid,
and are subject to each Fund's limitation on investing no more than 10% of
its assets in illiquid securities.
If a Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease
in the value of the underlying securities or instruments in its portfolio
or will increase a Fund's income. The sale of put options can also provide
income.
Each Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate
debt securities, equity securities (including convertible securities) and
Eurodollar instruments that are traded on U.S. and foreign securities
exchanges and in the over-the-counter markets, and on securities indices,
currencies and futures contracts. All calls sold by a Fund must be
"covered" (i.e., the Fund must own the securities or futures contract
subject to the call) or must meet the asset segregation requirements
described below as long as the call is outstanding. Even though a Fund
will receive the option premium to help protect it against loss, a call
sold by a Fund exposes that Fund during the term of the option to possible
loss of opportunity to realize appreciation in the market price of the
underlying security or instrument and may require that Fund to hold a
security or instrument which it might otherwise have sold.
Each Fund may purchase and sell put options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, corporate
debt securities, equity securities (including convertible securities) and
Eurodollar instruments (whether or not it holds the above securities in its
portfolio), and on securities, indices, currencies and futures contracts
other than futures on individual corporate debt and individual equity
securities. Each Fund will not sell put options if, as a result, more than
50% of a Fund's assets would be required to be segregated to cover its
potential obligations under such put options other than those with respect
to futures and options thereon. In selling put options, there is a risk
that a Fund may be required to buy the underlying security at a
disadvantageous price above the market price.
General Characteristics of Futures. Each Fund may enter into financial
futures contracts or purchase or sell put and call options on such futures
as a hedge against anticipated interest rate, currency or equity market
changes, for duration management and for risk management purposes. Futures
are generally bought and sold on the commodities exchanges where they are
listed with payment of initial and variation margin as described below.
The sale of a futures contract creates a firm obligation by a Fund, as
seller, to deliver to the buyer the specific type of financial instrument
called for in the contract at a specific future time for a specified price
(or, with respect to index futures 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.
Each Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in
particular the rules and regulations of the Commodity Futures Trading
Commission and will be entered into only for bona fide hedging, risk
management (including duration management) or other portfolio management
purposes. Typically, maintaining a futures contract or selling an option
thereon requires a Fund to deposit with a financial intermediary as
security for its obligations an amount of cash or other specified assets
(initial margin) which initially is typically 1% to 10% of the face amount
of the contract (but may be higher in some circumstances). Additional cash
or assets (variation margin) may be required to be deposited thereafter on
a daily basis as the mark to market value of the contract fluctuates. The
purchase of an option on financial futures involves payment of a premium
for the option without any further obligation on the part of a Fund. If a
Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can
be offset prior to settlement at an advantageous price, nor that delivery
will occur.
Each Fund will not enter into a futures contract or related option
(except for closing transactions) if, immediately thereafter, the sum of
the amount of its initial margin and premiums on open futures contracts and
options thereon would exceed 5% of that Fund's total assets (taken at
current value); however, in the case of an option that is in-the-money at
the time of the purchase, the in-the-money amount may be excluded in
calculating the 5% limitation. The segregation requirements with respect
to futures contracts and options thereon are described below.
Options on Securities Indices and Other Financial Indices. Each Fund also
may purchase and sell call and put options on securities indices and other
financial indices and in so doing can achieve many of the same objectives
it would achieve through the sale or purchase of options on individual
securities or other instruments. Options on securities indices and other
financial indices are similar to options on a security or other instrument
except that, rather than settling by physical delivery of the underlying
instrument, they settle by cash settlement, i.e., an option on an index
gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is
based exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option (except if, in the case of an OTC
option, physical delivery is specified). This amount of cash is equal to
the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery
of this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry
or other composite on which the underlying index is based, rather than
price movements in individual securities, as is the case with respect to
options on securities.
Currency Transactions. Each 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. Each 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 are
determined to be of equivalent credit quality by the Adviser.
Each 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 a 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.
Each 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 or
cross hedging as described below.
Each 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 that Fund has or
in which that Fund expects to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing
or anticipated holdings of portfolio securities, each Fund may also engage
in proxy hedging. Proxy hedging is often used when the currency to which a
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 a 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 that 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"), a 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 a
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 a Fund is engaging in proxy
hedging. If a Fund enters into a currency hedging transaction, that Fund
will comply with the asset segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to 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 a 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. Each 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 a 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 each Fund may enter are interest rate, currency and index swaps and
the purchase or sale of related caps, floors and collars. Each Fund
expects to enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio, to protect
against currency fluctuations, as a duration management technique or to
protect against any increase in the price of securities a Fund anticipates
purchasing at a later date. Each Fund intends to use these transactions as
hedges and not as speculative investments and will not sell interest rate
caps or floors where it does not own securities or other instruments
providing the income stream a Fund may be obligated to pay. Interest rate
swaps involve the exchange by a Fund with another party of their respective
commitments to pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments with respect to a notional amount of
principal. 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.
Each Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with a Fund receiving or paying, as the
case may be, only the net amount of the two payments. Inasmuch as these
swaps, caps, floors and collars are entered into for good faith hedging
purposes, the Adviser and the Funds believe such obligations do not
constitute senior securities under the 1940 Act and, accordingly, will not
treat them as being subject to its borrowing restrictions. The Funds 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, a 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. Each 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 Funds 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 a 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 Funds segregate liquid
high grade assets with their custodian to the extent that obligations of
the Funds are not otherwise "covered" through ownership of the underlying
security, financial instrument or currency. In general, either the full
amount of any obligation by a Fund to pay or deliver securities or assets
must be covered at all times by the securities, instruments or currency
required to be delivered, or, subject to any regulatory restrictions, an
amount of cash or liquid 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 a Fund will require
that Fund to hold the securities subject to the call (or securities
convertible into the needed securities without additional consideration) or
to segregate liquid high-grade securities sufficient to purchase and
deliver the securities if the call is exercised. A call option sold by a
Fund on an index will require that Fund to own portfolio securities which
correlate with the index or to segregate liquid high grade assets equal to
the excess of the index value over the exercise price on a current basis.
A put option written by a Fund requires that Fund to segregate liquid, high
grade assets equal to the exercise price.
Except when a Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates a Fund to buy or sell
currency will generally require that Fund to hold an amount of that
currency or liquid securities denominated in that currency equal to that
Fund's obligations or to segregate liquid high grade assets equal to the
amount of that Fund's obligation.
OTC options entered into by a 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 a Fund sells these instruments it will only segregate an
amount of assets equal to its accrued net obligations, as there is no
requirement for payment or delivery of amounts in excess of the net amount.
These amounts will equal 100% of the exercise price in the case of a non
cash-settled put, the same as an OCC guaranteed listed option sold by a
Fund, or the in-the-money amount plus any sell-back formula amount in the
case of a cash-settled put or call. In addition, when a Fund sells a call
option on an index at a time when the in-the-money amount exceeds the
exercise price, that Fund will segregate, until the option expires or is
closed out, cash or cash equivalents equal in value to such excess. OCC
issued and exchange listed options sold by a Fund other than those above
generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and that Fund will segregate an amount
of assets equal to the full value of the option. OTC options settling with
physical delivery, or with an election of either physical delivery or cash
settlement will be treated the same as other options settling with physical
delivery.
In the case of a futures contract or an option thereon, a Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, a Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to
each swap on a daily basis and will segregate an amount of cash or liquid
high grade securities having a value equal to the accrued excess. Caps,
floors and collars require segregation of assets with a value equal to a
Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent
with applicable regulatory policies. Each Fund may also enter into
offsetting transactions so that its combined position, coupled with any
segregated assets, equals its net outstanding obligation in related options
and Strategic Transactions. For example, a Fund could purchase a put
option if the strike price of that option is the same or higher than the
strike price of a put option sold by that Fund. Moreover, instead of
segregating assets if a Fund held a futures or forward contract, it could
purchase a put option on the same futures or forward contract with a strike
price as high or higher than the price of the contract held. Other
Strategic Transactions may also be offset in combinations. If the
offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such
time, assets equal to any remaining obligation would need to be segregated.
Each Fund's activities involving Strategic Transactions may be limited
by the requirements of Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"), for qualification as a regulated investment
company. (See "TAXES.")
Investment Restrictions
Unless specified to the contrary, the following restrictions are
fundamental policies of each Fund and may not be changed without the
approval of a majority of the outstanding voting securities of that Fund
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 shares of the Fund present at a meeting if the holders of more than 50%
of the outstanding shares of the Fund are present in person or represented
by proxy; or (2) more than 50% of the outstanding shares of the Fund.
As a matter of fundamental policy, each Fund may not:
(1) with respect to 75% of its total assets, taken at market value,
purchase more than 10% of the outstanding voting securities of
any one issuer or invest more than 5% of the value of its total
assets in the securities of any one issuer, except obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and except securities of other investment
companies;
(2) borrow money, except as a temporary measure for extraordinary or
emergency purposes or except in connection with reverse
repurchase agreements; provided that the Fund maintains asset
coverage of 300% for all borrowings;
(3) act as an underwriter of securities issued by others, except to
the extent that it may be deemed an underwriter in connection
with the disposition of portfolio securities of the Fund;
(4) make loans to other persons, except (a) loans of portfolio
securities, and (b) to the extent the entry into repurchase
agreements and the purchase of debt securities in accordance with
its investment objective and investment policies may be deemed to
be loans;
(5) issue senior securities, except as appropriate to evidence
indebtedness which it is permitted to incur, and except for
shares of the separate classes or series of the Trust, provided
that collateral arrangements with respect to currency-related
contracts, futures contracts, options or other permitted
investments, including deposits of initial and variation margin,
are not considered to be the issuance of senior securities for
purposes of this restriction; and
(6) purchase any securities which would cause more than 25% of the
market value of its total assets at the time of such purchase to
be invested in the securities of one or more issuers having their
principal business activities in the same industry, provided that
there is no limitation with respect to investments in obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities (for the purposes of this restriction,
telephone companies are considered to be in a separate industry
from gas and electric public utilities, and wholly-owned finance
companies are considered to be in the industry of their parents
if their activities are primarily related to financing the
activities of their parents).
In addition, as a matter of fundamental policy, Capital Growth Fund
may not:
(1) purchase or sell real estate (except that the Fund may invest in
(i) securities of companies which deal in real estate or
mortgages, and (ii) securities secured by real estate or
interests therein, and 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); and
(2) purchase or sell physical commodities or contracts relating to
physical commodities.
In addition, as a matter of fundamental policy, Value Fund may not:
(1) purchase or sell real estate (except that the Fund may invest in
(i) securities of companies which deal in real estate or
mortgages, and (ii) securities secured by real estate or
interests therein, and 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); or purchase or sell physical
commodities or contracts relating to physical commodities.
Other Investment Policies.
The Trustees of the Trust have voluntarily adopted certain policies
and restrictions which are observed in the conduct of each Fund's affairs.
These represent intentions of the Trustees based upon current
circumstances. They differ from fundamental investment policies in that
they may be changed or amended by action of the Trustees without requiring
prior notice to or approval of shareholders.
As a matter of nonfundamental policy, each Fund may not:
(a) purchase or retain securities of any open-end investment company,
or securities of closed-end investment companies except by
purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchases, or except when
such purchase, though not made in the open market, is part of a
plan of merger, consolidation, reorganization or acquisition of
assets; in any event the Fund may not purchase more than 3% of
the outstanding voting securities of another investment company,
may not invest more than 5% of its assets in another investment
company, and may not invest more than 10% of its assets in other
investment companies;
(b) pledge, mortgage or hypothecate its assets in excess, together
with permitted borrowings, of 1/3 of its total assets;
(c) purchase or retain securities of an issuer any of whose officers,
directors, trustees or security holders is an officer, director
or trustee of the Fund or a member, officer, director or trustee
of the investment adviser of the Fund if one or more of such
individuals owns beneficially more than one-half of one percent
(1/2%) of the outstanding shares or securities or both (taken at
market value) of such issuer and such individuals owning more
than one-half of one percent (1/2%) of such shares or securities
together own beneficially more than 5% of such shares or
securities or both;
(d) purchase securities on margin or make short sales, unless, by
virtue of its ownership of other securities, it has the right to
obtain securities equivalent in kind and amount to the securities
sold and, if the right is conditional, the sale is made upon the
same conditions, except in connection with arbitrage
transactions, and except that the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and
sales of securities;
(e) invest more than 10% of its net assets in securities which are
not readily marketable, the disposition of which is restricted
under federal securities laws, or in repurchase agreements not
terminable within seven days, and the Fund will not invest more
than 5% of its total assets in restricted securities; Capital
Growth Fund has no current intention of investing more than 5% of
its assets in repurchase agreements;
(f) purchase securities of any issuer with a record of less than
three years continuous operations, including predecessors, except
U.S. Government securities, securities of such issuers which are
rated by at least one nationally recognized statistical rating
organization, municipal obligations and obligations issued or
guaranteed by any foreign government or its agencies or
instrumentalities, if such purchase would cause the investments
of the Fund in all such issuers to exceed 5% of the total assets
of the Fund taken at market value;
(g) buy options on securities or financial instruments, unless the
aggregate premiums paid on all such options held by the Fund at
any time do not exceed 20% of its net assets; or sell put options
on securities if, as a result, the aggregate value of the
obligations underlying such put options would exceed 50% of the
Fund's net assets;
(h) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate
initial margin with respect to all futures contracts entered into
on behalf of the Fund and the premiums paid for 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;
(i) invest in oil, gas or other mineral leases, or exploration or
development programs (although it may invest in issuers which own
or invest in such interests);
(j) borrow money, including reverse repurchase agreements, in excess
of 5% of its total assets (taken at market value) except for
temporary or emergency purposes or borrow other than from banks;
(k) purchase warrants if as a result warrants taken at the lower of
cost or market value would represent more than 5% of the value of
the Fund's total net assets or more than 2% of its net assets in
warrants that are not listed on the New York or American Stock
Exchanges or on an exchange with comparable listing requirements
(for this purpose, warrants attached to securities will be deemed
to have no value);
(l) purchase or sell real estate limited partnership interests; or
(m) make securities loans if the value of such securities loaned
exceeds 30% of the value of the Fund's total assets at the time
any loan is made; all loans of portfolio securities will be fully
collateralized and marked to market daily. Each Fund has no
current intention of making loans of portfolio securities that
would amount to greater than 5% of its total assets.
In addition, as a matter of nonfundamental policy, Capital Growth Fund
may not:
(1) invest more than 20% of its net assets in debt securities
(including convertible securities), and not more than 10% of its
net assets in those rated B or lower by Moody's or S&P and may
invest in securities rated D by S&P.
If a percentage restriction on investment or utilization of assets as
set forth under "Investment Restrictions" and "Other Investment Policies"
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value or the total cost of a
Fund's assets will not be considered a violation of the restriction.
In addition, other nonfundamental policies may be established from
time to time by the Funds' Trustees and would not require the approval of
shareholders.
PURCHASES
(See "Purchases" and "Transaction information" in the Funds' prospectuses.)
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 $1,000 of Fund shares through Scudder Investor Services, Inc.
(the "Distributor") by letter, fax, or telephone.
Shareholders of other Scudder funds who have submitted an account
application and have certified a tax identification number, clients having
a regular investment counsel account with the Adviser or its affiliates and
members of their immediate families, officers and employees of the Adviser
or of any affiliated organization and their immediate families, members of
the NASD and banks may open an account by wire. These investors must call
1-800-225-5163 to get an account number. During the call, the investor
will be asked to indicate the Fund name, amount to be wired ($1,000
minimum), name of bank or trust company from which the wire will be sent,
the exact registration of the new account, the tax identification or Social
Security number, address and telephone number. The investor must then call
the bank to arrange a wire transfer to The Scudder Funds, 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 may be less than $1,000 under
certain special plan accounts.
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 members of the NASD, by banks, and by
established shareholders (except by Scudder Individual Retirement Account
(IRA), Scudder Profit- Sharing and Money Purchase Pension Plans, Scudder
401(k) and Scudder 403(b) plan holders). Orders placed in this manner may
be directed to any office of the Distributor listed in the Fund's
prospectus. A two-part invoice of the purchase will be mailed out promptly
following receipt of a request to buy. Payment should be attached to a
copy of the invoice for proper identification. Federal regulations require
that payment be received within seven business days. If payment is not
received within that time, the shares may be canceled. In the event of
such cancellation or cancellation at the purchaser's request, the purchaser
will be responsible for any loss incurred by 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 that Fund.
Checks
A certified check is not necessary, but checks are 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 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 a Fund 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 a Fund
or the principal underwriter for the loss incurred. Investors whose orders
have been canceled may be prohibited from or restricted in placing future
orders in any of the Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange (normally 4 p.m. eastern time) 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 4
p.m.
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently Scudder Investor Services, Inc. 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: Martin Luther King, Jr. Day (the 3rd
Monday in January), 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 a 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 be executed at the next
business day's net asset value. If the order has been placed by a member
of the NASD, other than Scudder Investor Services, Inc., it is the
responsibility of that member broker, rather than the Fund, to forward the
purchase order to the Fund's transfer agent in Boston by the close of
regular trading on the Exchange.
Share Certificates
Due to the desire of Trust management to afford ease of redemption,
certificates will not be issued to indicate ownership in the Funds. With
respect to Capital Growth Fund, share certificates now in a shareholder's
possession may be sent to the Trust's transfer agent, Scudder Service
Corporation (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. See
"Purchases" and "Exchanges and redemptions" in Capital Growth Fund's
prospectus.
Other Information
If purchases or redemptions of the Funds' shares are arranged and
settlement is made at the investor's election through a member of the NASD,
other than Scudder Investor Services, Inc., that member may, at its
discretion, charge a fee for that service. The Trustees and Scudder
Investor Services, Inc., the Trust'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 Scudder Investor Services, Inc. each may suspend
or terminate the offering of shares of either Fund at any time.
The Tax Identification Number section of the Funds' application must
be completed when opening an account. Applications and purchase orders
without a certified tax identification number and certain other certified
information (e.g., from exempt investors, certification of exempt status)
may be returned to the investor if a certified tax identification number
and certain other required certificates are not supplied.
The Trust may issue shares of either Fund 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
(See "Exchanges and redemptions" and "Transaction information" in the
Funds' prospectuses.)
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 $1,000. When an exchange represents
an additional investment into an existing account, the account receiving
the exchange proceeds must have identical registration, address, and
account options/features as the account of origin. Exchanges into an
existing account must be for $100 or more. If the account receiving the
exchange proceeds is to be different in any respect, the exchange request
must be in writing and must contain an original signature guarantee as
described under "Transaction Information--Signature guarantees" in the
Funds' prospectuses.
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 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 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. 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 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 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 Scudder Investor Services, Inc. a
prospectus of the Scudder fund into which the exchange is being
contemplated.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Redemption by Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $50,000 and have the proceeds
mailed to their address of record. Shareholders may request to have the
proceeds mailed or wired to their pre-designated 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 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.
Telephone redemption is not available with respect to shares
represented by share certificates for the Capital Growth Fund or shares
held in certain retirement accounts for both Funds.
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.
Each Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the
extent that a Fund does not follow such procedures, it may be liable for
losses due to unauthorized or fraudulent telephone instructions. A Fund
will not be liable for acting upon instructions communicated by telephone
that it reasonably believes to be genuine.
Redemption requests by telephone (technically a repurchase by
agreement between 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 Mail or Fax
Any existing share certificates for the Capital Growth Fund
representing shares being redeemed must accompany a request for redemption
and be duly endorsed or accompanied by a proper stock assignment form with
signature guaranteed as explained in that Fund's prospectus.
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not limited
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 certificated shares or
shares registered in other than individual names contact the Transfer Agent
prior to 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 of more than seven days of payment for shares
tendered for repurchase or redemption may result but only until the
purchase check has cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information call 1-800-225-5163.
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 a Fund and valued as they are for purposes of
computing a Fund's net asset value (a redemption-in-kind). If payment is
made in securities, a shareholder may incur transaction expenses in
converting these securities into cash. The Trust has elected, however, to
be governed by Rule 18f-1 under the 1940 Act as a result of which a 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 that 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 redemption
requests to the Trust 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 request. A written request in good order as described above
and any certificates with a proper original signature guarantee(s), as
described in the Funds' prospectuses under "Transaction information--
Signature guarantees", should be sent with a copy of the invoice to Scudder
Service Corporation, Confirmed Processing Department, Two International
Place, Boston, Massachusetts 02110-4103. Failure to deliver shares or
required documents (see above) by the settlement date may result in
cancellation of the trade and the shareholder will be responsible for any
loss incurred by a Fund or the principal underwriter by reason of such
cancellation. The Trust shall have the authority, as agent of the
shareholder, to redeem shares in the account to reimburse a Fund or the
principal underwriter for the loss incurred. 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 a
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 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. The Funds do not impose a redemption or
repurchase charge, although a wire charge may be applicable for redemption
proceeds wired to an investor's bank account. Redemption 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 Trust's Declaration of Trust provides that the determination of
net asset value may be suspended and a shareholder's right to redeem shares
and to receive payments 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, (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 Trust may, by order, permit such a suspension for the
protection of the Fund'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.
If transactions at any time reduce a shareholder's account balance in
the Fund to below $1,000 in value, the Trust may notify the shareholder
that, unless the account balance is brought up to at least $1,000, the
Trust will redeem all shares in the Fund and close the account by making
payment to the shareholder. The shareholder has sixty days to bring the
account balance up to $1,000 before any action will be taken by the Trust.
No transfer from an existing account to a new Scudder fund account should
be for less than $1,000; otherwise the new account may be redeemed as
described above. (This policy applies to accounts of new shareholders but
does not apply to certain Special Plan Accounts.) The Trustees have the
authority to change the minimum account size.
FEATURES AND SERVICES OFFERED BY THE FUNDS
(See "Shareholder benefits" in the Funds' prospectuses.)
The Pure No-Load(tm) Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its 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
NASD Rules of Fair Practice, a mutual fund can call itself a "no-load" fund
only if the 12b-1 fee and/or service fee does not exceed 0.25% of a fund's
average annual net assets.
Because Scudder funds do not pay any asset-based sales charges or
service fees, Scudder developed and trademarked the phrase pure no-load(tm)
to distinguish Scudder funds from other no-load mutual funds. Scudder
pioneered the no-load concept when it created the nation's first no-load
fund in 1928, and later developed the nation's first family of no-load
mutual funds.
The following chart shows the potential long-term advantage of
investing $10,000 in a Scudder pure no-load fund over investing the same
amount in a load fund that collects an 8.50% front-end load, a load fund
that collects only a 0.75% 12b-1 and/or service fee, and a no-load fund
charging only a 0.25% 12b-1 and/or service fee. The hypothetical figures
in the chart show the value of an account assuming a constant 10% rate of
return over the time periods indicated and reinvestment of dividends and
distributions.
<TABLE>
<CAPTION>
Scudder Load Fund No-Load Fund
Pure No- 8.50% Load with 0.75% with 0.25%
YEARS Load(tm) Fund Fund 12b-1 Fee 12b-1 Fee
----- ------------- ---- --------- ---------
<S> <C> <C> <C> <C>
10 $25,937 $23,733 $24,222 $25,354
15 41,772 38,222 37,698 40,371
20 67,275 61,557 58,672 64,282
</TABLE>
Investors are encouraged to review the fee tables on page 2 of each
Fund's prospectus for more specific information about the rates at which
management fees and other expenses are assessed.
Distribution Plans
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. See "How to contact
Scudder" in the prospectus for the address. Please include your account
number with your written request.
Reinvestment is usually made on the 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 to 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.
Diversification
Your investment in each Fund represents an interest in a large,
diversified portfolio of carefully selected securities. Diversification
may protect you against the possible risks associated with concentrating in
fewer securities.
Scudder Funds Centers
Investors may visit any of the Fund Centers maintained by Scudder
Investor Services, Inc. listed in the Funds' prospectuses. The Centers are
designed to provide individuals with services during any business day.
Investors may pick up literature or obtain assistance with opening an
account, adding monies or special options to existing accounts, making
exchanges within the Scudder Family of Funds, redeeming shares or opening
retirement plans. Checks should not be mailed to the Centers but should be
mailed to "The Scudder Funds" at the address listed under "How to contact
Scudder" in the prospectuses.
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
(See "Investment products and services" in the Funds' prospectuses.)
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds. To assist
investors in choosing a Scudder fund, descriptions of the Scudder funds'
objectives follow. Initial purchases in each Scudder fund must be at least
$1,000 or $500 in the case of IRAs. Subsequent purchases must be for $100
or more. Minimum investments for special plan accounts may be lower.
MONEY MARKET
Scudder Cash Investment Trust ("SCIT") seeks to maintain the stability
of capital, and consistent therewith, to maintain the liquidity of
capital and to provide current income through investment in a
supervised portfolio of short-term debt securities. SCIT intends to
seek to maintain a constant net asset value of $1.00 per share,
although in certain circumstances this may not be possible.
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity
and stability of capital and consistent therewith to provide current
income through investment in a supervised portfolio of U.S. Government
and U.S. Government guaranteed obligations with maturities of not more
than 762 calendar days. The Fund intends to seek to maintain a
constant net asset value of $1.00 per share, although in certain
circumstances this may not be possible.
INCOME
Scudder Emerging Markets Income Fund seeks to provide high current
income and, secondarily, long-term capital appreciation through
investments primarily in high-yielding debt securities issued in
emerging markets.
Scudder GNMA Fund seeks to provide investors with high current income
from a portfolio of high-quality GNMA securities.
Scudder Income Fund seeks to earn a high level of income consistent
with the prudent investment of capital through a flexible investment
program emphasizing high-grade bonds.
Scudder International Bond Fund seeks to provide income from a
portfolio of high-grade bonds denominated in foreign currencies. As a
secondary objective, the Fund seeks protection and possible
enhancement of principal value by actively managing currency, bond
market and maturity exposure and by security selection.
Scudder Short Term Bond Fund seeks to provide a higher and more stable
level of income than is normally provided by money market investments,
and more price stability than investments in intermediate- and
long-term bonds.
Scudder Short Term Global Income Fund seeks to provide high current
income from a portfolio of high-grade money market instruments and
short-term bonds denominated in foreign currencies and the U.S.
dollar.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with the minimization
of reinvestment risks through investments primarily in zero coupon
securities.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") is designed to provide investors
with income exempt from regular federal income tax while seeking
stability of principal. STFMF seeks to maintain a constant net asset
value of $1.00 per share, although in certain circumstances this may
not be possible.
Scudder California Tax Free Money Fund* is designed to provide
California taxpayers income exempt from California state and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.
Scudder New York Tax Free Money Fund* is designed to provide New York
taxpayers income exempt from New York state, New York City and regular
federal income taxes, and seeks stability of capital and the
maintenance of a constant net asset value of $1.00 per share, although
in certain circumstances this may not be possible.
TAX FREE
Scudder High Yield Tax Free Fund seeks to provide high income which is
exempt from regular federal income tax by investing in
investment-grade municipal securities.
Scudder Limited Term Tax Free Fund seeks to provide as high a level of
income exempt from regular federal income tax as is consistent with a
high degree of principal stability.
Scudder Managed Municipal Bonds seeks to provide income which is
exempt from regular federal income tax primarily through investments
in long-term municipal securities with an emphasis on high quality.
Scudder Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation by investing in high-grade municipal securities of
intermediate maturities.
Scudder California Tax Free Fund* seeks to provide income exempt from
both California and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
California state, municipal and local government obligations.
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide as
high a level of income exempt from Massachusetts personal and regular
federal income tax as is consistent with a high degree of principal
stability.
Scudder Massachusetts Tax Free Fund* seeks to provide income exempt
from both Massachusetts and regular federal income taxes through the
professional and efficient management of a portfolio consisting of
Massachusetts state, municipal and local government obligations.
Scudder New York Tax Free Fund* seeks to provide income exempt from
New York state, New York City and regular federal income taxes through
the professional and efficient management of a portfolio consisting of
investments in New York state, municipal and local government
obligations.
Scudder Ohio Tax Free Fund* seeks to provide income exempt from both
Ohio and regular federal income taxes through the professional and
efficient management of a portfolio consisting of Ohio state,
municipal and local government obligations.
Scudder Pennsylvania Tax Free Fund* seeks to provide income exempt
from both Pennsylvania and regular federal income taxes through a
portfolio consisting of Pennsylvania state, municipal and local
government obligations.
GROWTH AND INCOME
Scudder Balanced Fund seeks to provide a balance of growth and income,
as well as long-term preservation of capital, from a diversified
portfolio of equity and fixed income securities.
Scudder Growth and Income Fund seeks to provide long-term growth of
capital, current income, and growth of income through a portfolio
invested primarily in common stocks and convertible securities by
companies which offer the prospect of growth of earnings while paying
current dividends.
GROWTH
Scudder Capital Growth Fund seeks to maximize long-term growth of
capital through a broad and flexible investment program emphasizing
common stocks.
Scudder Development Fund seeks to achieve long-term growth of capital
primarily through investments in marketable securities, principally
common stocks, of relatively small or little-known companies which in
the opinion of management have promise of expanding their size and
profitability or of gaining increased market recognition for their
securities, or both.
Scudder Global Fund seeks long-term growth of capital primarily
through a diversified portfolio of marketable equity securities
selected on a worldwide basis. It may also invest in debt securities
of U.S. and foreign issuers. Income is an incidental consideration.
Scudder Global Small Company Fund seeks above-average capital
appreciation over the long term by investing primarily in the equity
securities of small companies located throughout the world.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder International Fund seeks long-term growth of capital through
investment principally in a diversified portfolio of marketable equity
securities selected primarily to permit participation in non-U.S.
companies and economies with prospects for growth. It also invests in
fixed-income securities of foreign governments and companies, with a
view toward total investment return.
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
Scudder Quality Growth Fund seeks to provide long-term growth of
capital through investment primarily in the equity securities of
seasoned, financially strong U.S. growth companies.
Scudder Value Fund seeks long-term growth of capital through
investment in undervalued equity securities.
The Japan Fund, Inc. seeks capital appreciation through investment in
Japanese securities, primarily in common stocks of Japanese companies.
* These funds are not available for sale in all states. For
information, contact Scudder Investor Services, Inc.
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.
The Scudder Family of Funds offers many conveniences and services,
including: active professional investment management; broad and
diversified investment portfolios; pure no-load funds with no commissions
to purchase or redeem shares or Rule 12b-1 distribution fees; individual
attention from a Scudder Service Representative; easy telephone exchanges
into Scudder money market, tax free, income, and growth funds; shares
redeemable at net asset value at any time.
SPECIAL PLAN ACCOUNTS
(See "Scudder tax-advantaged retirement plans," "Purchases--By Automatic
Investment Plan" and "Exchanges and redemptions--By Automatic Withdrawal
Plan" in the Funds' prospectuses.)
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be
obtained by contacting Scudder Investor Services, Inc., Two International
Place, Boston, Massachusetts 02110-4103 or by calling toll free, 1-
800-225-2470. It is advisable for an investor considering the funding of
the investment plans described below to consult with an attorney or other
investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
Shares of each Fund may also be a permitted investment under profit
sharing and pension plans and IRA's 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 each 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 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 Code.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of each 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 each Fund may be purchased as the underlying investment for
an Individual Retirement Account which meets the requirements of Section
408(a) of the 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 $2,250 for married couples if one spouse has earned income
of no more than $250). 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.
The table below shows how much individuals would accumulate in a fully
tax-deductible IRA by age 65 (before any distributions) if they contribute
$2,000 at the beginning of each year, assuming average annual returns of 5,
10, and 15%. (At withdrawal, accumulations in this table will be taxable.)
<TABLE>
<CAPTION>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
Starting
Age of Annual Rate
of Return
Contributions 5% 10% 15%
- ------------- ---- ---- ----
<S> <C> <C> <C>
25 $253,680 $973,704 $4,091,908
35 139,522 361,887 999,914
45 69,439 126,005 235,620
55 26,414 35,062 46,699
</TABLE>
This next table shows how much individuals would accumulate in non-IRA
accounts by age 65 if they start with $2,000 in pretax earned income at the
beginning of each year (which is $1,380 after taxes are paid), assuming
average annual returns of 5, 10 and 15%. (At withdrawal, a portion of the
accumulation in this table will be taxable.)
<TABLE>
<CAPTION>
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
Starting
Age of Annual Rate
of Return
Contributions 5% 10% 15%
- ------------- ---- ---- ----
<S> <C> <C> <C>
25 $119,318 $287,021 $741,431
35 73,094 136,868 267,697
45 40,166 59,821 90,764
55 16,709 20,286 24,681
</TABLE>
Scudder 403(b) Plan
Shares of each Fund may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7)
of the Code. In general, employees of tax-exempt organizations described
in Section 501(c)(3) of the 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 who currently own or purchase $10,000
or more of shares of a Fund may establish an Automatic Withdrawal Plan.
The investor can then receive monthly, quarterly or periodic redemptions
from his or her account for any designated amount of $50 or more. Payments
are mailed at the end of each month. 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. Requests for
increases in withdrawal amounts or to change payee must be submitted in
writing, signed exactly as the account is registered and contain signature
guarantee(s) as described under "Transaction information--Redeeming shares-
- -Signature guarantees" in each Fund's prospectus. Any such requests must
be received by the Funds' transfer agent by the 15th of the month in which
such change is to take effect. 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 a 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. 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 Trust Company
Annual service fees are paid by each Fund to Scudder Trust Company, an
affiliate of the Adviser, for certain retirement plan accounts and are
included in the fees paid to the Transfer Agent.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "Distribution and performance information--Dividends and
capital gains distributions" in the Funds' prospectuses.)
Each 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. A Fund may follow the practice of distributing the entire excess
of net realized long-term capital gains over net realized short-term
capital losses. If it appears to be in the best interest of a Fund and its
shareholders, a Fund may retain all or part of such gain for reinvestment
after paying the related federal income taxes which shareholders may then
claim as a credit on their returns. (See "TAXES.") If a Fund does not
distribute the amount of capital gain and/or ordinary income required to be
distributed by an excise tax provision of the Code, a Fund may be subject
to that excise tax. (See "TAXES.") In certain circumstances, a Fund may
determine that it is in the interest of shareholders to distribute less
than the required amount.
The Funds intend to declare in December any net realized capital gains
resulting from its investment activity and any dividend from investment
company taxable income. The Funds intend to distribute the December
dividends and capital gains either in December or in the following January.
Any dividends or capital gains distributions declared in October, November,
or December with a record date in that month and paid during the following
January will be treated by shareholders for federal income tax purposes as
if received on December 31 of the calendar year declared. If a shareholder
has elected to reinvest any dividends and/or other distributions, such
distributions will be made in shares of that Fund and confirmations will be
mailed to each shareholder. If a shareholder has chosen to receive cash, a
check will be sent.
PERFORMANCE INFORMATION
(See "Distribution and performance information--Performance information" in
the Funds' prospectuses.)
From time to time, quotations of the Funds' performance may be
included in advertisements, sales literature or reports to shareholders or
prospective investors. These performance figures are 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, five years and ten years (or such
shorter periods as may be applicable dating from the commencement of a
Fund's operations), all ended on the last day of a recent calendar quarter.
Average annual total return quotations reflect changes in the price of the
Funds' 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 computing 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 investment of $1,000
n = number of years
ERV = ending redeemable value: ERV is the value,
at the end of the applicable period, of a
hypothetical $1,000 investment made at the
beginning of the applicable period.
Average Annual Total Return for the periods ended September 30, 1994
<TABLE>
<CAPTION>
One year Five years Ten years
-------- ----------- ----------
<S> <C> <C> <C>
Capital Growth Fund -4.72% 6.30% 14.64%
</TABLE>
<TABLE>
<CAPTION>
One year Life of Fund (1)
-------- ----------------
<S> <C> <C>
Value Fund 1.88%* 7.56%*
(1) For the period beginning December 31, 1992 (commencement of
operations).
* The Adviser maintained Fund expenses for the period December 31, 1992
through September 30, 1993 and for the fiscal year ended September 30,
1994. The Average Annual Total Return for one year and for the life
of the Fund, had the Adviser not maintained Fund expenses, would have
been approximately 1.57% and 7.08%, respectively.
</TABLE>
As described above, average annual total return is based on historical
earnings and is not intended to indicate future performance. Average
annual total return for a Fund will vary based on changes in market
conditions and the level of a Fund's expenses.
In connection with communicating its average annual total return to
current or prospective shareholders, the Fund also may compare these
figures to the performance of other mutual funds tracked by mutual fund
rating services or to unmanaged indices which may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
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
Funds' shares and assume that all dividends and capital gains distributions
during the period were reinvested in Fund shares. Cumulative total return
is calculated by computing 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 September 30, 1994
<TABLE>
<CAPTION>
One year Five years Ten years
-------- ----------- ----------
<S> <C> <C> <C>
Capital Growth Fund -4.72% 35.76% 291.90%
</TABLE>
<TABLE>
<CAPTION>
One year Life of Fund (1)
-------- ----------------
<S> <C> <C>
Value Fund 1.88%* 13.60%*
(1) For the period beginning December 31, 1992 (commencement of
operations).
* The Adviser
maintained Fund expenses for the period December 31, 1992 through
September 30, 1993 and for the fiscal year ended September 30, 1994.
The Cumulative Total Return for one year and for the life of the Fund,
had the Adviser not maintained Fund expenses, would have been
approximately 1.57% and 12.72%, respectively.
</TABLE>
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.
Capital Change
Capital change measures the return from invested capital including
reinvested capital gains distributions. Capital change does not include
the reinvestment of income dividends.
From time to time, in advertisements, sales literature, and reports to
shareholders or prospective investors, figures relating to the growth in
the total net assets of a Fund apart from capital appreciation will be
cited, as an update to the information in this section, including, but not
limited to: net cash flow, net subscriptions, gross subscriptions, net
asset growth, net account growth, and subscription rates. Capital
appreciation generally will be covered by marketing literature as part of
the Funds' performance data.
These figures can be described in the following manner:
Net cash flow is gross subscriptions minus gross redemptions for a
particular time period. Net cash flow is a negative number when
redemptions exceed subscriptions.
Net subscriptions is any positive net cash flow.
Gross subscriptions are the sum of all the individual subscriptions
over a specified period of time. It should be noted that subscriptions
include distributions reinvested at the shareholders' request.
In the period from September 30, 1993, to September 30, 1994, Capital
Growth Fund went from 88,911 accounts to 93,315 accounts and Value Fund
went from 3,250 accounts to 3,926 accounts. During the same period, net
assets for Capital Growth Fund went from $1.387 billion to $1.338 billion
and from $28.511 million to $35.099 million for Value Fund. In this
period, gross subscriptions for the Capital Growth Fund and Value Fund were
$406.2 and $17.6, respectively.
Net asset growth is any positive outcome of the following: gross
subscriptions less gross redemptions plus any capital change due to the
fluctuating prices of the securities in a Fund. Basically, therefore, it
is net cash flow plus any capital change where the outcome of that
summation is positive. The formula is:
Net Asset Growth = Gross Subscriptions - Gross Redemptions + Capital
Change
Net account growth is the total number of accounts in a Fund at one
point in time minus the total number of accounts at an earlier point in
time where the outcome of the calculation is positive. This is a quick way
of describing what is in fact a more complicated process of adding new
accounts even as some old accounts are closing. If new accounts open
faster than old accounts close, there is net account growth. This growth
can also be expressed as a percentage.
The net subscription rate is described as a matter of those new net
assets not due to capital change. Specifically, the net subscription rate
is the net cash flow divided by the average asset size of a Fund for the
period in question, expressed as a percentage.
The gross subscription rate can also be similarly described. In fact,
the formula would follow the pattern for the net subscription rate, but
uses a gross figure instead of a net figure. Gross subscriptions would be
substituted for net cash flow in a simple variation on the same basic idea.
Comparison of Fund Performance
A comparison of the quoted non-standard performance offered for
various investments is valid only if performance is calculated in the same
manner. Since there are different methods of calculating performance,
investors should consider the effects of the methods used to calculate
performance when comparing performance of a Fund with performance quoted
with respect to other investment companies or types of investments.
In connection with communicating its performance to current or
prospective shareholders, a Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends
or interest but generally do not reflect deductions for administrative and
management costs. Examples include, but are not limited to the Dow Jones
Industrial Average, the Consumer Price Index, Standard & Poor's 500
Composite Stock Price Index (S&P 500), the NASDAQ OTC Composite Index, the
NASDAQ Industrials Index, the Russell 2000 Index, and statistics published
by the Small Business Administration.
From time to time, in advertising and marketing literature, a Fund's
performance may be compared to the performance of broad groups of mutual
funds with similar investment goals, as tracked by independent
organizations such as, Investment Company Data, Inc. ("ICD"), Lipper
Analytical Services, Inc. ("Lipper"), CDA Investment Technologies, Inc.
("CDA"), Morningstar, Inc., Value Line Mutual Fund Survey and other
independent organizations. When these organizations' tracking results are
used, a Fund will be compared to the appropriate fund category, that is, by
fund objective and portfolio holdings, or to the appropriate volatility
grouping, where volatility is a measure of a fund's risk. For instance, a
Scudder growth fund will be compared to funds in the growth fund category;
a Scudder income fund will be compared to funds in the income fund
category; and so on. Scudder funds (except for money market funds) may
also be compared to funds with similar volatility, as measured
statistically by independent organizations.
From time to time, in marketing and other Fund literature, Trustees
and officers of the Funds, the Funds' portfolio manager, or members of the
portfolio management team may be depicted and quoted to give prospective
and current shareholders a better sense of the outlook and approach of
those who manage the Funds. In addition, the amount of assets that the
Adviser has under management in various geographical areas may be quoted in
advertising and marketing materials.
The Funds may be advertised as an investment choice in Scudder's
college planning program. The description may contain illustrations of
projected future college costs based on assumed rates of inflation and
examples of hypothetical fund performance, calculated as described above.
Statistical and other information, as provided by the Social Security
Administration, may be used in marketing materials pertaining to retirement
planning in order to estimate future payouts of social security benefits.
Estimates may be used on demographic and economic data.
Marketing and other Fund literature may include a description of the
potential risks and rewards associated with an investment in the Funds.
The description may include a "risk/return spectrum" which compares the
Funds to other Scudder funds or broad categories of funds, such as money
market, bond or equity funds, in terms of potential risks and returns.
Money market funds are designed to maintain a constant $1.00 share price
and have a fluctuating yield. Share price, yield and total return of a
bond fund will fluctuate. The share price and return of an equity fund
also will fluctuate. The description may also compare the Funds to bank
products, such as certificates of deposit. Unlike mutual funds,
certificates of deposit are insured up to $100,000 by the U.S. Government
and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity
funds, which may involve the loss of principal. However, all long-term
investments, including investments in bank products, may be subject to
inflation risk, which is the risk of erosion of the value of an investment
as prices increase over a long time period. The risks/returns associated
with an investment in bond or equity funds depend upon many factors. For
bond funds these factors include, but are not limited to, a fund's overall
investment objective, the average portfolio maturity, credit quality of the
securities held, and interest rate movements. For equity funds, factors
include a fund's overall investment objective, the types of equity
securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in
international bond or equity funds also will depend upon currency exchange
rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond
funds and equity funds. Shorter-term bond funds generally are considered
less risky and offer the potential for less return than longer-term bond
funds. The same is true of domestic bond funds relative to international
bond funds, and bond funds that purchase higher quality securities relative
to bond funds that purchase lower quality securities. Growth and income
equity funds are generally considered to be less risky and offer the
potential for less return than growth funds. In addition, international
equity funds usually are considered more risky than domestic equity funds
but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both
domestic and foreign securities or a combination of bond and equity
securities.
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Funds, including reprints of, or selections from, editorials
or articles about these Funds. Sources for Fund performance information
and articles about the Funds may include the following:
American Association of Individual Investors' Journal, a monthly
publication of the AAII that includes articles on investment analysis
techniques.
Asian Wall Street Journal, a weekly Asian newspaper that often reviews U.S.
mutual funds investing internationally.
Banxquote, an on-line source of national averages for leading money market
and bank CD interest rates, published on a weekly basis by Masterfund, Inc.
of Wilmington, Delaware.
Barron's, a Dow Jones and Company, Inc. business and financial weekly that
periodically reviews mutual fund performance data.
Business Week, a national business weekly that periodically reports the
performance rankings and ratings of a variety of mutual funds investing
abroad.
CDA Investment Technologies, Inc., an organization which provides
performance and ranking information through examining the dollar results of
hypothetical mutual fund investments and comparing these results against
appropriate market indices.
Consumer Digest, a monthly business/financial magazine that includes a
"Money Watch" section featuring financial news.
Financial Times, Europe's business newspaper, which features from time to
time articles on international or country-specific funds.
Financial World, a general business/financial magazine that includes a
"Market Watch" department reporting on activities in the mutual fund
industry.
Forbes, a national business publication that from time to time reports the
performance of specific investment companies in the mutual fund industry.
Fortune, a national business publication that periodically rates the
performance of a variety of mutual funds.
The Frank Russell Company, a West-Coast investment management firm that
periodically evaluates international stock markets and compares foreign
equity market performance to U.S. stock market performance.
Global Investor, a European publication that periodically reviews the
performance of U.S. mutual funds investing internationally.
IBC/Donoghue's Money Fund Report, a weekly publication of the Donoghue
Organization, Inc., of Holliston, Massachusetts, reporting on the
performance of the nation's money market funds, summarizing money market
fund activity and including certain averages as performance benchmarks,
specifically "Donoghue's Money Fund Average," and "Donoghue's Government
Money Fund Average."
Ibbotson Associates, Inc., a company specializing in investment research
and data.
Investment Company Data, Inc., an independent organization which provides
performance ranking information for broad classes of mutual funds.
Investor's Daily, a daily newspaper that features financial, economic, and
business news.
Kiplinger's Personal Finance Magazine, a monthly investment advisory
publication that periodically features the performance of a variety of
securities.
Lipper Analytical Services, Inc.'s Mutual Fund Performance Analysis, a
weekly publication of industry-wide mutual fund averages by type of fund.
Money, a monthly magazine that from time to time features both specific
funds and the mutual fund industry as a whole.
Morgan Stanley International, an integrated investment banking firm that
compiles statistical information.
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly
covers financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon
Jacobs, that includes mutual fund performance data and recommendations for
the mutual fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company,
Inc., that reports on mutual fund performance, rates funds and discusses
investment strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes
a "Mutual Funds Outlook" section reporting on mutual fund performance
measures, yields, indices and portfolio holdings.
Smart Money, a national personal finance magazine published monthly by Dow
Jones and Company, Inc. and The Hearst Corporation. Focus is placed on
ideas for investing, spending and saving.
Success, a monthly magazine targeted to the world of entrepreneurs and
growing business, often featuring mutual fund performance data.
United Mutual Fund Selector, a semi-monthly investment newsletter,
published by Babson United Investment Advisors, that includes mutual fund
performance data and reviews of mutual fund portfolios and investment
strategies.
USA Today, a leading national daily newspaper.
U.S. News and World Report, a national business weekly that periodically
reports mutual fund performance data.
Wall Street Journal, a Dow Jones and Company, Inc. newspaper which
regularly covers financial news.
Wiesenberger Investment Companies Services, an annual compendium of
information about mutual funds and other investment companies, including
comparative data on funds' backgrounds, management policies, salient
features, management results, income and dividend records and price ranges.
Working Woman, a monthly publication that features a "Financial Workshop"
section reporting on the mutual fund/financial industry.
Worth, a national publication put out 10 times per year by Capital
Publishing Company, a subsidiary of Fidelity Investments. Focus is placed
on personal financial journalism.
ORGANIZATION OF THE FUNDS
(See "Fund organization" in the Funds' prospectuses.)
The Funds are separate series of Scudder Equity Trust. Scudder Equity
Trust, formerly Scudder Capital Growth Fund, is a Massachusetts business
trust established under a Declaration of Trust dated October 16, 1985, as
amended. The Trust's authorized capital consists of an unlimited number of
shares of beneficial interest, par value $0.01 per share. The Trustees
have the authority to issue additional series of shares. If more than one
series of shares were issued and a series were unable to meet its
obligations, the remaining series might have to assume the unsatisfied
obligations of that series. All shares of Scudder Capital Growth Fund and
Scudder Value Fund are of one class and have equal rights as to voting,
dividends and liquidation. All shares issued and outstanding will be fully
paid and nonassessable by the Trust, and redeemable as described in this
Statement of Additional Information and in the Funds' prospectuses.
The Trustees, in their discretion, may authorize the division of
shares of a 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 (which
under present regulations would require a Fund first to obtain an exemptive
order of the SEC), nor of changing the method of distribution of shares of
a Fund.
Currently, the assets of Scudder Equity 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 Scudder
Equity 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 Scudder Equity 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 Scudder Equity Trust, 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.
The Trust's predecessor was organized in 1966 as a Delaware
corporation under the name "Scudder Duo-Vest Inc." as a closed-end,
diversified dual-purpose investment company. Effective April 1, 1982, its
original dual-purpose nature was terminated and it became an open-end
investment company with only one class of shares outstanding. At a Special
Meeting of Shareholders held May 18, 1982, the shareholders voted to amend
the investment objective to seek to maximize long-term growth of capital
and to change the name of the corporation to "Scudder Capital Growth Fund,
Inc." ("SCGF, Inc."). The fiscal year end of SCGF, Inc. was changed from
March 31 to September 30 by action of its Directors on May 18, 1982.
Effective as of September 30, 1982, Scudder Special Fund, Inc. was merged
into SCGF, Inc. In October 1985, the Fund's form of organization was
changed to a Massachusetts business trust upon approval of the
shareholders.
Shares of Scudder Equity Trust entitle their holders to one vote per
share; however, separate votes are taken by each series on matters
affecting an 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. Approval by the
shareholders of one series is effective as to that series whether or not
enough votes are received from the shareholders of the other series to
approve such agreement as to the other series.
The Trust has a Declaration of Trust which provides that obligations
of a Fund are not binding upon the Trustees individually but only upon the
property of that Fund, that the Trustees and officers will not be liable
for errors of judgment or mistakes of fact or law, and that a Fund involved
will indemnify the Trustees and officers against liabilities and expenses
incurred in connection with litigation in which they may be involved
because of their offices with the Trust, 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 involved. 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.
No series of the Trust shall be liable for the obligations of any
other series.
INVESTMENT ADVISER
(See "Fund organization--Investment adviser" in the Funds' prospectuses.)
Scudder, Stevens & Clark, Inc., an investment counsel firm, acts as
investment adviser to each Fund. This organization is one of the most
experienced investment management firms in the U.S. It was established 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 firm reorganized from a partnership to a corporation on June
28, 1985.
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 Development Fund, Scudder Equity Trust, Scudder
Fund, Inc., Scudder Funds Trust, Scudder Global 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 State Tax Free Trust, Scudder Tax Free Money
Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder
Variable Life Investment Fund, Scudder World Income Opportunities Fund,
Inc., The Argentina Fund, Inc., The Brazil Fund, Inc., The First Iberian
Fund, Inc., The Korea Fund, Inc., The Japan Fund, Inc. and The Latin
America Dollar Income 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 $11 billion and includes
the AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust and
AARP Cash Investment Funds.
The Adviser maintains a large research department, which conducts
ongoing 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 its own research
specialists.
Certain investments may be appropriate for more than one Fund and also
for other clients advised by the Adviser. Investment decisions for a Fund
and other clients are made with a view to achieving their respective
investment objectives and after consideration of such factors as their
current holdings, availability of cash for investment and the size of their
investments generally. Frequently, a particular security may be bought or
sold for only one client or in different amounts and at different times for
more than one but less than all clients. Likewise, a particular security
may be bought for one or more clients when one or more other clients are
selling the security. In addition, purchases or sales of the same security
may be made for two or more clients on the same date. In such event, such
transactions will be allocated among the clients in a manner believed by
the Adviser to be equitable to each. In some cases, this procedure could
have an adverse effect on the price or amount of the securities purchased
or sold by a Fund. Purchase and sale orders for a Fund may be combined
with those of other clients of the Adviser in the interest of the most
favorable net results to a Fund.
The Investment Management Agreement between the Trust, on behalf of
Capital Growth Fund, and the Adviser was last approved by the Trustees on
September 7, 1994 and by the Fund's shareholders on December 13, 1990. The
Investment Management Agreement between the Trust, on behalf of Value Fund,
and the Adviser was last approved by the Trustees on September 7, 1994 and
by the initial shareholders of the Fund on December 30, 1992. The Capital
Growth Fund Agreement dated December 14, 1990 and the Value Fund Agreement
dated December 28, 1992 (collectively, the "Agreements") will continue in
effect until September 30, 1995 and from year to year thereafter only if
their continuance is approved annually by the vote of a majority of those
Trustees who are not parties to such Agreements or interested persons of
the Adviser or the Trust, cast in person at a meeting called for the
purpose of voting on such approval, and either by vote of the Trustees or
by a majority of the outstanding voting securities of that Fund. The
Agreements 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 their assignment.
Under each Agreement, the Adviser regularly provides a Fund with
continuing investment management for the Fund's portfolio consistent with
the Fund's investment objective, policies and restrictions and determines
which securities shall be purchased for the portfolio of that Fund, which
portfolio securities shall be held or sold by the Fund, and what portion of
the Fund's assets shall be held uninvested, subject always to the
provisions of the Declaration of Trust and By-Laws, of the 1940 Act and the
Code, and to the Fund's investment objective, policies and restrictions,
and subject, further, to such policies and instructions as the Trustees may
from time to time establish. The Adviser also advises and assists the
officers of a 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 a Fund.
The Adviser pays the compensation and expenses (except those for
attending Board and Committee meetings outside New York, New York or
Boston, Massachusetts) of all Trustees, officers and executive employees of
the Trust affiliated with the Adviser and makes available, without expense
to the Funds, the services of the Adviser's directors, officers, and
employees as may duly be elected officers, subject to their individual
consent to serve and to any limitations imposed by law, and provides the
Trust's office space and facilities and provides investment advisory,
research and statistical facilities and all clerical services relating to
research, statistical and investment work.
For the Adviser's services, Capital Growth Fund pays the Adviser a fee
equal to 0.75 of 1% on the first $500 million of average daily net assets;
0.65 of 1% on the next $500 million of such assets; and 0.60 of 1% on
assets in excess of $1 billion, 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.
For the fiscal years ended September 30, 1992, 1993 and 1994, Capital
Growth Fund incurred aggregate fees pursuant to its then effective
investment advisory agreement of $7,568,391, $8,539,125 and $9,199,315,
respectively.
For the Adviser's services, Value Fund pays the Adviser an annual fee
equal to 0.70% of 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. For the period December 31, 1992 (commencement of
operations) to September 30, 1993, the Adviser did not impose a portion of
its management fee amounting to $29,834 and the amount imposed amounted to
$17,827. The Adviser has voluntarily agreed to waive management fees or
reimburse the Fund to the extent necessary so that the total annualized
expenses of the Fund do not exceed 1.25% of the average daily net assets
until January 31, 1996. The Adviser retains the ability to be repaid by
the Fund if expenses fall below the specified limit prior to the end of the
fiscal year. These expense limitation arrangements can decrease the Fund's
expenses and improve its performance. During the fiscal year ended
September 30, 1994, these agreements resulted in a reduction of management
fees paid by the Fund of $119,841. For the fiscal year ended September
30, 1994, the Adviser imposed a portion of its management fee
amounting to $112,125.
Under each Agreement a Fund is responsible for all of its other
expenses including 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 clerical expenses of issue,
sale, underwriting, distribution, redemption or repurchase of shares; the
expenses of and the fees for registering or qualifying securities for sale;
fees and expenses incurred in connection with membership in investment
company organizations; the fees and expenses of the 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 Trust may arrange to have third
parties assume all or part of the expenses of sale, underwriting and
distribution of shares of the Funds. The Funds are also responsible for
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. Each Agreement expressly provides that the Adviser
shall not be required to pay a pricing agent of any Fund for portfolio
pricing services, if any.
Each Agreement requires the Adviser to reimburse the Funds for annual
expenses in excess of the lowest applicable expense limitation imposed by
the states in which a Fund is at the time offering its shares for sale,
although no payments are required to be made by the Adviser pursuant to
this reimbursement provision in excess of the annual fee paid by a Fund to
the Adviser. Management has been advised that, while some states have
eliminated expense limitations and others may do so in the future, the
lowest of such limitations is presently 2 1/2% of such net assets up to $30
million, 2% of the next $70 million of such net assets and 1 1/2% of such
net assets in excess of that amount. Certain expenses such as brokerage
commissions, taxes, extraordinary expenses and interest are excluded from
such limitation. For the fiscal years ended September 30, 1992, 1993 and
1994, such expenses for Capital Growth Fund equaled 0.98%, 0.96% and 0.97%,
respectively, of the Fund's average net assets. For the period December
31, 1992 (commencement of operations) to September 30, 1993 and the fiscal
year ended September 30, 1994, such expenses for Value Fund equaled 1.25%
of the Fund's average net assets. If reimbursement is required, it will be
made as promptly as practicable after the end of the Funds' fiscal year.
However, no fee payment will be made to the Adviser during any fiscal year
which will cause year-to-date expenses to exceed the cumulative pro-rata
expense limitation at the time of such payment.
The Adviser renders significant administrative services (not otherwise
provided by third parties) necessary for a Fund's operations as an open-end
investment company including, but not limited to, preparing reports and
notices to the Trustees and shareholders; supervising, negotiating
contractual arrangements with, and monitoring various third-party service
providers to the Funds (such as the Funds' transfer agent, pricing agents,
custodian, accountants and others); preparing and making filings with the
SEC and other regulatory agencies; assisting in the preparation and filing
of the Funds' federal, state and local tax returns; preparing and filing
the Funds' federal excise tax returns; assisting with investor and public
relations matters; monitoring the valuation of securities and the
calculation of net asset value, monitoring the registration of shares of
the Funds under applicable federal and state securities laws; maintaining
the Funds' books and records to the extent not otherwise maintained by a
third party; assisting in establishing accounting policies of the Funds;
assisting in the resolution of accounting and legal issues; establishing
and monitoring the Funds' operating budget; processing the payment of the
Funds' bills; assisting the Funds in, and otherwise arranging for, the
payment of distributions and dividends and otherwise assisting the Funds in
the conduct of its business, subject to the direction and control of the
Trustees.
Each Agreement also provides that the Trust and a Fund may use any
name derived from the name "Scudder, Stevens & Clark" only as long as that
Agreement or any extension, renewal or amendment thereof remains in effect.
In reviewing the terms of each Agreement and in discussions with the
Adviser concerning each Agreement, Trustees who are not "interested
persons" of the Trust are represented by independent counsel at the Funds'
expense.
Each Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by a Fund in
connection with matters to which each 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
Agreements.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Funds' custodian bank. It
is the Adviser's opinion that the terms and conditions of those
transactions were not influenced by existing or potential custodial or
other Fund relationships.
None of the officers or Trustees of the Trust may have dealings with a
Fund as principals in the purchase or sale of securities, except as
individual subscribers or holders of shares of a Fund.
<TABLE>
<CAPTION>
TRUSTEES AND OFFICERS
Position with
Underwriter,
Position Principal Scudder Investor
Name and Address with Trust Occupation** Services, Inc.
- ---------------- ---------- ------------ ------------------
<S> <C> <C> <C>
Daniel Pierce*#+ President and Chairman of the Vice President,
Trustee Board and Managing Assistant
Director of Treasurer and
Scudder, Stevens & Director
Clark, Inc.
Paul Bancroft III Trustee Venture Capitalist --
1120 Cheston Lane and Consultant;
Queenstown, MD Retired President
and Chief
Executive Officer
of Bessemer
Securities
Corporation
Thomas J. Devine Trustee Consultant --
641 Lexington Avenue
New York, NY
David S. Lee* + Vice President Managing Director President,
and Trustee of Scudder, Assistant
Stevens and Clark, Treasurer and
Inc. Director
Douglas M. Vice President Managing Director Senior Vice
Loudon*++ and Trustee of Scudder, President
Stevens and Clark,
Inc.
Wilson Nolen Trustee Consultant, June --
1120 Fifth Avenue 1989 to present,
New York, NY Corporate Vice
President of
Becton, Dickinson
& Company
(manufacturer of
medical and
scientific
products), from
1973 to June 1989
Juris Padegs*++# Vice President Managing Director Vice President and
and Trustee of Scudder, Director
Stevens and Clark,
Inc.
Gordon Shillinglaw Trustee Professor Emeritus --
196 Villard Avenue of Accounting,
Hastings-on-Hudson, Columbia
NY University
Graduate School of
Business
Robert G. Stone, Jr. Trustee Chairman of the --
405 Lexington Avenue Board and
39th Floor Director, Kirby
New York, NY 10174 Corporation
(marine
transportation,
diesel repair and
property and
casualty insurance
in Puerto Rico)
Robert W. Lear Honorary Trustee Executive-in-Resid --
429 Silvermine Road ence Columbia
New Canaan, CT University
Graduate School of
Business
Steven P. Vice President Managing Director --
Aronoff@ of Scudder,
Stevens and Clark,
Inc.
Donald E. Hall@ Vice President Managing Director --
of Scudder,
Stevens and Clark,
Inc.
Jerard K. Hartman++ Vice President Managing Director --
of Scudder,
Stevens and Clark,
Inc.
Thomas W. Joseph+ Vice President Principal of Vice President,
Scudder, Stevens & Director,
Clark, Inc. Treasurer, and
Assistant Clerk
Thomas F. McDonough+ Vice President, Principal of Clerk
Secretary and Scudder, Stevens &
Assistant Clark, Inc.
Treasurer
Pamela A. McGrath+ Vice President Principal of --
and Treasurer Scudder, Stevens &
Clark, Inc.
Edward J. O'Connell Vice President Principal of Assistant
++ and Assistant Scudder, Stevens & Treasurer
Treasurer Clark, Inc.
Kathryn L. Quirk++ Vice President, Managing Director Vice President
Secretary and of Scudder,
Assistant Stevens and Clark,
Secretary Inc.
Coleen Downs Dinneen+ Assistant Vice President of Assistant Clerk
Secretary Scudder, Stevens &
Clark, Inc.
* Messrs. Lee, Loudon, Padegs and Pierce are considered by the Trust and
its counsel to be persons who are "interested persons" of the Adviser
or of the Trust (within the meaning of the 1940 Act).
** Unless otherwise stated, all the Trustees and officers have been
associated with their respective companies for more than five years,
but not necessarily in the same capacity.
# Messrs. Padegs and Pierce are members of the Executive Committee,
which may exercise all of the powers of the Trustees when they are not
in session.
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
@ Address: 333 South Hope Street, Los Angeles, California
</TABLE>
As of January 1, 1995 all Trustees and officers of the Trust as
a group owned beneficially (as that term is defined in Section 13(d) under
the Securities and Exchange Act of 1934) 1,200,785 shares, or
1.71% of the shares of Capital Growth Fund.
As of January 1, 1995 all Trustees and officers of the Trust as
a group owned beneficially (as that term is defined in Section 13(d) under
the Securities and Exchange Act of 1934) 174,193 shares, or
6.42% of the shares of Value Fund. Certain accounts for which
the Adviser acts as investment adviser owned 723,248 shares in the
aggregate of Value Fund, or 26.67% of the outstanding shares on January 1,
1995. The Adviser may be deemed to be the beneficial owner of such shares
but disclaims any beneficial ownership in such shares.
To the best of the Trust's knowledge, as of January 1, 1995 no
person owned beneficially more than 5% of a Fund's outstanding shares.
The Trustees and officers of the Trust also serve in similar
capacities with other Scudder funds.
REMUNERATION
Several of the officers and Trustees of the Trust may be officers or
employees of the Adviser, the Distributor, the Transfer Agent, Scudder
Trust Company or Scudder Fund Accounting Corporation, from whom they
receive compensation, as a result of which they may be deemed to
participate in the fees paid by the Trust. The Funds pay no direct
remuneration to any officer of the Trust. However, each of the Trustees
who is not affiliated with the Adviser will be paid by the Trust. Each of
these unaffiliated Trustees receives an annual Trustee's fee of $4,000 plus
$400 for attending each Trustees' meeting, audit committee meeting or
meeting held for the purpose of considering arrangements between the Fund
and the Adviser or any of its affiliates. Each unaffiliated Trustee also
receives $150 per committee meeting attended other than those set forth
above. For the fiscal year ended September 30, 1994, Capital Growth Fund
paid such Trustees $42,775 and Value Fund paid such Trustees $42,452.
The following Compensation Table provides, in tabular form, the
following data:
Column (1): all Trustees who receive compensation from the Trust.
Column (2): aggregate compensation received by a Trustee from all the
series of the Trust.
Columns (3) and (4): pension or retirement benefits accrued or proposed be
paid by the Trust. Scudder Equity Trust does not pay its Trustees such
benefits.
Column (5): total compensation received by a Trustee from the Trust, plus
compensation received from all funds for which a Trustee serves in a fund
complex. The total number of funds from which a Trustee receives such
compensation is also provided.
<TABLE>
<CAPTION>
Compensation Table for the year ended December 31, 1994
(1) (2) (3) (4) (5)
Aggregate
Compensation
from Scudder
Equity Trust
(consisting of Total
two Funds: Pension or Compensation
Scudder Retirement Estimated From Scudder
Capital Growth Benefits Annual Equity Trust
Fund and Accrued As Benefits and Fund
Name of Person, Scudder Value Part of Fund Upon Complex Paid
Position Fund) Expenses Retirement to Trustee
-------- ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Paul Bancroft III, $ 16,400 N/A N/A $ 120,238
Trustee (14 funds)
Thomas J. Devine, $ 16,400 N/A N/A $ 115,656
Trustee (16 funds)
Wilson Nolen, $ 16,400 N/A N/A $ 132,023
Trustee (15 funds)
Gordon Shillinglaw, $ 18,000 N/A N/A $ 89,570
Trustee (14 funds)
Robert G. Stone, Jr., $ 16,400 N/A N/A $ 134,438
Trustee (15 funds)
</TABLE>
DISTRIBUTOR
The Trust has an underwriting agreement with Scudder Investor
Services, Inc. (the "Distributor"), a Massachusetts corporation, which is a
wholly-owned subsidiary of the Adviser. This underwriting agreement dated
May 1, 1987 will remain in effect until September 30, 1995 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 vote of a majority of the Trustees or a
majority of the outstanding voting securities of the Trust. The
underwriting agreement was last approved by the Trustees on September 7,
1994.
Under the principal underwriting agreement, the Trust is responsible
for: the payment of all fees and expenses in connection with the
preparation and filing with the SEC of the Trust's registration statement
and prospectuses and any amendments and supplements thereto; the
registration and qualification of shares for sale in the various states,
including registering the Trust or a Fund as a broker/dealer in various
states, as required; the fees and expenses of preparing, printing and
mailing prospectuses (see below for expenses relating to prospectuses paid
by the Distributor), notices, proxy statements, reports or other
communications (including newsletters) to shareholders of a Fund; the cost
of printing and mailing confirmations of purchases of shares and the
prospectuses accompanying such confirmations; any issuance taxes or any
initial transfer taxes; a portion of shareholder toll-free telephone
charges and expenses of 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 a 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 a Fund's
shares to the public and preparing, printing and mailing any other
literature or advertising in connection with the offering of shares of the
Funds to the public. The Distributor will pay all fees and expenses in
connection with its qualification and registration as a broker or dealer
under federal and state laws, a portion of the cost of toll-free telephone
service and expenses of service representatives, a portion of the cost of
computer terminals, and of any activity which is primarily intended to
result in the sale of the Fund's shares.
Note: Although each Fund currently has no 12b-1 Plan and shareholder
approval would be required in order to adopt one, the underwriting
agreement provides that a Fund will also pay those fees and expenses
permitted to be paid or assumed by a Fund pursuant to a 12b-1 Plan, if
any, adopted by a Fund, notwithstanding any other provision to the
contrary in the underwriting agreement and a Fund or a third party
will pay those fees and expenses not specifically allocated to the
Distributor in the underwriting agreement.
As agent, the Distributor currently offers shares of a Fund on a
continuous basis to investors in all states. The underwriting agreement
provides that the Distributor accepts orders for shares at net asset value
as no sales commission or load is charged the investor. The Distributor
has made no firm commitment to acquire shares of a Fund.
TAXES
(See "Distribution and performance information--Dividends and capital gains
distributions" and "Transaction information--Tax information and Tax
identification number" in the Funds' prospectuses.)
Each Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code or a predecessor statute and has qualified
as such from its inception. Each Fund intends to continue to qualify for
such treatment. Such qualification does not involve governmental
supervision of management or investment practices or policies.
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 in
excess of net long-term capital loss) 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.
Investment company taxable income generally is made up of dividends,
interest, and net short-term capital gains in excess of net long-term
capital losses, less expenses. Net capital gains (the excess of net
long-term capital gain over net short-term capital loss) are computed by
taking into account any capital loss carryforward of a Fund. Presently,
each Fund has no capital loss carryforward.
Each Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions at
least equal to the sum of 98% of a Fund's ordinary income for the calendar
year, at least 98% of the excess of its capital gains over capital losses
(adjusted for certain ordinary losses as prescribed in the Code) 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.
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 each Fund's gross income. To the extent that such
dividends constitute a portion of each Fund's gross income, a portion of
the income distributions of a Fund may be eligible for the dividends
received deduction for corporations. Shareholders will be informed of the
portion of dividends which so qualify. The dividends-received deduction is
reduced to the extent the shares with respect to which the dividends are
received are treated as debt-financed under the federal income tax law and
is eliminated if the shares are deemed to have been held for less than 46
days.
Distributions of net capital gains are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of a
Fund have been held by such shareholders. Such distributions are not
eligible for the dividends received deduction. Any loss realized upon the
redemption of shares held at the time of redemption for six months or less
will be treated as a long-term capital loss to the extent of any amounts
treated as long-term capital gain distributions during such six-month
period.
If any net capital gains are retained by a Fund for reinvestment,
requiring federal income taxes to be paid thereon by that Fund, each 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 the
federal income taxes paid by a Fund on such gains as a credit against
personal federal income tax liabilities, and will be entitled to increase
the adjusted tax basis on Fund shares by the difference between a pro-rata
share of such gains and the individual tax credit. However, retention of
such gains by a Fund may cause the Fund to be liable for an excise tax on
all or a portion of those gains.
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether made 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 gains, whether received in shares or cash, must be
reported by each shareholder on his or her federal income tax return.
Dividends declared in October, November or December with a record date in
such a month and paid during the following January will be treated by
shareholders for federal income tax purposes as if received on December 31
of the calendar year declared. 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.
An 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 $2,250 to
IRAs for an individual and his or her nonearning spouse) 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, 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 a Fund result in a reduction in the net asset value
of that 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 be careful to
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.
If a Fund invests in stock of certain foreign investment companies,
that Fund may be subject to U.S. federal income taxation on a portion of
any "excess distribution" with respect to, or gain from the disposition of,
such stock. The tax would be determined by allocating such distribution or
gain ratably to each day of the Fund's holding period for the stock. The
distribution or gain so allocated to any taxable year of the Fund, other
than the taxable year of the excess distribution or disposition, would be
taxed to the Fund at the highest ordinary income rate in effect for such
year, and the tax would be further increased by an interest charge to
reflect the value of the tax deferral deemed to have resulted from the
ownership of the foreign company's stock. Any amount of distribution or
gain allocated to the taxable year of the distribution or disposition would
be included in the Fund's investment company taxable income and,
accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
Proposed regulations have been issued which may allow a Fund to 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, a 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. No mark
to market losses may be recognized. 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, a 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 written 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 will be recognized by a Fund upon payment of a premium in
connection with the purchase of a put or call option. The character of any
gain or loss recognized (i.e. long-term or short-term) will generally
depend, in the case of a lapse or sale of the option, on a Fund's holding
period for the option, and in the case of the exercise of a put option, on
a Fund's holding period for the underlying property. The purchase of a put
option may constitute a short sale for federal income tax purposes, causing
an adjustment in the holding period of the underlying security or a
substantially identical security in a Fund's portfolio.
If a Fund writes a covered call option on portfolio stock, no gain is
recognized upon its receipt of a premium. If the option lapses or is
closed out, any gain or loss is treated as short-term capital gain or loss.
If the option is exercised, the character of the gain or loss depends on
the holding period of the underlying stock.
Positions of a Fund which consist of at least one stock and at least
one stock option or other position with respect to a related security which
substantially diminishes a Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the
Code, the operation of which may cause deferral of losses, adjustments in
the holding periods of stocks or securities and conversion of short-term
capital losses into long-term capital losses. An exception to these
straddle rules exists for certain "qualified covered call options" on stock
written by a Fund.
Many or all futures and forward contracts entered into by a Fund and
many or all listed nonequity options written or purchased by a Fund
(including options on debt securities, options on futures contracts,
options on foreign currencies and options on securities 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 day of the Funds' fiscal
year (as well as on October 31 for purposes of the 4% excise tax), all
outstanding Section 1256 positions will be marked to market (i.e. treated
as if such positions were sold at their closing price on such day), with
any resulting gain or loss recognized as 60% long-term and 40% short-term
capital gain or loss. Under Section 988 of the Code, discussed below,
foreign currency gain or loss from foreign currency-related forward
contracts, certain futures and options, and similar 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 relevant Fund's portfolio.
Subchapter M of the Code requires that a Fund realize less than 30% of
its annual gross income from the sale or other disposition of stock or
securities held for less than three months and from options, futures and
forward contracts (not including certain foreign currency options, futures
and forward contracts) and certain foreign currencies held less than three
months. Options, futures and forward activities of a Fund may increase the
amount of gains realized by the Fund that are subject to the 30%
limitation. Accordingly, the amount of such activities that each Fund may
engage in may be limited.
Positions of a Fund which consist of at least one position not
governed by Section 1256 and at least one futures or forward contract or
nonequity option or other position governed by Section 1256 which
substantially diminishes a Fund's risk of loss with respect to such other
position may 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 will monitor its transactions in options, futures and
forward contracts and may make certain tax elections in connection with
these investments.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time a Fund accrues receivables or
liabilities denominated in a foreign currency and the time a 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
futures contracts, forward contracts and options, gains or losses
attributable to fluctuations in the value of foreign currency between the
date of acquisition of the security or contract and the date of disposition
are also treated as ordinary gain or loss. These gains or losses, referred
to under the Code as "Section 988" gains or losses, may increase or
decrease the amount of a Fund's investment company taxable income to be
distributed to its shareholders as ordinary income.
Each Fund will be required to report to the IRS 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 nonexempt shareholders who fail to furnish the
investment company with their taxpayer identification numbers and with
required certifications regarding their status under the federal income tax
law. Withholding may also be required if a Fund is notified by the IRS or
a broker that the taxpayer identification number furnished by the
shareholder is incorrect or that the shareholder has previously failed to
report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in shares, will be reduced by the amounts required to be
withheld.
Shareholders may be subject to state and local taxes on distributions
received from a Fund and on redemptions of each Fund's shares. Each
distribution is accompanied by a brief explanation of the form and
character of the distribution. By January 31 of each year the Fund issues
to each shareholder a statement of the federal income tax status of all
distributions.
The Trust is organized as a Massachusetts business trust. Neither the
Trust nor a Fund is expected to be liable for any income or franchise tax
in the Commonwealth of Massachusetts, provided that each Fund qualifies as
a regulated investment company under the Code.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign
tax consequences of ownership of shares of the Fund, including the
possibility that such a shareholder may be subject to a U.S. withholding
tax at a rate of 30% (or at a lower rate under an applicable income tax
treaty) on amounts constituting ordinary income received by him or her,
where such amounts are treated as income from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application
of the provisions of tax law described in this statement of additional
information in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
To the maximum extent feasible the Adviser places orders for portfolio
transactions for each Fund through the Distributor which in turn places
orders on behalf of a Fund with other brokers and dealers. The Distributor
receives no commission, fees or other remuneration for this service.
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 a Fund is to obtain the most favorable
net results, taking into account such factors as price, commission where
applicable (negotiable in the case of U.S. national securities exchange
transactions), 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 a Fund
to reported commissions paid by others. The Adviser reviews on a routine
basis commission rates, execution and settlement services performed, making
internal and external comparisons.
The Funds' 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 a
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 market quotations to the custodian of the
Trust for appraisal purposes, or who supply research, market and
statistical information to a Fund or the Adviser. The term "research,
market and statistical information" includes advice as to the value of
securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, and furnishing analyses and reports concerning issuers,
industries, securities, economic factors and trends, portfolio strategy and
the performance of accounts. The Adviser is not authorized when placing
portfolio transactions for a Fund to pay a brokerage commission (to the
extent applicable) in excess of that which another broker might charge for
executing the same transaction solely on account of the receipt of
research, market or statistical information. The Adviser will not place
orders with broker/dealers on the basis that the broker/dealer has or has
not sold shares of a Fund. Except for implementing the policy stated
above, there is no intention to place portfolio transactions with
particular brokers or dealers or groups thereof. 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.
Subject also to obtaining the most favorable net results, the Adviser
may place brokerage transactions with Bear, Stearns & Co. A credit against
the custodian fee due to State Street Bank and Trust Company equal to
one-half of the commission on any such transaction will be given on any
such transaction.
Although certain research, market and statistical information from
broker/dealers may be useful to a Fund and to the Adviser, it is the
opinion of the Adviser that such information is only supplementary to 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 a Fund,
and not all such information is used by the Adviser in connection with a
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 a Fund.
In the fiscal years ended September 30, 1992, 1993 and 1994, Capital
Growth Fund paid brokerage commissions of $2,514,619, $2,522,135 and
$2,242,087, respectively. In the fiscal year ended September 30, 1994, the
Fund paid brokerage commissions of $1,997,550 (89% of the total brokerage
commissions), resulting from orders placed, consistent with the policy of
seeking to obtain the most favorable net results, for transactions placed
with brokers and dealers who provided supplementary research, market and
statistical information to the Trust or Adviser. The amount of such
transactions aggregated $1,251,692,226 (90% of all brokerage transactions).
The balance of such brokerage was not allocated to any particular broker or
dealer or with regard to the above-mentioned or any other special factors.
For the fiscal years ended September 30, 1993 and 1994, Value Fund
paid brokerage commissions of $62,324.54 and $78,912, respectively. For the
fiscal year ended September 30, 1994, the Fund paid brokerage commissions
of $69,120.13 (88% of the total brokerage commissions), resulting from
orders placed consistent with the policy of seeking to obtain the most
favorable net results for transactions placed with brokers and dealers who
provided supplementary research, market and statistical information to the
Trust or Adviser. The amount of such transactions aggregated $38,058,681
(92% of all brokerage transactions). The balance of such brokerage was not
allocated to any particular broker or dealer or with regard to the above-
mentioned or any other special factors.
The Trustees review from time to time whether the recapture for the
benefit of a Fund of some portion of the brokerage commissions or similar
fees paid by a Fund on portfolio transactions is legally permissible and
advisable. To date no such recapture has been effected.
Portfolio Turnover
Capital Growth Fund's average annual portfolio turnover rate, i.e. the
ratio of the lesser of sales or purchases to the monthly average value of
the portfolio (excluding from both the numerator and the denominator all
securities with maturities at the time of acquisition of one year or less),
for the fiscal years ended September 30, 1993 and 1994 was 92.2% and 75.8%,
respectively. For the fiscal years ended September 30, 1993 and 1994,
Value Fund had an annualized portfolio turnover rate of 60.8% and 74.6%,
respectively. Higher levels of activity by the Funds result in higher
transaction costs and may also result in taxes on realized capital gains to
be borne by the Funds' shareholders. Purchases and sales are made for a
Fund whenever necessary, in management's opinion, to meet the Funds'
objectives.
NET ASSET VALUE
The net asset value of shares of each 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, Presidents Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving and Christmas. 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. 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"). Lacking a Calculated Mean, the security is valued
at the most recent bid quotation. An equity security which is traded on
the National Association of Securities Dealers Automated Quotation
("NASDAQ") system is valued at its most recent sale price. Lacking any
sales, the security is valued at the high or "inside" bid quotation. 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. Lacking
any sales, the security is valued at the Calculated Mean. Lacking a
Calculated Mean, the security is valued at the most recent bid quotation.
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 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 Trust's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the
Valuation Committee, represents fair market value on the basis of all
available information. The value of other portfolio holdings owned by a
Fund is determined in a manner which, in the discretion of the Valuation
Committee most fairly reflects fair market value of the property on the
valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed
("Local Currency"), the value of these portfolio assets in terms of U.S.
dollars is calculated by converting the Local Currency into U.S. dollars at
the prevailing currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of each Fund included in the Funds'
prospectuses 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 Coopers & Lybrand, L.L.P., One
Post Office Square, Boston, Massachusetts 02109, independent accountants,
and given on the authority of that firm as experts in accounting and
auditing.
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
a Fund's property or the acts, obligations or affairs of a Fund. The
Declaration of Trust also provides for indemnification out of a Fund's
property of any shareholder of a Fund held personally liable for the claims
and liabilities to which a shareholder may become subject by reason of
being or having been a shareholder of a Fund. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a Fund itself would be unable to meet its
obligations.
Other Information
Many of the investment changes in a Fund will be made at prices
different from those prevailing at the time they may be reflected in
regular reports to shareholders of a Fund. These transactions will reflect
investment decisions made by the Adviser in light of the objectives and
policies of a Fund, and other factors, such as its other portfolio holdings
and tax considerations should not be construed as recommendations for
similar action by other investors.
The name "Scudder Equity Trust" is the designation of the Trustees for
the time being under a Declaration of Trust dated October 16, 1985, as
amended, and all persons dealing with a Fund must look solely to the
property of a Fund for the enforcement of any claims against a Fund as
neither the Trustees, officers, agents, shareholders nor other series of
the Trust assumes any personal liability for obligations entered into on
behalf of a Fund. Upon the initial purchase of shares of a 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. All
persons dealing with the Fund must look only to the assets of the Fund for
the enforcement of any claims against a Fund as no other series of the
Trust assumes any liabilities for obligations entered into on behalf of a
Fund.
The CUSIP number of Capital Growth Fund is 81114T-10-9.
The CUSIP number of Value Fund is 811114T-20-8.
Each Fund has a fiscal year end of September 30.
The Trust employs State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 as custodian for each Fund.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts 02110-4103, a wholly-owned subsidiary of the Adviser,
computes net asset values for the Funds. Each Fund pays Scudder Fund
Accounting Corporation an annual fee equal to 0.025% of the first $150
million of average daily net assets, 0.0075% of such assets in excess of
$150 million and 0.0045% of such assets in excess of $1 billion, plus
holding and transaction charges for this service.
Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a wholly-owned subsidiary of the Adviser,
is the transfer, dividend disbursing and shareholder service agent for each
Fund. Service Corporation also provides subaccounting and recordkeeping
services for shareholder accounts in certain retirement and employee
benefit plans. Each Fund pays Service Corporation a fee for each account
maintained for a participant of $17.55 which is $8.05 for its services as
transfer and dividend paying agent and $9.50 for its services as
shareholder service agent. For the fiscal year ended September 30, 1994,
Capital Growth Fund and Value Fund incurred annual fees of $2,574,119 and
$83,968, respectively. Please refer to "How to contact Scudder" in each
Fund's prospectus or call 1-800-225-5163 for specific mailing instructions
regarding your investment.
The Funds' prospectuses and this Statement of Additional Information
omit certain information contained in the Registration Statement which the
Trust 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. The Registration
Statement is available for inspection by the public at the SEC in
Washington, D.C.
This Statement of Additional Information combines the information of
both Scudder Capital Growth Fund and Scudder Value Fund. Each Fund,
through its individual prospectus, offers only its own shares, yet it is
possible that one Fund might become liable for a misstatement regarding the
other Fund. The Trustees of each Fund have considered this, and have
approved the use of a combined Statement of Additional Information.
Costs of $44,657 incurred by Value Fund in conjunction with its
organization are amortized over the five year period beginning December 31,
1992.
FINANCIAL STATEMENTS
Capital Growth Fund
The financial statements, including the investment portfolio of
Capital Growth Fund, together with the Report of Independent Accountants,
Financial Highlights, and notes to financial statements are incorporated by
reference and attached hereto in the Annual Report to Shareholders of the
Fund dated September 30, 1994, and are hereby deemed to be part of this
Statement of Additional Information.
Value Fund
The financial statements, including the investment portfolio of Value
Fund together with the Report of Independent Accountants, Financial
Highlights and notes to financial statements are incorporated by reference
and attached hereto in the Annual Report to Shareholders of the Fund dated
September 30, 1994, and are hereby deemed to be part of this Statement of
Additional Information.
APPENDIX
The following is a description of the ratings given by Moody's and
Standard & Poor's to corporate and municipal bonds.
Ratings of Municipal and Corporate Bonds
Standard & Poor's:
Debt rated AAA has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong. Debt rated AA has a
very strong capacity to pay interest and repay principal and differs from
the highest rated issues only in small degree. Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. Debt rated BBB is
regarded as having an adequate capacity to pay interest and repay
principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal for debt in
this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and
repay principal. BB indicates the least degree of speculation and C the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The BB rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied BBB- rating. Debt rated B has a
greater vulnerability to default but currently has the capacity to meet
interest payments and principal repayments. Adverse business, financial,
or economic conditions will likely impair capacity or willingness to pay
interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal in
the event of adverse business, financial, or economic conditions. It is
not likely to have the capacity to pay interest and repay principal. The
CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B- rating. The rating CC typically
is applied to debt subordinated to senior debt that is assigned an actual
or implied CCC rating. The rating C typically is applied to debt
subordinated to senior debt which is assigned an actual or implied CCC-
debt rating. The C rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are
continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category
is used when interest payments or principal payments are not made on the
date due even if the applicable grace period had not expired, unless S&P
believes that such payments will be made during such grace period. The D
rating also will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Moody's:
Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues. Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long term risks appear somewhat
larger than in Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium
grade obligations. Factors giving security to principal and interest are
considered adequate but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during other good and bad times over the future. Uncertainty
of position characterizes bonds in this class. Bonds which are rated B
generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest. Bonds which are rated Ca represent obligations
which are speculative in a high degree. Such issues are often in default
or have other marked shortcomings. Bonds which are rated C are the lowest
rated class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
<PAGE>
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder Capital Growth Fund
Annual Report
September 30, 1994
* A fund designed to maximize long-term capital growth through a broad
and flexible investment program. Invests primarily in a diversified
portfolio of growth-oriented common stocks.
* A pure no-load(tm) fund with no commissions to buy, sell, or exchange
shares.
CONTENTS
2 Highlights
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
10 Investment Portfolio
17 Financial Statements
20 Financial Highlights
21 Notes to Financial Statements
26 Report of Independent Accountants
27 Tax Information
29 Officers and Trustees
30 Investment Products and Services
31 How to Contact Scudder
HIGHLIGHTS
* For the year ended September 30, 1994, Scudder Capital Growth Fund
posted a -4.7% total return, compared with a 3.7% gain for the
unmanaged S&P 500 Index.
* The Fund's strategy includes exposure to cyclical companies, led by
the auto group, specifically Ford and Chrysler. These stocks are
inexpensive on a valuation basis and should have strong profit growth
at least through 1996.
* The portfolio also features communications investments, led by AT&T, a
company expected to benefit from its purchase of the largest U.S.
cellular company, McCaw Cellular.
* Fund management reduced holdings in foreign securities to 16% of the
portfolio from 19% at the start of the year. Investments were
increased in Korea and decreased in Mexico and South Africa.
* Based on preliminary estimates, Scudder Capital Growth Fund is
expected to make year-end distributions of between $0.15 and $0.25 per
share of ordinary income and between $0.50 and $0.60 per share of
long-term capital gains. We expect that these distributions will be
paid on December 30, 1994, to shareholders of record as of December
27, 1994. However, the actual amount of this distribution may vary
significantly from the estimate. The Fund will mail shareholders IRS
Form 1099-DIV in late January, which summarizes all distributions in
1994.
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
The combination of modest global economic growth and low inflation
caused stock prices to move higher in the summer months, and many of the
smaller European markets were up sharply after this year's dismal first
half. Yet the financial community continues to cast a wary eye on the
prospects for inflation and is taking its cues to a large extent from
central bank activity and the direction of interest rates. As a result,
volatility persists in the equity markets.
We expect economic growth in the United States to continue at a
sustainable pace, and corporate earnings should improve as a result. We
expect exports to contribute to growth, aided by economic recovery in
Europe and Japan. However, with the U.S. recovery now 42 months old and 10
months shy of its historical average for postwar expansion, we expect
slower growth in 1995. In the near term, as investors sort through
often-conflicting economic data, the world's stock markets are likely to
remain volatile.
If you have questions about your Fund or your investments, contact a
Scudder Investor Information representative at 1-800-225-2470. Page 31
provides more information on how to contact Scudder. Thank you for choosing
Scudder Capital Growth Fund to help meet your investment needs.
We would also like to take this opportunity to announce that on
October 10, 1994, in keeping with our pioneering tradition in international
investing, we introduced Scudder Greater Europe Growth Fund, a pure
no-load(tm) mutual fund, designed to invest both in Western and Eastern
Europe. For more information about Scudder Greater Europe Growth Fund and
other investment products and services, see page 30.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Capital Growth Fund
Scudder Capital Growth Fund
Performance Update as of September 30, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- ------------------------------------------------------------------
Scudder Capital Growth Fund
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
9/30/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $ 9,528 -4.72% -4.72%
5 Year $13,576 35.76% 6.30%
10 Year $39,190 291.90% 14.64%
- --------------------------------------
S&P 500 Index
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
9/30/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $10,368 3.68% 3.68%
5 Year $15,489 54.89% 9.14%
10 Year $39,059 290.59% 14.59%
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended September 30
Scudder Capital Growth Fund
Year Amount
- --------------------
84 10000
85 11888
86 15271
87 21231
88 20041
89 28869
90 20726
91 30229
92 31926
93 41131
94 39190
S&P 500 Index
Year Amount
- --------------------
84 10000
85 11450
86 15084
87 21634
88 18959
89 25217
90 22887
91 30019
92 33337
93 37671
94 39059
The Standard & Poor's (S&P) 500 Index is an unmanaged
capitalization-weighted measure of 500 widely held common
stocks listed on the New York Stock Exchange, American Stock
Exchange, and Over-The-Counter market. Index returns assume
reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
- -----------------------------------------------------------------
Returns and Per Share Information
- -------------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods ended September 30
- ----------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
-------------------------------------------------------------------------------
Net Asset Value... $15.35 $17.17 $20.41 $16.10 $22.30 $14.77 $19.30 $19.12 $23.06 $19.54
Income Dividends.. $ .29 $ .23 $ .23 $ .20 $ .07 $ .16 $ .37 $ .22 $ .10 $ --
Capital Gains
Distributions..... $ .51 $ 1.88 $ 2.46 $ 2.38 $ .55 $ 1.45 $ 1.35 $ .98 $ 1.25 $ 2.62
Fund Total
Return (%)........ 18.88 28.46 39.03 -5.61 44.05 -28.20 45.85 5.61 28.83 -4.72
Index Total
Return (%)........ 14.50 31.74 43.42 -12.39 32.95 -9.24 31.09 11.04 12.97 3.68
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
Scudder Capital Growth Fund
Portfolio Summary as of September 30, 1994
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------
Equity Securities 97% The management team's strategy is to keep
Cash Equivalents 3% the portfolio fully invested in stocks
---- it believes offer potential for earnings
100% growth over time.
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
Sectors (Excludes 3% Cash Equivalents)
- --------------------------------------------------------------------------
Consumer Discretionary 21%
Media 20%
Communications 13% The Fund reduced its media exposure by
Technology 9% selling companies that appeared to have
Financial 8% become fully valued, while maintaining
Durables 6% positions in cyclical companies that stand
Health 6% to benefit from U.S. economic expansion.
Energy 5%
Consumer Staples 3%
Other 9%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------
1. Time Warner Inc.
Publishing, broadcasting, and video entertainment company
2. Tele-Communications Inc.
Cable TV systems and microwave services
3. Comcast Corp.
Cable TV, sound and telecommunication systems
4. Rogers Communications Inc.
Cable TV and cellular telephones in Canada
5. American Telephone and Telegraph Co.
Telecommunication services and business systems
6. Intel Corp.
Semiconductor memory circuits
7. Microsoft Corp.
Computer operating systems software
8. Chrysler Corp.
Leading automobile manufacturer
9. Century Telephone Enterprises
Telecommunication and cable TV services
10. Viacom Inc.
Diverse entertainment and communications company
Despite recent volatility, the Fund remains committed to such holdings
as Tele-Communications and Comcast, based upon their entrepreneurial
managements, renewed cash flows, and new opportunities from increased
cable capacity.
For more complete details about the Fund's Investment Portfolio,
see page 10.
A monthly Investment Portfolio Summary is available upon request.
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
World stock market advances in 1993 were interrupted in early
February, 1994, when the Federal Reserve began a series of increases in
short-term interest rates in an effort to prevent accelerating inflation.
The Fed's actions ushered in a sustained rise in long-term interest rates,
which pushed bond prices significantly lower and depressed stock prices as
well. This market volatility affected many of the Fund's holdings that
performed well in the previous year, including cable, telecommunications,
gaming, technology, and entertainment stocks.
The Fund's net asset value ended the fiscal year on September 30 at
$19.54 compared with $23.06 at the end of the previous year. During the
fiscal year, the Fund distributed $2.62 per share in short- and long-term
capital gains. Adjusted for these payouts, the Fund's total return was
- -4.7% compared to 3.7% for the unmanaged S&P 500 Index, a
capitalization-weighted measure of 500 widely held common stocks.
Periods of market volatility such as we have seen this year remind all
of us of the need to focus on long-term investment objectives when
evaluating performance. Despite the downturn in the first part of this
year, Scudder Capital Growth Fund has generated annual average total
returns of 6.3% and 14.6% over the last five and ten years, respectively.
Please see page 4 for more information on the Fund's long-term performance,
including comparisons to the S&P 500 Index.
Portfolio Emphasis on Communications, Entertainment, and Autos
Scudder Capital Growth Fund makes investments in stocks of individual
companies we believe offer potential for strong earnings growth over time,
but also invests in specific industries we believe will benefit from
developing trends. This can mean remaining invested in the face of
short-term setbacks. For example, in spite of recent volatility, we remain
committed to our large holdings in Tele-Communications (TCI) and Comcast,
two of the dominant companies in the cable industry. These stocks are
currently reflecting adverse developments: renewed FCC regulation of basic
cable rates and some ungluing of joint ventures or mergers between
telephone and cable companies. Our continued enthusiasm for these stocks is
based upon the companies' entrepreneurial managements, renewed cash-flow
growth from their basic cable business, and new opportunities from
substantially increased channel capacity. Time Warner, the Fund's largest
holding, is also in the cable business, but most of the company's profits
come from various entertainment businesses, for which demand is escalating.
Viacom, another major holding, is also a large entertainment conglomerate,
and its recent acquisition of Blockbuster Video should result in
accelerated growth.
The Fund has a large position in AT&T, the communications giant. AT&T
should benefit from its recent purchase of McCaw Cellular (the largest U.S.
cellular company) and continued growth in long-distance telephone volume,
as well as domestic and foreign equipment sales.
The continued expansion of the U.S. economy has led the Fund to
maintain its positions in cyclical companies likely to benefit from that
expansion. Our commitment to Ford and Chrysler is based on the historically
low valuations of these stocks as well as our belief that the current auto
cycle will not peak until 1996. Consequently, we expect significant
earnings growth for both of these companies for the next couple of years.
Portfolio Shifts in Other Sectors
The Fund reduced its substantial media exposure somewhat by selling
Walt Disney, PolyGram, Paramount, and Renaissance Communications. These
stocks had appreciated during the year, and, in our opinion, were fully
valued. The Fund also benefited by reducing its exposure to technology
stocks, a group that was very volatile and under price pressure most of the
year. We sold National Semiconductor, Teradyne, and a partial position in
Microsoft at significant profits. Holdings sold at a loss included Storage
Technology, Synoptics, and part of our position in Novell. We also reduced
the Fund's exposure to the finance sector, since the increase in long-term
interest rates created an adverse environment for financial stocks.
Accordingly, we sold Countrywide Credit, Partners Re, and Travelers.
Tiphook and Structural Dynamics Research were also sold when, in our view,
their long-term investment outlook deteriorated.
The Fund reduced its non-U.S. holdings to 16% of the portfolio on
September 30 from 19% at the start of the year. We took profits in several
Mexican stocks, most notably in Telmex and Grupo Televisa, because of
increased political uncertainty. For the same reason, we sold De Beers and
Anglo-American in South Africa. We increased investments in South Korea,
since we believe that country continues to experience rapid economic growth
and relatively low stock valuations. Among Japanese holdings, highlights
include an investment in NTT, Japan's telecommunications giant, where
potential rate increases and restructuring should result in renewed
earnings growth.
Global Growth to Continue with Some Pickup in Inflation
Looking ahead, a continuation of global economic expansion seems
likely. Although the recovery in the United States is in its fourth year,
economic growth is occurring at a sustainable pace. We expect growth in
U.S. gross domestic product (GDP), up nearly 4% this year, to slow to 3% in
1995, and fall below that rate by that year's end. Meanwhile, Europe is
still in the early stages of recovery and in Asia, outside of Japan, most
economies are improving.
Growth in the global economy will inevitably put some pressure on
production capacity, raw material prices, and labor costs. Ultimately, we
expect prices to increase in certain areas, although we are not looking for
resurgent inflation. We expect consumer inflation in the United States to
rise from under 3% currently to 3.5% in 1995, and to be close to 4% by the
end of next year. However, we do not see an acceleration in domestic
inflation after that point. Deregulation, globalization, and improvements
in technology should help keep a lid on price increases. In addition, we
believe the pace of U.S. economic growth should slow, while government
deficits will continue to prevent the federal government from significantly
increasing spending, and increases in labor costs should be largely
contained by improving productivity and worldwide competitive trends.
We expect overall U.S. corporate profits to increase approximately 6%
in 1995, following an 11% gain this year. We believe business investment
should stay strong, growing by 8% to 10% next year, following a rise of
more than 12% in 1994. Exports should also show sustained growth, and the
dollar, which is cheap relative to foreign currencies, should strengthen.
We believe this environment is generally favorable for equity prices, but
stock selection will be important in achieving above-market returns.
Current Strategies Continuing Into Fiscal 1995
Scudder Capital Growth Fund remains committed to providing long-term
capital growth. We believe the Fund's current concentration in
media-related holdings should be rewarding over the long term, while its
overall diversification, including holdings of stocks in some of the most
rapidly growing areas in the world, should also benefit investors. In
summary, we believe the Fund's selected stock investments, made in light of
our outlook for continued but moderating economic growth, contained
inflation, and long-term interest rates nearing their peak, should prove
favorable for long-term investors looking for growth.
Sincerely,
Your Portfolio Management Team
/s/Steven P. Aronoff /s/Julia D. Cox
Steven P. Aronoff Julia D. Cox
/s/William F. Gadsden
William F. Gadsden
Scudder Capital Growth Fund: A Team Approach to Investing
Scudder Capital Growth Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management
process. Team members work together to develop investment strategies and
select securities for the Fund's portfolio. They are supported by Scudder's
large staff of economists, research analysts, traders, and other investment
specialists who work in Scudder's offices across the United States and
abroad. We believe our team approach benefits Fund investors by bringing
together many disciplines and leveraging Scudder's extensive resources.
Lead Portfolio Manager Steven P. Aronoff has had responsibility for
setting the Fund's stock investing strategy and overseeing the Fund's
day-to-day operations since 1989. Steve joined Scudder in 1969 and has 27
years of experience in stock research and investing. Julia D. Cox,
Portfolio Manager, a member of the Fund's team since 1983, has been
involved in the investment industry since 1969 and at Scudder since 1980.
Julia offers expertise on financial and technology stocks. William F.
Gadsden, Portfolio Manager, helps with the Fund's strategic and sector
allocation decisions. Bill, who has 13 years of investment experience,
joined the Fund in 1989 and Scudder in 1983.
<PAGE>
<TABLE>
SCUDDER CAPITAL GROWTH FUND
INVESTMENT PORTFOLIO as of September 30, 1994
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
----------------------------------------------------------------------
0.5% REPURCHASE AGREEMENT
----------------------------------------------------------------------
7,368,000 Repurchase Agreement with Donaldson,
Lufkin and Jenrette dated 9/30/94 at
4.8% to be repurchased at $7,370,947
on 10/3/94, collateralized by a $7,013,000
U.S. Treasury Note, 8.5%, 2/15/00
(Cost $7,368,000). . . . . . . . . . . . . . . 7,368,000
----------
----------------------------------------------------------------------
0.5% BANKERS' ACCEPTANCES
----------------------------------------------------------------------
FINANCIAL
Banks 6,900,000 Chemical Bank, 4.74%, 10/6/94
(Cost $6,895,457) . . . . . . . . . . . . . . 6,895,457
----------
----------------------------------------------------------------------
1.5% SHORT TERM NOTES
----------------------------------------------------------------------
5,000,000 Federal Home Loan Mortgage Corp.
Discount Note, 4.7%, 10/4/94 . . . . . . . . . 4,998,042
10,000,000 Federal Home Loan Mortgage Corp.
Discount Note, 4.74%, 11/2/94 . . . . . . . . 9,957,867
5,000,000 Federal National Mortgage Association
Discount Note, 4.72%, 10/13/94 . . . . . . . . 4,992,133
----------
TOTAL SHORT TERM NOTES (Cost $19,948,042). . . . 19,948,042
----------
----------------------------------------------------------------------
0.5% CONVERTIBLE BOND
----------------------------------------------------------------------
FINANCIAL
Banks 6,000,000 Banco Nacional de Mexico, 7%, 12/15/99
(Cost $7,357,500) . . . . . . . . . . . . . . 6,720,000
----------
----------------------------------------------------------------------
2.3% CONVERTIBLE PREFERRED STOCKS
----------------------------------------------------------------------
Shares
----------------------------------------------------------------------
DURABLES
Automobiles 248,000 Chrysler Corp., $4.625 (Cost $31,461,352) . . . 31,124,000
----------
The accompanying notes are an integral part of the financial statements.
</TABLE>
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
--------------------------------------------------------------
0.3% PREFERRED STOCKS
--------------------------------------------------------------
FINANCIAL
Banks 40,000 First Nationwide Bank, non-cum 11.5%
(Cost $4,040,000). . . . . . . . . . . . 4,190,000
----------
--------------------------------------------------------------
92.4% COMMON STOCKS
--------------------------------------------------------------
CONSUMER DISCRETIONARY 20.2%
Apparel & Shoes 1.5% 252,400 Jones Apparel Group, Inc.*. . . . . . . . 6,183,800
263,400 Luxottica Group SpA (ADR) . . . . . . . . 8,922,675
253,200 Phillips-Van Heusen Corp. . . . . . . . . 5,222,250
----------
20,328,725
----------
Department & Chain Stores 3.6% 1,266,000 Charming Shoppes Inc. . . . . . . . . . . 10,286,250
890,800 Filene's Basement Corp.*. . . . . . . . . 7,460,450
205,100 Fred Meyer Inc.*. . . . . . . . . . . . . 6,742,663
200,000 J.C. Penney Co., Inc. . . . . . . . . . . 10,325,000
200,000 Limited Inc. . . . . . . . . . . . . . . 3,925,000
608,750 Price/Costco Inc.*. . . . . . . . . . . . 9,778,047
----------
48,517,410
----------
Home Furnishings 0.9% 800,000 Shaw Industries Inc. . . . . . . . . . . 11,500,000
----------
Hotels & Casinos 6.7% 448,600 Caesar's World Inc.* . . . . . . . . . . 19,458,025
274,000 Carnival Corp., Class A . . . . . . . . . 12,021,750
610,600 Circus Circus Enterprises Inc.* . . . . . 13,585,850
14,000 Club Mediterranee . . . . . . . . . . . . 1,213,760
761,250 Mirage Resorts Inc.*. . . . . . . . . . . 16,366,875
310,000 President Riverboat Casinos*. . . . . . . 2,886,875
276,000 Promus Companies Inc.*. . . . . . . . . . 9,280,500
477,700 Royal Caribbean Cruises Ltd. . . . . . . 12,420,200
220,100 Station Casinos Inc.* . . . . . . . . . . 2,971,350
----------
90,205,185
----------
Recreational Products 3.2% 560,000 Acclaim Entertainment Inc.*. . . . . . . . 9,520,000
303,800 Bally Gaming International Inc.* . . . . . 3,949,400
585,600 Electronic Arts Inc.*. . . . . . . . . . . 10,833,600
943,400 International Game Technology Inc. . . . . 19,457,625
----------
43,760,625
----------
Specialty Retail 4.3% 353,400 Consolidated Stores Corp.* . . . . . . . . 5,786,925
1,142,400 Fingerhut Companies, Inc. . . . . . . . . 26,275,200
490,000 Home Shopping Network Inc.*. . . . . . . . 5,267,500
194,100 Spiegel Inc. "A" . . . . . . . . . . . . . 3,518,063
The accompanying notes are an integral part of the financial statements.
</TABLE>
11
<PAGE>
<TABLE>
SCUDDER CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
500,000 Toys "R" Us Inc.*. . . . . . . . . . . . 17,812,500
----------
58,660,188
----------
CONSUMER STAPLES 3.2%
Consumer Electronic &
Photographic Products 0.6% 60,000 Goldstar Co. (GDR) . . . . . . . . . . . 1,320,000
20,568 Samsung Electronics Co., Ltd. (b). . . . 3,928,443
54,154 Samsung Electronics Co., Ltd. (GDS). . . 3,682,472
----------
8,930,915
----------
Consumer Specialties 0.5% 245,000 Paragon Trade Brands, Inc.*. . . . . . . 6,370,000
----------
Food & Beverage 1.6% 179,500 Dr. Pepper/Seven-Up Companies Inc.*. . . 4,173,375
300,000 Panamerican Beverages Inc. "A" . . . . . 10,762,500
200,000 PepsiCo Inc. . . . . . . . . . . . . . . 6,625,000
----------
21,560,875
----------
Package Goods/Cosmetics 0.5% 519,800 American Safety Razor Co.* . . . . . . . 7,017,300
----------
HEALTH 6.2%
Health Industry Services 0.7% 259,000 Beverly Enterprises Inc.* . . . . . . . 3,982,125
176,500 Healthcare Compare Corp.* . . . . . . . 5,085,406
----------
9,067,531
----------
Hospital Management 1.5% 495,600 American Medical Holdings Inc.*. . . . . 11,089,050
200,000 Columbia/HCA Healthcare Corp. . . . . . 8,700,000
----------
19,789,050
----------
Medical Supply & Specialty 0.5% 90,000 Elan Corp. PLC (ADS)* . . . . . . . . . 3,532,500
200,000 Ventritex Inc.* . . . . . . . . . . . . 3,900,000
----------
7,432,500
----------
Pharmaceuticals 3.5% 977,500 Astra AB "B" (Free). . . . . . . . . . . 22,999,726
136,000 Carter-Wallace Inc. . . . . . . . . . . 1,853,000
200,000 Perrigo Co.* . . . . . . . . . . . . . . 2,700,000
160,000 Schering-Plough Corp. . . . . . . . . . 11,360,000
100,000 Warner-Lambert Co. . . . . . . . . . . . 8,025,000
----------
46,937,726
----------
COMMUNICATIONS 12.5%
Cellular Telephone 4.3% 314,900 AirTouch Communications, Inc.* . . . . . 9,014,012
462,200 Associated Communications Corp. "A"* . . 11,901,650
658,100 Associated Communications Corp. "B"* . . 16,946,075
22,200 Grupo Iusacell S.A. de CV "D" (ADR)* . . 632,700
110,100 Grupo Iusacell S.A. de CV "L" (ADR)* . . 3,275,475
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
113,800 LIN Broadcasting Corp.* . . . . . . . 15,832,425
-----------
57,602,337
-----------
Telephone/Communications 8.2% 716,200 American Telephone & Telegraph Co. . . 38,674,800
1,051,100 Century Telephone Enterprises. . . . . 30,350,512
300,000 IDB Communications Group, Inc. . . . . 2,700,000
1,742 Nippon Telegraph & Telephone Corp. . . 15,489,127
526,000 Telephone & Data Systems, Inc. . . . . 24,196,000
-----------
111,410,439
-----------
FINANCIAL 6.7%
Banks 2.3% 200,000 Chemical Banking Corp. . . . . . . . . 7,000,000
112,500 First Commerce Corp. . . . . . . . . . 3,009,375
14,000 First Empire State Corp. . . . . . . . 2,121,000
200,000 G P Financial Corp. . . . . . . . . . 4,750,000
215,000 Grupo Financiero Bancomer "C" (ADR). . 5,247,720
300,500 MBNA Corp. . . . . . . . . . . . . . . 6,949,063
51,000 Mercantile Bancorporation Inc. . . . . 1,880,625
-----------
30,957,783
-----------
Insurance 3.4% 102,900 20th Century Industries. . . . . . . . 1,311,975
300,000 EXEL, Ltd. . . . . . . . . . . . . . . 11,662,500
156,700 General Re Corp. . . . . . . . . . . . 16,590,612
89,600 Liberty Corp. . . . . . . . . . . . . 2,385,600
260,700 Mid Ocean Limited* . . . . . . . . . . 6,598,969
600,000 Western National Corp. . . . . . . . . 8,100,000
-----------
46,649,656
-----------
Other Financial Companies 1.0% 118,000 Federal National Mortgage
Association . . . . . . . . . . . . 9,292,500
55,000 Nichiei Co., Ltd. . . . . . . . . . . 3,823,378
-----------
13,115,878
-----------
MEDIA 19.8%
Broadcasting &
Entertainment 7.9% 300,000 BET Holdings Inc. "A"* . . . . . . . . 4,837,500
109,500 Jacor Communications, Inc. "A"*. . . . 1,587,750
117,700 Savoy Pictures Entertainment Inc.* . . 1,353,550
1,950,000 Time Warner Inc. . . . . . . . . . . . 68,493,750
50,400 Viacom Inc. "A"* . . . . . . . . . . . 2,060,100
684,475 Viacom Inc. "B"* . . . . . . . . . . . 27,207,861
630,000 Viacom Inc. Rights*. . . . . . . . . . 826,875
-----------
106,367,386
-----------
Cable Television 11.3% 3,254,250 Comcast Corp. "A". . . . . . . . . . . 49,830,703
The accompanying notes are an integral part of the financial statements.
</TABLE>
13
<PAGE>
<TABLE>
SCUDDER CAPITAL GROWTH FUND
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2,803,200 Rogers Communications Inc.
"B"* . . . . . . . . . . . . . . 42,580,574
2,730,883 Tele-Communications Inc.
"A"* . . . . . . . . . . . . . . 60,591,467
-----------
153,002,744
-----------
Print Media 0.6% 183,400 Scholastic Corp.* . . . . . . . . 8,940,750
-----------
SERVICE INDUSTRIES 0.6%
Investment 200,000 Franklin Resources Inc. . . . . . 7,475,000
-----------
DURABLES 4.0%
Automobiles 2.4% 220,000 Autoliv AB. . . . . . . . . . . . 6,617,568
300,000 Collins & Aikman Corp.* . . . . . 2,925,000
800,000 Ford Motor Co.. . . . . . . . . . 22,200,000
-----------
31,742,568
-----------
Telecommunications
Equipment 1.3% 200,000 DSC Communications Corp.* . . . . 5,700,000
135,000 Newbridge Networks Corp.* . . . . 4,320,000
63,100 Nokia AB Oy . . . . . . . . . . . 7,331,319
-----------
17,351,319
-----------
Tires 0.3% 200,000 Cooper Tire & Rubber Co.. . . . . 4,675,000
-----------
MANUFACTURING 1.4%
Electrical Products 1.1% 500,000 Philips NV (New York shares). . . 15,187,500
-----------
Machinery/Components/
Controls 0.3% 173,400 Daewoo Heavy Industries Ltd. . . . 3,816,752
-----------
TECHNOLOGY 6.5%
Computer Software 3.5% 406,700 Informix Corp.* . . . . . . . . . 11,285,925
636,000 Microsoft Corp.*. . . . . . . . . 35,695,500
-----------
46,981,425
-----------
EDP Peripherals 0.6% 400,000 Adaptec Inc.* . . . . . . . . . . 7,575,000
-----------
Office/Plant Automation 1.3% 400,000 Cisco Systems, Inc.* . . . . . . 10,950,000
500,000 Novell Inc.* . . . . . . . . . . 7,375,000
-----------
18,325,000
-----------
Semiconductors 1.1% 200,000 Advanced Micro Devices Inc.* . . . 5,950,000
160,000 Intel Corp. . . . . . . . . . . . 9,840,000
-----------
15,790,000
-----------
ENERGY 4.7%
Engineering 0.3% 100,000 Grupo Tribasa SA de CV (ADR)*. . . 3,675,000
-----------
Oil & Gas Production 2.1% 140,000 Anadarko Petroleum Corp. . . . . . 6,265,000
The accompanying notes are an integral part of the financial statements.
</TABLE>
14
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
600,000 Perez Companc S.A. "B" . . . . . . . . 3,407,785
577,100 Triton Energy Corp.* . . . . . . . . . 18,755,750
----------
28,428,535
----------
Oil Companies 1.6% 200,000 Chevron Corp. . . . . . . . . . . . . 8,325,000
300,000 Unocal Corp. . . . . . . . . . . . . . 8,475,000
200,000 YPF SA "D" (ADR) . . . . . . . . . . . 5,050,000
----------
21,850,000
----------
Oilfield Services/
Equipment 0.7% 1,300,000 Global Marine Inc.*. . . . . . . . . . 5,525,000
243,400 Smith International Inc.*. . . . . . . 3,772,700
----------
9,297,700
----------
METALS AND MINERALS 1.7%
Steel & Metals 216,100 Allegheny Ludlum Corp. . . . . . . . . 4,646,150
200,000 LTV Corp*. . . . . . . . . . . . . . . 4,100,000
103,200 Oregon Steel Mills Inc. . . . . . . . 1,831,800
745,000 Usinas Siderurgicas de Minas Gerais
S/A (pfd.) (ADR) . . . . . . . . . . 12,385,625
----------
22,963,575
----------
CONSTRUCTION 2.0%
Building Materials 0.4% 20,500 Mannesmann AG. . . . . . . . . . . . . 5,146,292
----------
Building Products 0.3% 200,000 USG Corp.* . . . . . . . . . . . . . . 4,125,000
----------
Forest Products 0.6% 100,000 Louisiana-Pacific Corp. . . . . . . . 3,312,500
100,000 Weyerhaeuser Co. . . . . . . . . . . . 4,462,500
----------
7,775,000
----------
Homebuilding 0.7% 474,000 Hovnanian Enterprises Inc. "A"*. . . . 3,614,250
340,300 Kaufman & Broad Home Corp. . . . . . . 4,636,587
100,000 Toll Brothers Inc.*. . . . . . . . . . 1,137,500
----------
9,388,337
----------
UTILITIES 2.9%
Electric Utilities 135,000 CMS Energy Corp. . . . . . . . . . . . 2,936,250
30,000 Centerior Energy Corp. . . . . . . . . 281,250
25,000 Cincinnati Gas & Electric Co. . . . . 556,250
125,000 Companhia Energetica de Minas
Gerais (pfd.) (ADR). . . . . . . . . 3,437,500
386,200 Destec Energy Inc.*. . . . . . . . . . 4,393,025
32,900 Entergy Corp. . . . . . . . . . . . . 764,925
40,000 Illinova Corp. . . . . . . . . . . . . 770,000
The accompanying notes are an integral part of the financial statements.
</TABLE>
15
<PAGE>
<TABLE>
SCUDDER CAPITAL GROWTH FUND
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
120,000 Korea Electric Power Co. . . . . . . . 5,559,033
115,000 Midlands Electricity PLC . . . . . . . 1,332,960
100,000 National Power PLC . . . . . . . . . . 726,209
40,000 Pinnacle West Capital Corp. .. . . . . 715,000
200,000 PowerGen PLC . . . . . . . . . . . . . 1,670,044
633,000 Public Service Co. of New Mexico*. . . 7,754,250
43,000 SCEcorp. . . . . . . . . . . . . . . . 559,000
50,000 Southern Electric PLC. . . . . . . . . 570,874
120,000 TNP Enterprises Inc. . . . . . . . . . 1,695,000
20,000 Texas Utilities Co., Inc. . . . . . .. 652,500
236,600 Unicom Corp. . . . . . . . . . . . . . 5,264,350
-------------
39,638,420
-------------
TOTAL COMMON STOCKS
(Cost $1,143,527,612). . . . . . . . 1,249,332,426
-------------
-------------------------------------------------------------
2.0% WARRANTS
-------------------------------------------------------------
TECHNOLOGY
Semiconductors 1,896,800 Intel Corp. Warrants (expire 3/14/98)*
(Cost $22,108,990). . . . . . . . . 26,673,750
-------------
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $1,242,706,953) (a) . . . . . 1,352,251,675
=============
<FN>
(a) The cost for federal income tax purposes was $1,242,766,417. At September 30, 1994, net unrealized
appreciation for all securities based on tax cost was $109,485,258. This consisted of aggregate
gross unrealized appreciation for all securities in which there was an excess of market value over
tax cost of $205,871,033 and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over market value of $96,385,775.
(b) Security valued in good faith by the Valuation Committee of the Board of Trustees. The cost of this
security at September 30, 1994 aggregated $1,224,082. See Note A of the Notes to Financial Statements.
* Non-income producing security.
</TABLE>
<TABLE>
Transactions in written call options during the year ended September 30, 1994 were:
<CAPTION>
PREMIUMS
NUMBER OF CONTRACTS RECEIVED ($)
---------------------------------------------
<S> <C> <C>
Outstanding at
September 30, 1993. . . . . . . . . 1,000 184,494
Contracts written . . . . . . . . . 5,000 751,794
Contracts closed . . . . . . . . . (1,500) (217,368)
Contracts expired . . . . . . . . . (4,500) (718,920)
---------------------------------------------
Outstanding at
September 30, 1994. . . . . . . . . -- --
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------
<S> <C>
SEPTEMBER 30, 1994
- -----------------------------------------------------------------------------------------
ASSETS
Investments, at market (identified cost $1,242,706,953)
(Note A) . . . . . . . . . . . . . . . . . . . . . $1,352,251,675
Receivables:
Dividends and interest . . . . . . . . . . . . . . 1,354,301
Fund shares sold . . . . . . . . . . . . . . . . . 1,233,318
Other assets. . . . . . . . . . . . . . . . . . . . . 6,146
--------------
Total assets. . . . . . . . . . . . . . . . . . 1,354,845,440
LIABILITIES
Payables:
Investments purchased. . . . . . . . . . . . . . . $13,815,380
Fund shares redeemed . . . . . . . . . . . . . . . 1,490,219
Accrued management fee (Note C). . . . . . . . . . 765,970
Other accrued expenses (Note C). . . . . . . . . . 472,359
Total liabilities . . . . . . . . . . . . . . . ---------- 16,543,928
--------------
Net assets, at market value . . . . . . . . . . . . . $1,338,301,512
==============
NET ASSETS
Net assets consist of:
Accumulated net investment loss. . . . . . . . . . $ (59,464)
Unrealized appreciation on investments.. . . . . . 109,544,722
Accumulated net realized gain. . . . . . . . . . . 53,293,552
Shares of beneficial interest. . . . . . . . . . . 684,760
Additional paid-in capital . . . . . . . . . . . . 1,174,837,942
--------------
Net assets, at market value.. . . . . . . . . . . . . $1,338,301,512
==============
NET ASSET VALUE, offering and redemption price per
share ($1,338,301,512-:-68,475,991 outstanding
shares of beneficial interest, $.01 par value,
unlimited number of shares authorized).. . . . . . $19.54
======
The accompanying notes are an integral part of the financial statements.
</TABLE>
17
<PAGE>
<TABLE>
SCUDDER CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------------
<S> <C> <C>
YEAR ENDED SEPTEMBER 30, 1994
- --------------------------------------------------------------------------------------
INVESTMENT INCOME
Income:
Dividends (net of foreign taxes withheld of $414,601). . $ 10,186,247
Interest . . . . . . . . . . . . . . . . . . . . . . . . 1,473,712
-------------
11,659,959
Expenses:
Management fee (Note C). . . . . . . . . . . . . . . . . $ 9,199,315
Services to shareholders (Note C). . . . . . . . . . . . 3,041,456
Trustees' fees (Note C). . . . . . . . . . . . . . . . . 42,775
Reports to shareholders. . . . . . . . . . . . . . . . . 394,458
Custodian fees . . . . . . . . . . . . . . . . . . . . . 356,582
State registration . . . . . . . . . . . . . . . . . . . 56,942
Auditing . . . . . . . . . . . . . . . . . . . . . . . . 43,898
Legal. . . . . . . . . . . . . . . . . . . . . . . . . . 35,681
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 75,041 13,246,148
------------- -------------
Net investment loss. . . . . . . . . . . . . . . . . . . (1,586,189)
-------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments . . . . . . . . . . . . . . . . . . . . . 82,089,827
Options . . . . . . . . . . . . . . . . . . . . . . . 851,183
Foreign currency related transactions.. . . . . . . . (47,216) 82,893,794
-------------
Net unrealized depreciation during the period on:
Investments. . . . . . . . . . . . . . . . . . . . . (146,705,140)
Options. . . . . . . . . . . . . . . . . . . . . . . (92,246)
Foreign currency related transactions. . . . . . . . (2,357) (146,799,743)
------------- -------------
Net loss on investment transactions. . . . . . . . . . (63,905,949)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS.. $ (65,492,138)
=============
The accompanying notes are an integral part of the financial statements.
</TABLE>
18
<PAGE>
<TABLE>
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------
<CAPTION>
YEARS ENDED SEPTEMBER 30,
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) . . . . . . . . . . $ (1,586,189) $ 2,775,948
Net realized gain from investment transactions.. 82,893,794 138,407,141
Net unrealized appreciation (depreciation) on
investment transactions during the period.. . (146,799,743) 172,341,997
---------------- ---------------
Net increase (decrease) in net assets
resulting from operations. . . . . . . . . . (65,492,138) 313,525,086
---------------- ---------------
Distributions to shareholders from:
Net investment income ($.10 per share) . . . . -- (5,856,000)
---------------- ---------------
Net realized gains ($2.62 and $1.25
per share, respectively). . . . . . . . . . (156,922,223) (73,196,663)
---------------- ---------------
Fund share transactions:
Proceeds from shares sold. . . . . . . . . . . 406,188,595 446,907,958
Net asset value of shares issued to
shareholders in reinvestment of
distributions . . . . . . . . . . . . . . . 150,450,426 74,620,420
Cost of shares redeemed. . . . . . . . . . . . (383,278,397) (422,313,301)
---------------- ---------------
Net increase in net assets from Fund share
transactions. . . . . . . . . . . . . . . . 173,360,624 99,215,077
---------------- ---------------
INCREASE (DECREASE) IN NET ASSETS. . . . . . . (49,053,737) 333,687,500
Net assets at beginning of period. . . . . . . 1,387,355,249 1,053,667,749
---------------- ---------------
NET ASSETS AT END OF PERIOD (including
accumulated net investment loss
of $59,464 in 1994) . . . . . . . . . . . . $1,338,301,512 $1,387,355,249
=============== ===============
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period. . . 60,171,937 55,122,551
--------------- ---------------
Shares sold. . . . . . . . . . . . . . . . . . 19,506,116 21,875,933
Shares issued to shareholders in reinvestment
of distributions. . . . . . . . . . . . . . 7,147,289 3,826,483
Shares redeemed . . . . . . . . . . . . . . . . (18,349,351) (20,653,030)
--------------- ---------------
Net increase in Fund shares . . . . . . . . . . 8,304,054 5,049,386
--------------- ---------------
Shares outstanding at end of period . . . . . . 68,475,991 60,171,937
=============== ===============
The accompanying notes are an integral part of the financial statements.
</TABLE>
19
<PAGE>
SCUDDER CAPITAL GROWTH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE INFORMATION
DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------------------------------
1994 1993(b) 1992 1991 1990 1989 1988 1987 1986 1985
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period . . . . . . . . $23.06 $19.12 $19.30 $14.77 $22.30 $16.10 $20.41 $17.17 $15.35 $13.70
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss). . . . (.02) .06 .12 .20 .30(a) .21 .09 .16 .26 .26
Net realized and unrealized
gain (loss) on investment
transactions. . . . . . . . . . . (.88) 5.23 .90 6.05 (6.22) 6.61 (1.82) 5.77 3.67 2.19
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment operations. . (.90) 5.29 1.02 6.25 (5.92) 6.82 (1.73) 5.93 3.93 2.45
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions from:
Net investment income . . . . . . . -- (.10) (.22) (.37) (.16) (.07) (.20) (.23) (.23) (.29)
Net realized gains on
investment transactions . . . . . (2.62) (1.25) (.98) (1.35) (1.45) (.55) (2.38) (2.46) (1.88) (.51)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions . . . . . . . . (2.62) (1.35) (1.20) (1.72) (1.61) (.62) (2.58) (2.69) (2.11) (.80)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period . . . . . . . . . . . $19.54 $23.06 $19.12 $19.30 $14.77 $22.30 $16.10 $20.41 $17.17 $15.35
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN (%) . . . . . . . . . . (4.72) 28.83 5.61 45.85 (28.20) 44.05 (5.61) 39.03 28.46 18.88
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
($ millions) . . . . . . . . . . . 1,338 1,387 1,054 1,058 712 1,013 491 583 414 302
Ratio of operating expenses to
average net assets (%). . . . . . . .97 .96 .98 1.04 .94 .88 .95 .88 .84 .86
Ratio of net investment income
(loss) to average
net assets (%) . . . . . . . . . . (.12) .22 .57 1.24 1.56 1.22 .63 .86 1.50 1.74
Portfolio turnover rate (%). . . . . 75.8 92.2 92.4 93.2 87.9 55.7 48.5 58.2 55.8 57.6
<FN>
(a) Net investment income per share includes nonrecurring dividend income amounting to $.14 per share.
(b) Effective October 1, 1992, the Fund discontinued using equalization accounting.
</TABLE>
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Scudder Capital Growth Fund (the "Fund") is a diversified series of Scudder
Equity Trust (the "Trust"). The Trust is organized as a Massachusetts business
trust and is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company. The policies described below are
followed consistently by the Fund in the preparation of its financial statements
in conformity with generally accepted accounting principles.
SECURITY VALUATION. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the National Association of
Securities Dealers Automatic Quotation ("NASDAQ") System, for which there have
been sales, are valued at the most recent sale price reported on such system. If
there are no such sales, the value is the high or "inside" bid quotation.
Securities which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such
market. If no sale occurred, the security is then valued at the calculated mean
between the most recent bid and asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation shall be used.
Portfolio debt securities with remaining maturities greater than sixty days are
valued by pricing agents approved by the officers of the Fund, which quotations
reflect broker/dealer-supplied valuations and electronic data processing
techniques. If the pricing agents are unable to provide such quotations, the
most recent bid quotation supplied by a bona fide market maker shall be used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value as determined in good faith
by the Valuation Committee of the Board of Trustees. A security valued in good
faith by the Valuation Committee of the Board of Trustees at fair value amounted
to $3,928,443 (0.29% of net assets) and has been noted in the investment
portfolio as of September 30, 1994.
21
<PAGE>
SCUDDER CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
OPTIONS. The Fund may write (sell) exchange-listed and over-the-counter call and
put options on securities and other financial instruments. When the Fund writes
a call, it gives the purchaser of the call option the right to buy the
underlying security at the price specified in the option (the "exercise price")
at any time during the option period, generally ranging up to nine months. When
the Fund writes a put option, it gives the purchaser of the put option the right
to sell the underlying security to the Fund at the exercise price at any time
during the option period, generally ranging up to nine months.
If the option expires unexercised, the Fund will realize income, in the form of
a capital gain, to the extent of the amount received for the option (the
"premium"). If the option is exercised, a decision over which the Fund has no
control, the Fund must sell the underlying security to the option holder or
purchase the underlying security from the option holder at the exercise price.
Certain options, including options on indices will require cash settlement by
the Fund if the option is exercised. By writing a call option, the Fund
foregoes, in exchange for the premium less the commission ("net premium"), the
opportunity to profit during the option period from an increase in the market
value of the underlying security above the exercise price. By writing a put
option, the Fund, in exchange for the net premium received, accepts the risk of
a decline in the market value of the underlying security below the exercise
price.
The liability representing the Fund's obligation under an exchange traded
written call or put option is valued at the last sale price or, in the absence
of a sale, the mean between the closing bid and asked quotations or at the most
recent asked quotation if no bid and asked quotations are available.
Over-the-counter written options are valued at the most recent asked quotation.
In addition, the Fund may purchase, singly and in combination, call and put
options on securities and other financial instruments. Exchange traded
purchased options are valued at the last sales price or, in the absence of a
sale, the mean between the closing bid and asked quotations or at the most
recent bid quotation if no bid and asked quotations are available.
Over-the-counter purchased options are valued at the most recent bid quotation.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement and the underlying collateral, is equal to at least 100.5% of the
resale price.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. In connection with portfolio
purchases and sales of securities denominated in a foreign currency, the Fund
may enter into forward foreign currency exchange contracts ("contracts").
Additionally, the Fund may enter into contracts to hedge certain other foreign
currency denominated assets. Contracts are recorded at market value. Certain
risks may arise upon entering into these contracts from the potential inability
of counterparties to meet the terms of their contracts. Realized and unrealized
gains and losses arising from such transactions are included in net realized and
unrealized gain (loss) from foreign currency related transactions.
FOREIGN CURRENCY TRANSLATIONS. The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis:
(i) market value of investment securities, other assets and
other liabilities at the daily rates of exchange, and
(ii) purchases and sales of investment securities, dividend and
interest income and certain expenses at the rates of exchange
prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments which
is due to changes in foreign exchange rates from that which is due to changes in
market prices of the investments. Such fluctuations are included with the net
realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
23
<PAGE>
SCUDDER CAPITAL GROWTH FUND
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required.
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax. Earnings
and profits distributed to shareholders on redemption of Fund shares may be
utilized by the Fund, to the extent permissible, as part of the Fund's dividends
paid deduction on its federal tax returns "tax equalization."
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. The differences
primarily relate to foreign denominated investments, investments in passive
foreign investment companies, and deferral of certain losses for tax purposes.
As a result, net investment income (loss) and net realized gain (loss) on
investment transactions for a reporting period may differ significantly from
distributions during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
OTHER. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on an accrual basis. Original
issue discounts are accreted for both tax and financial reporting purposes.
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
During the year ended September 30, 1994, purchases and sales of investment
securities (excluding short-term investments) aggregated $1,039,423,868 and
$1,012,433,493, respectively.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Fund's Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund agrees to pay to the Adviser a
fee equal to an annual rate of approximately 0.75% of the first $500,000,000 of
average daily net assets, 0.65% of the next $500,000,000 of such net assets and
0.60% of such net assets in excess of $1,000,000,000, computed and accrued daily
and payable monthly. As manager of the assets of the Fund, the Adviser directs
the investments of the Fund in accordance with its investment objectives,
policies, and restrictions. The Adviser determines the securities, instruments,
and other contracts relating to investments to be purchased, sold or entered
into by the Fund. In addition to portfolio management services, the Adviser
provides certain administrative services in accordance with the Agreement. The
Agreement also provides that if the Fund's expenses, exclusive of taxes,
interest, and extraordinary expenses, exceed specified limits, such excess,
up to the amount of the management fee, will be paid by the Adviser. For the
year ended September 30, 1994, the fee pursuant to the Agreement amounted to
$9,199,315 which was equivalent to an annual effective rate of 0.67% of the
Fund's average daily net assets.
Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund.
Included in services to shareholders is $2,574,119 charged to the Fund by
SSC for the year ended September 30, 1994, of which $223,178 is unpaid at
September 30, 1994.
The Fund pays each of its Trustees not affiliated with the Adviser $4,000
annually plus specified amounts for attended board and committee meetings. For
the year ended September 30, 1994, Trustees' fees aggregated $42,775.
25
<PAGE>
SCUDDER CAPITAL GROWTH FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF SCUDDER EQUITY TRUST AND THE SHAREHOLDERS OF
SCUDDER CAPITAL GROWTH FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
Capital Growth Fund, including the investment portfolio, as of September 30,
1994, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the ten years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Capital Growth Fund as of September 30, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the ten years in the period then ended, in conformity with generally accepted
accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
November 2, 1994
26
<PAGE>
TAX INFORMATION
- --------------------------------------------------------------------------------
The Fund paid distributions of $2.11 per share from long-term capital gains
during its taxable year ended September 30, 1994. Pursuant to section 852
of the Internal Revenue Code, the Fund designates $64,643,421 as capital gain
dividends for the year ended September 30, 1994.
Pursuant to section 854 of the Internal Revenue Code, the Fund designates
$9,777,324 as dividends eligible for the dividends received deduction for
corporations for the year ended September 30, 1994.
27
OFFICERS AND TRUSTEES
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist; Consultant to Bessemer Securities
Corporation
Thomas J. Devine
Trustee; Consultant
David S. Lee*
Vice President and Trustee
Douglas M. Loudon*
Vice President and Trustee
Wilson Nolen
Trustee; Consultant
Juris Padegs*
Vice President and Trustee
Gordon Shillinglaw
Trustee; Professor Emeritus of Accounting, Columbia University
Graduate School of Business
Robert G. Stone, Jr.
Trustee; Chairman of the Board and Director, Kirby Corporation
Robert W. Lear
Honorary Trustee; Executive-in-Residence, Columbia University Graduate
School of Business
Steven Aronoff*
Vice President
Donald E. Hall*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President, Secretary and Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Vice President and Assistant Secretary
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
INVESTMENT PRODUCTS AND SERVICES
The Scudder Family of Funds
Money market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax free money market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Short Term Global Income Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Development Fund
Scudder Global Fund
Scudder Global Small Company Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan+++* (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans
Closed-end Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities Fund, Inc.
Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from
the tax-free funds may be subject to federal, state and local taxes. *Not
available in all states. +++A no-load variable annuity contract provided by
Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder, Stevens & Clark, Inc., are traded on various stock exchanges.
++For information on Scudder Treasurers Trust(tm), an institutional cash
management service that utilizes certain portfolios of Scudder Fund, Inc.
($100,000 minimum), call: 1-800-541-7703.
HOW TO CONTACT SCUDDER
Account Service and Information
For existing account service and transactions
SCUDDER SERVICE CORPORATION
1-800-225-5163
For account updates, prices, yields, exchanges and redemptions
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR INFORMATION
1-800-225-2470
For establishing Keogh, 401(k) and 403(b) plans
SCUDDER GROUP RETIREMENT SERVICES
1-800-323-6105
Please address all correspondence to
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you_they can be
found in the following cities:
Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale
For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts
which utilizes certain portfolios of Scudder Fund, Inc.* ($100,000
minimum), call: 1-800-541-7703.
For information on Scudder Institutional Funds,* funds designed to meet the
broad investment management and service needs of banks and other
institutions, call: 1-800-854-8525.
Scudder Investor Information and Scudder Funds Centers are services
provided through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees
and expenses. Please read it carefully before you invest or send
money.
Celebrating 75 Years of Serving Investors
This year marks the 75th anniversary of the founding of Scudder,
Stevens & Clark, Inc., investment adviser for the Scudder Funds.
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder was the first independent investment counsel firm in the
United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load
mutual fund. Today we offer 36 pure no load(tm) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped Scudder
become one of the largest and most respected investment managers in the
world. Though times have changed since our beginnings, we remain committed
to our longstanding principles: managing money with integrity and
distinction, keeping the interests of our clients first; providing access
to investments and markets that may not be easily available to individuals;
and making investing as simple and convenient as possible through friendly,
comprehensive service.
<PAGE>
This information must be preceded or accompanied by a current prospectus.
Portfolio changes should not be considered recommendations for action by
individual investors.
Scudder Value Fund
Annual Report
September 30, 1994
* For investors seeking long-term growth of capital through investment
in undervalued equity securities.
* A pure no-load(tm) fund with no commissions to buy, sell, or exchange
shares.
CONTENTS
2 Highlights
3 Letter from the Fund's President
4 Performance Update
5 Portfolio Summary
6 Portfolio Management Discussion
9 Investment Portfolio
14 Financial Statements
17 Financial Highlights
18 Notes to Financial Statements
22 Report of Independent Accountants
23 Tax Information
25 Officers and Trustees
26 Investment Products and Services
27 How to Contact Scudder
HIGHLIGHTS
* U.S. corporate earnings improved during the past 12 months, yet
investors were unwilling to bid stock prices higher for the overall
market, as evidenced by the unmanaged S&P 500 Index's 3.68% total
return through September 30, 1994.
* Scudder Value Fund underperformed this market index with a 1.88%
return, largely a result of bank and other interest-rate-sensitive
holdings, which suffered during the year due to steadily rising
interest rates.
* Strong relative performance came from technology and healthcare
stocks, reflecting improved profitability and corporate restructuring
efforts.
* Scudder Value Fund's aggregate price/earnings ratio remains at an
attractive discount (currently 31%) to the S&P 500 Index, based on
1994 estimated earnings.
(BAR CHART TITLE) Price/Earnings Ratio
(Price times estimated 1994 earnings)
(CHART DATA)
Scudder Value Fund 11
S&P 500 Index 16
* Based on preliminary estimates, Scudder Value Fund is expected to make
a year-end distribution of between $0.25 and $0.35 per share of
ordinary income on December 30, 1994, to shareholders of record as of
December 27, 1994. However, the actual amount of this distribution may
vary significantly from the estimate. The Fund will mail shareholders
IRS Form 1099-DIV in late January, which summarizes all distributions
in 1994.
LETTER FROM THE FUND'S PRESIDENT
Dear Shareholders,
The combination of modest global economic growth and low inflation
caused stock prices to move higher in the summer months, and many of the
smaller European markets were up sharply after this year's dismal first
half. Yet the financial community continues to cast a wary eye on the
prospects for inflation and is taking its cues to a large extent from
central bank activity and the direction of interest rates. As a result,
volatility persists in the equity markets.
We expect economic growth in the United States to continue at a
sustainable pace, and corporate earnings should improve as a result. We
expect exports to contribute to growth, aided by economic recovery in
Europe and Japan. However, with the U.S. recovery now 42 months old and 10
months shy of its historical average for postwar expansion, we expect
slower growth in 1995. In the near term, as investors sort through
often-conflicting economic data, the world's stock markets are likely to
remain volatile.
If you have questions about your Fund or your investments, contact a
Scudder Investor Information representative at 1-800-225-2470. Page 27
provides more information on how to contact Scudder. Thank you for choosing
Scudder Value Fund to help meet your investment needs.
We would also like to take this opportunity to announce that on
October 10, 1994, in keeping with our pioneering tradition in international
investing, we introduced Scudder Greater Europe Growth Fund, a pure
no-load(tm) mutual fund, designed to invest both in Western and Eastern
Europe. For more information about Scudder Greater Europe Growth Fund and
other investment products and services, see page 26.
Sincerely,
/s/Daniel Pierce
Daniel Pierce
President,
Scudder Value Fund
Scudder Value Fund
Performance Update as of September 30, 1994
- -----------------------------------------------------------------
Growth of a $10,000 Investment
- -----------------------------------------------------------------
Scudder Value Fund
- ----------------------------------------
Total Return
Period Growth -------------
Ended of Average
9/30/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $10,188 1.88% 1.88%
Life of
Fund* $11,360 13.60% 7.56%
S&P 500 Index
- --------------------------------------
Total Return
Period Growth -------------
Ended of Average
9/30/94 $10,000 Cumulative Annual
- --------- ------- ---------- -------
1 Year $10,368 3.68% 3.68%
Life of
Fund* $11,155 11.55% 6.47%
*The Fund commenced operations on December 31, 1992.
A chart in the form of a line graph appears here,
illustrating the Growth of a $10,000 Investment.
The data points from the graph are as follows:
Yearly periods ended September 30
Scudder Value Fund
Year Amount
- ----------------------
12/92* 10000
3/93 10933
6/93 10900
9/93 11150
12/93 11160
3/94 10830
6/94 10804
9/94 11360
S&P 500 Index
Year Amount
- ----------------------
12/92* 10000
3/93 10437
6/93 10487
9/93 10758
12/93 11008
3/94 10591
6/94 10635
9/94 11155
The Standard & Poor's (S&P) 500 Index is an unmanaged
capitalization-weighted measure of 500 widely held common
stocks listed on the New York Stock Exchange, American Stock
Exchange, and Over-The-Counter market. Index returns assume
reinvestment of dividends and, unlike Fund returns, do not
reflect any fees or expenses.
- -----------------------------------------------------------------
Returns and Per Share Information
- -------------------------------------------------------------------
A chart in the form of a bar graph appears here,
illustrating the Fund Total Return (%) and Index Total
Return (%) with the exact data points listed in the table
below.
Yearly periods ended September 30
- ----------------------------------
<TABLE>
<S> <C> <C>
1993* 1994
---------------
Net Asset Value... $13.38 $13.08
Income Dividends.. $ -- $ .11
Capital Gains
Distributions..... $ -- $ .43
Fund Total
Return (%)........ 11.50 1.88
Index Total
Return (%)........ 7.56 3.68
</TABLE>
All performance is historical, assumes reinvestment of all dividends and
capital gains, and is not indicative of future results.
Investment return and principal value will fluctuate, so an investor's
shares, when redeemed, may be worth more or less than when purchased.
If the Adviser had not maintained the Fund's expenses, the average annual
total return for the one year and life of Fund would have been
approximately 1.57% and 7.08%, respectively.
Scudder Value Fund
Portfolio Summary as of September 30, 1994
- ---------------------------------------------------------------------------
Diversification
- ---------------------------------------------------------------------------
Equity Securities 93% Your portfolio management team's
Cash Equivalents 7% strategy is to be at least 90%
---- invested in stocks or other long-
100% term securities.
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
Sectors (Excludes 7% Cash Equivalents)
- --------------------------------------------------------------------------
Financial 28%
Technology 14%
Energy 11% Recent stock market declines have
Durables 9% created good buying opportunities,
Manufacturing 7% particularly in the technology sector.
Health 6%
Consumer Discretionary 5%
Consumer Staples 5%
Utilities 4%
Other 11%
----
100%
====
A graph in the form of a pie chart appears here,
illustrating the exact data points in the above table.
- --------------------------------------------------------------------------
Ten Largest Equity Holdings
- --------------------------------------------------------------------------
1. Intel Corp.
Semiconductor memory circuits
2. Nokia Corp. AB
Leading cellular telephone manufacturer
3. Policy Management Systems Corp.
Insurance company software and services
4. AMBAC Inc.
Insurer of municipal bonds
5. Digital Equipment Corp.
Manufacturer of data processing equipment
6. VA Technologie AG
Engineering and construction company
7. PartnerRE Holdings Ltd.
Property and casualty insurance company
8. Caesar's World Inc.
Resort hotels, casinos
9. Rogers Communications Inc.
Cable TV and cellular telephones in Canada
10. J.P. Morgan and Co., Inc.
Commercial banking and financial services
Digital Equipment Corp. entered the Portfolio's list of ten largest
holdings at roughly $18 per share, down from a $200 peak in 1987.
For more complete details about the Fund's Investment Portfolio,
see page 9.
A monthly Investment Portfolio Summary is available upon request.
PORTFOLIO MANAGEMENT DISCUSSION
Dear Shareholders,
American corporations reported steadily higher earnings during the
past 12 months, but improving profits were not enough to push stock markets
higher. Investors remained concerned about rising interest rates and the
prospect of higher inflation and left the market averages to trade in a
narrow range for much of the year.
This environment provided only mildly positive returns for stock
investors. Scudder Value Fund's total return (capital change plus income)
during the 12 months ended September 30, 1994, was 1.88%, compared to 1.79%
and 3.68% for the Lipper General Equity Fund Average and the unmanaged S&P
500 Index (the "S&P 500"), respectively. Lipper Analytical Services, Inc.,
is an independent analyst of investment performance.
Interest-Rate-Sensitive Stocks Decline
Finance and utility stocks have traditionally been most sensitive to
changes in interest rates. Utility stocks, as measured by the unmanaged S&P
Utilities Index, declined an astounding 21% during the past 12 months
through September 30. Fortunately, the few utilities owned by the Fund held
up relatively well. However, Fund performance suffered from its large
component of financial stocks, which as a group declined roughly 7% during
the period.
(CALLOUT NEXT TO THE PREVIOUS PARAGRAPH) - A large exposure to financial
stocks hurt the Fund's performance during the period. Financial stocks
historically have been sensitive to changes in interest rates, which rose
substantially during the year.
During the period, the Fund remained invested in carefully selected
financial stocks, including municipal reinsurers (Ambac), regional banks
(Banc One), money-center banks (J.P. Morgan), and government-sponsored
mortgage lenders (Federal National Mortgage Association). We believe the
financial companies in the Fund's portfolio can manage the adverse impact
of rising interest rates to a large degree. In addition, many of these
quality companies are selling at less than 10 times next year's earnings,
versus 15 times earnings for the S&P 500. Although we believe interest
rates will likely rise further in 1994, the pace of rate increases has
slowed considerably, and we expect investor confidence to be restored to
this much-maligned sector by 1995.
Technology, Healthcare Investments Mirror Changing Industries
Other key portfolio sectors, namely technology and healthcare,
performed well during the period. The technology sector demonstrated the
strongest performance, partly due to turnarounds in what many considered
the "dinosaurs" of the industry, specifically IBM and Digital Equipment
(DEC). Over the past few years, IBM and DEC have cut operational costs
dramatically, laying off tens of thousands of workers in the process, to
regain their competitive edge in an industry intent upon downsizing. In
1994, DEC and IBM reported signs of significantly improved fundamentals,
and investors responded by boosting stock prices substantially. DEC, in
particular, was a star performer, after we added it to the portfolio near
its $18 bottom this year, down from a $200 peak in 1987. Intel, one of the
Fund's largest holdings and a beneficiary of the trend toward office and
home computing, has moved sideways over the past year. Investor concern
over the maturity of the semiconductor cycle has placed this technological
leader at a sharp discount to the market (less than nine times next year's
earnings versus 15 times earnings for the S&P 500).
Healthcare stocks, whose prices declined dramatically last year in the
face of prospective legislative reform, have been one of this year's
best-performing groups, including strong performance from health
maintenance organizations and makers of medical devices and
pharmaceuticals. The fear of a government-regulated industry has spurred
many innovative companies to respond to concerns about burgeoning
healthcare costs by becoming more efficient, cutting costs, and reaching
economies of scale _ increasingly through mergers. During the year, we took
the opportunity to lock in profits when our price targets were met on a
number of holdings including Medtronic, United Healthcare, and American
Cyanamid.
Opportunities in Europe
Although the Fund invests primarily in the United States, our global
research often uncovers values abroad that are more compelling than most
domestic alternatives. Among the opportunities we pursued within the last
year was the giant Netherlands-based Philips Electronics. During the year,
Philips saw signs of a turnaround in its consumer electronics business and
continued to benefit from the media successes of its PolyGram subsidiary.
Tele Danmark, Denmark's sole telephone company, also performed well, as did
Nokia, the Finnish consumer products manufacturer that recently surpassed
Motorola as the world's largest maker of cellular phones. Our non-U.S.
holdings now total 21.5%.
Looking Forward
We expect to see improvement in the Japanese economy and further
improvement in Europe next year. Growth in major world economies, combined
with growth in emerging markets such as Southeast Asia, Latin America, and
China, should result in higher demand for world commodities and oil in
particular. Increased demand for energy could boost the price of oil,
whether or not Iraqi supplies come back into the market. Consequently, we
believe the Fund's investments in the energy sector will likely increase.
Generally, we will look to price changes in the market for potential
opportunities. If a stock's price becomes low in relation to current or
not-too-distant future earnings, we evaluate its potential. This philosophy
is the essence of our value-investing strategy.
Scudder Value Fund allows investors access to a diversified group of
stocks trading at relatively low prices in relation to earnings, but with
attractive growth potential. Although individual stocks will come and go,
we do not expect to make significant near-term shifts in the portfolio's
basic composition. In our opinion, Scudder Value Fund's diversified
portfolio of undervalued stocks leaves it well positioned to provide
attractive returns to long-term investors. Please call Scudder Investor
Information at 1-800-225-2470 if you have any questions about your Fund.
Sincerely,
Your Portfolio Management Team
/s/Donald E. Hall /s/William J. Wallace
Donald E. Hall William J. Wallace
Scudder Value Fund:
A Team Approach to Investing
Scudder Value Fund is managed by a team of Scudder investment
professionals who each play an important role in the Fund's management
process. Team members work together to develop investment strategies and
select securities for the Fund's portfolio. They are supported by Scudder's
large staff of economists, research analysts, traders, and other investment
specialists who work in Scudder's offices across the United States and
abroad. We believe our team approach benefits Fund investors by bringing
together many disciplines and leveraging Scudder's extensive resources.
Lead Portfolio Manager Donald E. Hall has had responsibility for
Scudder Value Fund's day-to-day management since its inception in 1992.
Don, who joined Scudder in 1982, has 12 years of experience in the value
style of investing. William J. Wallace, Portfolio Manager, has been a
member of Scudder Value Fund's team since 1992 and has 14 years of
investment experience.
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO as of September 30, 1994
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
% of Principal Market
Portfolio Amount ($) Value ($)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
-------------------------------------------------------------------
6.6% U.S. TREASURY OBLIGATION
-------------------------------------------------------------------
2,317,000 U.S. Treasury Bill, 10/20/94
(Cost $2,311,925) . . . . . . . . . . . . . . 2,311,925
---------
-------------------------------------------------------------------
1.6% CONVERTIBLE BONDS
-------------------------------------------------------------------
COMMUNICATIONS 0.3%
Cellular Telephone 185,000 MTC Electronic Technologies Co., Ltd.,
8%, 7/31/03 . . . . . . . . . . . . . . . . 107,300
---------
MEDIA 1.3%
Cable Television 1,250,000 Rogers Communications Inc., LYON, 5/20/13 . . 456,250
---------
TOTAL CONVERTIBLE BONDS (Cost $663,424) . . . 563,550
---------
-------------------------------------------------------------------
3.0% CONVERTIBLE PREFERRED STOCKS
-------------------------------------------------------------------
Shares
-------------------------------------------------------------------
CONSUMER STAPLES 1.4%
Food & Beverage 14,900 ConAgra Inc., Series E, Cum. $1.69 . . . . . . 489,837
---------
FINANCIAL 0.7%
Other Financial Companies 12,200 California Federal Bank "A" Non-Cum. 7.75% . . 266,875
---------
TECHNOLOGY 0.9%
Semiconductors 5,100 Advanced Micro Devices Inc. $3.00 . . . . . . 304,725
---------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $1,045,256) . . . . . . . . . . . . 1,061,437
---------
-------------------------------------------------------------------
88.8% COMMON STOCKS
-------------------------------------------------------------------
CONSUMER DISCRETIONARY 5.0%
Department & Chain Stores 3.0% 10,000 J.C. Penney Co., Inc. . . . . . . . . . . . 516,250
26,500 Rite Aid Corp. . . . . . . . . . . . . . . . 549,875
---------
1,066,125
---------
Hotels & Casinos 2.0% 15,800 Caesar's World Inc.* . . . . . . . . . . . 685,325
---------
CONSUMER STAPLES 2.8%
Alcohol & Tobacco 1.6% 4,000 Philip Morris Companies Inc. . . . . . . . . 244,500
The accompanying notes are an integral part of the financial statements.
</TABLE>
9
<PAGE>
<TABLE>
SCUDDER VALUE FUND
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
6,500 Quilmes Industrial S.A. . . . . . . . . . . 151,970
25,500 RJR Nabisco Holdings Corp.* . . . . . . . . 175,313
---------
571,783
---------
Food & Beverage 1.2% 11,700 Sara Lee Corp. . . . . . . . . . . . . . . 263,250
7,000 WLR Foods Inc. . . . . . . . . . . . . . . 164,500
---------
427,750
---------
HEALTH 5.8%
Health Industry Services 0.3% 4,290 HealthWise of America, Inc. . . . . . . . . 122,265
---------
Medical Supply & Specialty 0.8% 7,700 St. Jude Medical, Inc. . . . . . . . . . . 275,756
---------
Pharmaceuticals 4.7% 10,000 Astra AB "A" (Free) . . . . . . . . . . . . 239,970
33,500 BioChem Pharma, Inc.* . . . . . . . . . . . 347,562
11,200 Eli Lilly Co. . . . . . . . . . . . . . . . 648,200
5,800 Schering-Plough Corp. . . . . . . . . . . . 411,800
---------
1,647,532
---------
COMMUNICATIONS 3.1%
Cellular Telephone 0.8% 62,400 MTC Electronic Technologies Co., Ltd.* . . 269,100
---------
Telephone/Communications 2.3% 2,900 Alltel Corp. . . . . . . . . . . . . . . . 78,300
21,600 Tele Danmark A/S (ADR)* . . . . . . . . . . 588,600
2,500 Telefonos de Mexico S.A. de C.V.
"L" (ADR). . . . . . . . . . . . . . . . . 156,250
---------
823,150
---------
FINANCIAL 25.4%
Banks 12.4% 16,060 Banc One Corp. . . . . . . . . . . . . . . 479,792
7,900 Banco Latinoamericano de Exportaciones,
SA (ADR) . . . . . . . . . . . . . . . . 252,800
26,000 Bank of Nova Scotia . . . . . . . . . . . . 508,818
11,400 Chemical Banking Corp. . . . . . . . . . . 399,000
4,300 Corporacion Bancaria de Espana (ADR). . . . 86,000
18,600 First Federal Financial Corp.*. . . . . . . 288,300
4,000 First Interstate Bancorp. . . . . . . . . . 324,500
6,600 First Union Corp. . . . . . . . . . . . . . 285,450
13,100 G P Financial Corp. . . . . . . . . . . . . 311,125
10,700 J.P. Morgan & Co., Inc. . . . . . . . . . . 650,025
4,400 National City Corp. . . . . . . . . . . . . 123,750
50,000 PennFed Financial Services Inc.*. . . . . . 593,750
5,900 Westcorp, Inc. . . . . . . . . . . . . . . 56,788
---------
4,360,098
---------
Insurance 8.0% 21,500 AMBAC Inc. . . . . . . . . . . . . . . . . 795,500
14,200 American RE Corp.*. . . . . . . . . . . . . 429,550
The accompanying notes are an integral part of the financial statements.
</TABLE>
10
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3,700 EXEL, Ltd. . . . . . . . . . . . . . . . 143,838
15,200 Lincoln National Corp. . . . . . . . . . 568,100
2,300 MBIA Inc. . . . . . . . . . . . . . . . 137,137
33,300 PartnerRe Holdings Ltd. . . . . . . . . 728,438
---------
2,802,563
---------
Other Financial Companies 3.7% 7,500 Federal National Mortgage Association. . 590,625
4,900 Great Western Financial Corp. . . . . . 94,325
18,300 Student Loan Marketing Association . . . 597,038
---------
1,281,988
---------
Real Estate 1.3% 13,900 Meditrust SBI (REIT) . . . . . . . . . . 444,800
---------
MEDIA 0.9%
Cable Television 13,909 Rogers Communications Inc. "B"* . . . . 211,278
4,300 Tele-Communications Inc. "A"*. . . . . . 95,406
---------
306,684
---------
SERVICE INDUSTRIES 2.3%
Environmental Services 1.6% 19,000 WMX Technologies Inc. . . . . . . . . . 548,625
---------
Investment 0.7% 6,800 Dean Witter, Discover & Co. . . . . . . 255,850
---------
DURABLES 8.2%
Aerospace 3.0% 11,700 Boeing Co. . . . . . . . . . . . . . . . 504,562
8,800 United Technologies Corp. . . . . . . . 551,100
---------
1,055,662
---------
Automobiles 2.1% 5,100 Chrysler Corp. . . . . . . . . . . . . . 228,862
9,600 Ford Motor Co. . . . . . . . . . . . . . 266,400
6,300 Magna International, Inc. "A" . . . . . 232,313
---------
727,575
---------
Telecommunications
Equipment 2.4% 14,400 Nokia Corp. AB (ADR)* . . . . . . . . . 842,400
---------
Tires 0.7% 10,000 Cooper Tire & Rubber Co. . . . . . . . . 233,750
---------
MANUFACTURING 6.8%
Chemicals 1.0% 10,300 Sigma-Aldrich Corp. . . . . . . . . . . 365,650
---------
Diversified Manufacturing 2.2% 27,000 Canadian Pacific Ltd. . . . . . . . . . 452,250
5,400 Dover Corp. . . . . . . . . . . . . . . 307,125
---------
759,375
---------
Electrical Products 1.2% 13,600 Philips NV (New York shares) . . . . . . 413,100
---------
The accompanying notes are an integral part of the financial statements.
</TABLE>
11
<PAGE>
<TABLE>
SCUDDER VALUE FUND
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
% of Market
Portfolio Shares Value ($)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Machinery/Components/
Controls 1.0% 13,600 Harnischfeger Industries, Inc. . . . . . . 358,700
---------
Specialty Chemicals 1.4% 6,200 Betz Laboratories Inc. . . . . . . . . . . 293,725
12,400 Crompton & Knowles Corp. . . . . . . . . . 192,200
---------
485,925
---------
TECHNOLOGY 12.2%
Computer Software 2.3% 20,400 Policy Management Systems Corp.*. . . . . . 813,450
---------
Electronic Components/
Distributors 0.7% 19,000 MicroAge Inc.*. . . . . . . . . . . . . . . 237,500
---------
Electronic Data Processing 3.9% 28,200 Digital Equipment Corp.*. . . . . . . . . . 747,300
4,200 International Business Machines Corp. . . . 291,900
9,600 Stratus Computer Inc.*. . . . . . . . . . . 333,600
---------
1,372,800
---------
Office/Plant Automation 2.0% 16,900 Cisco Systems, Inc.* . . . . . . . . . . . 462,637
9,900 Scitex Corp. Ltd. . . . . . . . . . . . . . 222,750
---------
685,387
---------
Semiconductors 3.3% 18,900 Intel Corp. . . . . . . . . . . . . . . . . 1,162,350
---------
ENERGY 10.6%
Engineering 2.1% 7,400 VA Technologie AG . . . . . . . . . . . . . 738,067
---------
Oil & Gas Production 0.9% 16,900 Union Texas Petroleum Holdings, Inc. . . . 327,438
---------
Oil Companies 5.9% 9,900 Amoco Corp. . . . . . . . . . . . . . . . . 586,575
9,900 Exxon Corp. . . . . . . . . . . . . . . . . 570,488
19,700 Repsol SA (ADR) . . . . . . . . . . . . . . 603,313
10,500 Total SA (ADR). . . . . . . . . . . . . . . 307,125
---------
2,067,501
---------
Oil/Gas Transmission 1.7% 17,300 El Paso Natural Gas Co. . . . . . . . . . . 573,062
---------
METALS AND MINERALS 0.9%
Steel & Metals 14,400 Allegheny Ludlum Corp. . . . . . . . . . . 309,600
---------
CONSTRUCTION 1.1%
Homebuilding 46,300 Inco Homes Corp.* . . . . . . . . . . . . . 150,475
23,800 M/I Schottenstein Homes Inc.* . . . . . . . 243,950
---------
394,425
---------
UTILITIES 3.7%
Electric Utilities 41,800 Destec Energy Inc.* . . . . . . . . . . . . 475,475
25,500 Public Service Co. of New Mexico* . . . . . 312,375
The accompanying notes are an integral part of the financial statements.
</TABLE>
12
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
<CAPTION>
Market
Shares Value ($)
- ---------------------------------------------------------------------------------------------------------
<S> <C>
31,100 TNP Enterprises Inc. . . . . . . . . . . 439,288
2,900 Unicom Corp. . . . . . . . . . . . . . . 64,525
----------
1,291,663
TOTAL COMMON STOCKS ----------
(Cost $30,693,928) . . . . . . . . . . 31,104,774
----------
=========================================================================================================
TOTAL INVESTMENT PORTFOLIO -- 100.0%
(Cost $34,714,533) (a). . . . . . . . . 35,041,686
==========
<FN>
(a) The cost for federal income tax purposes was $34,711,967. At September 30, 1994, net unrealized
appreciation for all securities based on tax cost was $329,719. This consisted of aggregate gross
unrealized appreciation for all securities in which there was an excess of market value over tax
cost of $2,130,899 and aggregate gross unrealized depreciation for all securities in which there
was an excess of tax cost over market value of $1,801,180.
* Non-income producing security.
</TABLE>
<TABLE>
Transactions in written call options during the year ended September 30, 1994 were:
<CAPTION>
PREMIUMS
NUMBER OF CONTRACTS RECEIVED ($)
-------------------------------------------
<S> <C> <C>
Outstanding at
September 30, 1993 . . . . . . . . -- --
Contracts written . . . . . . . . 700 96,034
Contracts closed . . . . . . . . . (200) (28,772)
Contracts expired . . . . . . . . (500) (67,262)
-------------------------------------------
Outstanding at
September 30, 1994 . . . . . . . . -- --
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
SCUDDER VALUE FUND
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
<TABLE>
- -----------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------
SEPTEMBER 30, 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at market (identified cost $34,714,533)
(Note A) . . . . . . . . . . . . . . . . . . . . . . . . . $35,041,686
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 619
Receivables:
Dividends and interest. . . . . . . . . . . . . . . . . . . 56,579
Fund shares sold. . . . . . . . . . . . . . . . . . . . . . 47,296
Deferred organization expense (Note A) . . . . . . . . . . . . 33,785
-----------
Total assets . . . . . . . . . . . . . . . . . . . . . . 35,179,965
LIABILITIES
Payables:
Fund shares redeemed . . . . . . . . . . . . . . . $ 3,808
Accrued management fee (Note C) . . . . . . . . . . 44,148
Other accrued expenses (Note C) . . . . . . . . . . 33,328
-------
Total liabilities . . . . . . . . . . . . . . . . . . . . 81,284
-----------
Net assets, at market value . . . . . . . . . . . . . . . . . . $35,098,681
===========
NET ASSETS
Net assets consist of:
Undistributed net investment income . . . . . . . . . . . . . $ 314,180
Unrealized appreciation on investments. . . . . . . . . . . . 327,153
Accumulated net realized gain . . . . . . . . . . . . . . . . 132,425
Shares of beneficial interest . . . . . . . . . . . . . . . . 26,837
Additional paid-in capital. . . . . . . . . . . . . . . . . . 34,298,086
-----------
Net assets, at market value . . . . . . . . . . . . . . . . . . $35,098,681
===========
NET ASSET VALUE, offering and redemption price per
share ($35,098,681-:- 2,683,720 outstanding
shares of beneficial interest, $.01 par value,
unlimited number of shares authorized) . . . . . . . . . . . $13.08
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
<TABLE>
- ----------------------------------------------------------------------
STATEMENT OF OPERATIONS
- ----------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 1994
- ----------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income:
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . $ 538,971
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 260,315
---------
799,286
Expenses:
Management fee (Note C). . . . . . . . . . . . . $ 112,125
Services to shareholders (Note C). . . . . . . . 120,280
Trustees' fees (Note C). . . . . . . . . . . . . 42,452
Custodian fees . . . . . . . . . . . . . . . . . 50,245
Auditing . . . . . . . . . . . . . . . . . . . . 23,500
Reports to shareholders. . . . . . . . . . . . . 22,326
Legal . . . . . . . . . . . . . . . . . . . . . 19,226
Registration . . . . . . . . . . . . . . . . . . 9,409
Amortization of organization expense (Note A). . 8,931
Other. . . . . . . . . . . . . . . . . . . . . . 5,936 414,430
--------- --------
Net investment income . . . . . . . . . . . . . 384,856
--------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS
Net realized gain from:
Investments . . . . . . . . . . . . . . . . . 407,096
Options . . . . . . . . . . . . . . . . . . . 79,738 486,834
---------
Net unrealized depreciation on investments during
the period . . . . . . . . . . . . . . . . . . . . . . . (213,830)
--------
Net gain on investment transactions. . . . . . . . . . . . . 273,004
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS . . . . $657,860
========
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
SCUDDER VALUE FUND
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------
<CAPTION>
FOR THE
PERIOD
DECEMBER 31,
1992
YEAR (COMMENCEMENT
ENDED OF OPERATIONS) TO
SEPTEMBER 30, SEPTEMBER 30,
INCREASE (DECREASE) IN NET ASSETS 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income. . . . . . . . . . . . . . . $ 384,856 $ 213,219
Net realized gain from investment
transactions . . . . . . . . . . . . . . . . . 486,834 692,623
Net unrealized appreciation (depreciation) on
investment transactions during the period . . . (213,830) 540,983
------------ -----------
Net increase in net assets resulting from
operations . . . . . . . . . . . . . . . . . . 657,860 1,446,825
------------ -----------
Distributions to shareholders from:
Net investment income ($.11 per share) . . . . . . (271,039) --
------------ -----------
Net realized gains ($.43 per share). . . . . . . . (1,059,888) --
------------ -----------
Fund share transactions:
Proceeds from shares sold. . . . . . . . . . . . . 17,585,449 33,271,501
Net asset value of shares issued to shareholders
in reinvestment of distributions . . . . . . . 1,279,362 --
Cost of shares redeemed. . . . . . . . . . . . . . (11,604,314) (6,208,275)
------------ -----------
Net increase in net assets from Fund share
transactions . . . . . . . . . . . . . . . . . 7,260,497 27,063,226
------------ -----------
INCREASE IN NET ASSETS. . . . . . . . . . . . . . 6,587,430 28,510,051
Net assets at beginning of period. . . . . . . . . 28,511,251 1,200
------------ -----------
NET ASSETS AT END OF PERIOD (including
undistributed net investment income of
$314,180 and $204,555, respectively). . . . . . $ 35,098,681 $28,511,251
============ ===========
OTHER INFORMATION
INCREASE (DECREASE) IN FUND SHARES
Shares outstanding at beginning of period. . . . . 2,131,497 100
------------ -----------
Shares sold. . . . . . . . . . . . . . . . . . . . 1,354,224 2,611,233
Shares issued to shareholders in
reinvestment of distributions . . . . . . . . . 99,950 --
Shares redeemed. . . . . . . . . . . . . . . . . . (901,951) (479,836)
------------ -----------
Net increase in Fund shares. . . . . . . . . . . . 552,223 2,131,397
------------ -----------
Shares outstanding at end of period . . . . . . . 2,683,720 2,131,497
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
THE FOLLOWING TABLE INCLUDES SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD AND OTHER PERFORMANCE INFORMATION
DERIVED FROM THE FINANCIAL STATEMENTS.
<CAPTION>
For the Period
December 31, 1992
Year Ended (commencement
September 30, of operations) to
1994 September 30, 1993
------------- ------------------
<S> <C> <C>
Net asset value, beginning of period . . . . . . . . . . . . . . . . . . . $13.38 $12.00
------ ------
Income from investment operations:
Net investment income (a) . . . . . . . . . . . . . . . . . . . . . . . . .13 .10
Net realized and unrealized gain on investments . . . . . . . . . . . . . .11 1.28
------ ------
Total from investment operations . . . . . . . . . . . . . . . . . . . . . .24 1.38
------ ------
Less distributions from:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . (.11) --
Net realized gains on investment transactions . . . . . . . . . . . . . . (.43) --
------ ------
Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . (.54) --
------ ------
Net asset value, end of period . . . . . . . . . . . . . . . . . . . . . . $13.08 $13.38
====== ======
TOTAL RETURN (%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.88 11.50**
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($ millions) . . . . . . . . . . . . . . . . . . 35 29
Ratio of operating expenses, net to average daily net assets (%) (a) . . . 1.25 1.25*
Ratio of net investment income to average daily net assets (%) . . . . . . 1.16 1.56*
Portfolio turnover rate (%) . . . . . . . . . . . . . . . . . . . . . . . 74.6 60.8*
<FN>
(a) Reflects a per share amount of management fee and
other fees not imposed . . . . . . . . . . . . . . . . . . . . . . . . $ .04 $ .06
Operating expense ratio including expenses
reimbursed, management fee and other expenses
not imposed (%). . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.61 2.16*
* Annualized
** Not annualized
</TABLE>
17
<PAGE>
SCUDDER VALUE FUND
NOTES TO FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
Scudder Value Fund (the "Fund") is a diversified series of Scudder Equity Trust
(the "Trust"). The Trust is organized as a Massachusetts business trust and is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The policies described below are followed
consistently by the Fund in the preparation of its financial statements in
conformity with generally accepted accounting principles.
SECURITY VALUATION. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale occurred,
the security is then valued at the calculated mean between the most recent bid
and asked quotations. If there are no such bid and asked quotations, the most
recent bid quotation is used. Securities quoted on the National Association of
Securities Dealers Automatic Quotation ("NASDAQ") System, for which there have
been sales, are valued at the most recent sale price reported on such system. If
there are no such sales, the value is the high or "inside" bid quotation.
Securities which are not quoted on the NASDAQ System but are traded in another
over-the-counter market are valued at the most recent sale price on such market.
If no sale occurred, the security is then valued at the calculated mean
between the most recent bid and asked quotations. If there are no such bid and
asked quotations, the most recent bid quotation shall be used.
Portfolio debt securities with remaining maturities greater than sixty days
are valued by pricing agents approved by the officers of the Fund, which
quotations reflect broker/dealer-supplied valuations and electronic data
processing techniques. If the pricing agents are unable to provide such
quotations, the most recent bid quotation supplied by a bona fide market
maker shall be used. Short-term investments having a maturity of sixty days
or less are valued at amortized cost.
All other securities are valued at their fair value as determined in good
faith by the Valuation Committee of the Board of Trustees.
OPTIONS. The Fund may write (sell) exchange-listed and over-the-counter call and
put options on securities and other financial instruments. When the Fund writes
a call, it gives the purchaser of the call option the right to buy the
underlying security at the price specified in the option (the "exercise price")
at any time during the option period, generally ranging up to nine months. When
the Fund writes a put option, it gives the purchaser of the put option the right
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
to sell the underlying security to the Fund at the exercise price at any time
during the option period, generally ranging up to nine months.
If the option expires unexercised, the Fund will realize income, in the
form of a capital gain, to the extent of the amount received for the option
(the "premium"). If the option is exercised, a decision over which the Fund
has no control, the Fund must sell the underlying security to the option
holder or purchase the underlying security from the option holder at the
exercise price. Certain options, including options on indices will
require cash settlement by the Fund if the option is exercised. By
writing a call option, the Fund foregoes, in exchange for the premium
less the commission ("net premium"), the opportunity to profit during
the option period from an increase in the market value of the underlying
security above the exercise price. By writing a put option, the Fund, in
exchange for the net premium received, accepts the risk of a decline
in the market value of the underlying security below the exercise price.
The liability representing the Fund's obligation under an exchange traded
written call or put option is valued at the last sale price or, in the absence
of a sale, the mean between the closing bid and asked quotations or at the most
recent asked quotation if no bid and asked quotations are available.
Over-the-counter written options are valued at the most recent asked quotation.
In addition, the Fund may purchase, singly and in combination, call and put
options on securities and other financial instruments. Exchange traded purchased
options are valued at the last sales price or, in the absence of a sale, the
mean between the closing bid and asked quotations or at the most recent bid
quotation if no bid and asked quotations are available. Over-the-counter
purchased options are valued at the most recent bid quotation.
REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements with
certain banks and broker/dealers whereby the Fund, through its custodian,
receives delivery of the underlying securities, the amount of which at the time
of purchase and each subsequent business day is required to be maintained at
such a level that the market value, depending on the maturity of the repurchase
agreement and the underlying collateral, is equal to at least 100.5% of the
resale price.
19
<PAGE>
SCUDDER VALUE FUND
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES. The Fund's policy is to comply with the requirements of
the Internal Revenue Code which are applicable to regulated investment companies
and to distribute all of its taxable income to its shareholders. Accordingly,
the Fund paid no federal income taxes and no federal income tax provision was
required.
In addition, from November 1, 1993 through September 30, 1994, the Fund incurred
approximately $191,306 of net long-term capital losses which the Fund intends to
elect to defer and treat as arising in the fiscal year ended September 30, 1995.
DISTRIBUTION OF INCOME AND GAINS. Distributions of net investment income are
made annually. During any particular year net realized gains from investment
transactions, in excess of available capital loss carryforwards, would be
taxable to the Fund if not distributed and, therefore, will be distributed to
shareholders annually. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax regulations
which may differ from generally accepted accounting principles. The differences
primarily relate to deferral of certain losses for tax purposes. As a result,
net investment income (loss) and net realized gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial and federal income tax reporting purposes.
ORGANIZATION COSTS. Costs incurred by the Fund in connection with its
organization and initial registration of shares have been deferred and are being
amortized on a straight-line basis over a five-year period.
OTHER. Investment security transactions are accounted for on a trade-date basis.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is recorded on an accrual basis. Original
issue discounts are accreted for both tax and financial reporting purposes.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
B. PURCHASES AND SALES OF SECURITIES
- --------------------------------------------------------------------------------
During the year ended September 30, 1994, purchases and sales of investment
securities (excluding short-term investments) aggregated $27,980,449 and
$20,774,505, respectively.
C. RELATED PARTIES
- --------------------------------------------------------------------------------
Under the Fund's Investment Management Agreement (the "Agreement") with Scudder,
Stevens & Clark, Inc. (the "Adviser"), the Fund pays the Adviser a fee equal to
an annual rate of 0.70% of the Fund's average daily net assets, computed and
accrued daily and payable monthly. As manager of the assets of the Fund, the
Adviser directs the investments of the Fund in accordance with its investment
objectives, policies, and restrictions. The Adviser determines the securities,
instruments, and other contracts relating to investments to be purchased, sold
or entered into by the Fund. In addition to portfolio management services, the
Adviser provides certain administrative services in accordance with the
Agreement. The Agreement provides that if the Fund's expenses, exclusive of
taxes, interest, and extraordinary expenses, exceed specified limits, such
excess, up to the amount of the management fee, will be paid by the Adviser. In
addition, the Adviser has agreed not to impose all or a portion of its
management fee until January 31, 1995 in order to maintain the annualized
expenses of the Fund at not more than 1.25% of average daily net assets. For the
year ended September 30, 1994, the Adviser did not impose a portion of its
management fee amounting to $119,841, and the amount imposed amounted to
$112,125.
Scudder Service Corporation ("SSC"), a wholly-owned subsidiary of the Adviser,
is the transfer, dividend paying and shareholder service agent for the Fund. For
the year ended September 30, 1994, the amount charged to the Fund by SSC
aggregated $83,968 of which $7,436 is unpaid at September 30, 1994.
The Fund pays each of its Trustees not affiliated with the Adviser $4,000
annually, plus specified amounts for attended board and committee meetings. For
the year ended September 30, 1994, Trustees' fees aggregated $42,452.
21
<PAGE>
SCUDDER VALUE FUND
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF SCUDDER EQUITY TRUST AND THE SHAREHOLDERS OF
SCUDDER VALUE FUND:
We have audited the accompanying statement of assets and liabilities of Scudder
Value Fund including the investment portfolio, as of September 30, 1994, the
related statement of operations for the year then ended and the related
statements of changes in net assets and financial highlights for the year then
ended and for the period December 31, 1992 (commencement of operations) to
September 30, 1993. the financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on the financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
September 30, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Scudder Value Fund as of September 30, 1994, the results of its operations for
the year then ended, the changes in its net assets and the financial highlights
for the year then ended and for the period December 31, 1992 (commencement of
operations) to September 30, 1993 in conformity with generally accepted
accounting principles.
Boston, Massachusetts COOPERS & LYBRAND L.L.P.
November 4, 1994
22
<PAGE>
TAX INFORMATION
- --------------------------------------------------------------------------------
Pursuant to section 854 of the Internal Revenue Code, the Fund designates
$511,863 as dividends eligible for the dividends received deduction for
corporations for the year ended September 30, 1994.
23
OFFICERS AND TRUSTEES
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist; Consultant to Bessemer Securities
Corporation
Thomas J. Devine
Trustee; Consultant
David S. Lee*
Vice President and Trustee
Douglas M. Loudon*
Vice President and Trustee
Wilson Nolen
Trustee; Consultant
Juris Padegs*
Vice President and Trustee
Gordon Shillinglaw
Trustee; Professor Emeritus of Accounting, Columbia University
Graduate School of Business
Robert G. Stone, Jr.
Trustee; Chairman of the Board and Director, Kirby Corporation
Robert W. Lear
Honorary Trustee; Executive-in-Residence, Columbia University Graduate
School of Business
Steven Aronoff*
Vice President
Jerard K. Hartman*
Vice President
Donald E. Hall*
Vice President
Thomas W. Joseph*
Vice President
Thomas F. McDonough*
Vice President, Secretary and Assistant Treasurer
Pamela A. McGrath*
Vice President and Treasurer
Edward J. O'Connell*
Vice President and Assistant Treasurer
Kathryn L. Quirk*
Vice President and Assistant Secretary
Coleen Downs Dinneen*
Assistant Secretary
*Scudder, Stevens & Clark, Inc.
INVESTMENT PRODUCTS AND SERVICES
The Scudder Family of Funds
Money market
Scudder Cash Investment Trust
Scudder U.S. Treasury Money Fund
Tax free money market+
Scudder Tax Free Money Fund
Scudder California Tax Free Money Fund*
Scudder New York Tax Free Money Fund*
Tax free+
Scudder California Tax Free Fund*
Scudder High Yield Tax Free Fund
Scudder Limited Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder Massachusetts Limited Term Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder Medium Term Tax Free Fund
Scudder New York Tax Free Fund*
Scudder Ohio Tax Free Fund*
Scudder Pennsylvania Tax Free Fund*
Growth and Income
Scudder Balanced Fund
Scudder Growth and Income Fund
Income
Scudder Emerging Markets Income Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder International Bond Fund
Scudder Short Term Bond Fund
Scudder Short Term Global Income Fund
Scudder Zero Coupon 2000 Fund
Growth
Scudder Capital Growth Fund
Scudder Development Fund
Scudder Global Fund
Scudder Global Small Company Fund
Scudder Gold Fund
Scudder Greater Europe Growth Fund
Scudder International Fund
Scudder Latin America Fund
Scudder Pacific Opportunities Fund
Scudder Quality Growth Fund
Scudder Value Fund
The Japan Fund
Retirement Plans and Tax-Advantaged Investments
IRAs
Keogh Plans
Scudder Horizon Plan+++* (a variable annuity)
401(k) Plans
403(b) Plans
SEP-IRAs
Profit Sharing and Money Purchase Pension Plans
Closed-end Funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The First Iberian Fund, Inc.
The Korea Fund, Inc.
The Latin America Dollar Income Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder World Income Opportunities Fund, Inc.
Institutional Cash Management
Scudder Institutional Fund, Inc.
Scudder Fund, Inc.
Scudder Treasurers Trust(tm)++
For complete information on any of the above Scudder funds, including
management fees and expenses, call or write for a free prospectus. Read it
carefully before you invest or send money. +A portion of the income from
the tax-free funds may be subject to federal, state and local taxes. *Not
available in all states. +++A no-load variable annuity contract provided by
Charter National Life Insurance Company and its affiliate, offered by
Scudder's insurance agencies, 1-800-225-2470. #These funds, advised by
Scudder, Stevens & Clark, Inc., are traded on various stock exchanges.
++For information on Scudder Treasurers Trust(tm), an institutional cash
management service that utilizes certain portfolios of Scudder Fund, Inc.
($100,000 minimum), call: 1-800-541-7703.
HOW TO CONTACT SCUDDER
Account Service and Information
For existing account service and transactions
SCUDDER SERVICE CORPORATION
1-800-225-5163
For account updates, prices, yields, exchanges and redemptions
SCUDDER AUTOMATED INFORMATION LINE (SAIL)
1-800-343-2890
Investment Information
To receive information about the Scudder funds, for additional
applications and prospectuses, or for investment questions
SCUDDER INVESTOR INFORMATION
1-800-225-2470
For establishing Keogh, 401(k) and 403(b) plans
SCUDDER GROUP RETIREMENT SERVICES
1-800-323-6105
Please address all correspondence to
THE SCUDDER FUNDS
P.O. BOX 2291
BOSTON, MASSACHUSETTS
02107-2291
Or stop by a Scudder Funds Center
Many shareholders enjoy the personal, one-on-one service of the
Scudder Funds Centers. Check for a Funds Center near you_they can be
found in the following cities:
Boca Raton
Boston
Chicago
Cincinnati
Los Angeles
New York
Portland, OR
San Diego
San Francisco
Scottsdale
For information on Scudder Treasurers Trust(tm), an institutional cash
management service for corporations, non-profit organizations and trusts
which utilizes certain portfolios of Scudder Fund, Inc.* ($100,000
minimum), call: 1-800-541-7703.
For information on Scudder Institutional Funds,* funds designed to meet the
broad investment management and service needs of banks and other
institutions, call: 1-800-854-8525.
Scudder Investor Information and Scudder Funds Centers are services
provided through Scudder Investor Services, Inc., Distributor.
* Contact Scudder Investor Services, Inc., Distributor, to receive a
prospectus with more complete information, including management fees
and expenses. Please read it carefully before you invest or send
money.
Celebrating 75 Years of Serving Investors
This year marks the 75th anniversary of the founding of Scudder,
Stevens & Clark, Inc., investment adviser for the Scudder Funds.
Established in 1919 by Theodore Scudder, Sidney Stevens, and F. Haven
Clark, Scudder was the first independent investment counsel firm in the
United States. Since its birth, Scudder's pioneering spirit and commitment
to professional long-term investment management have helped shape the
investment industry. In 1928, we introduced the nation's first no-load
mutual fund. Today we offer 36 pure no load(tm) funds, including the first
international mutual fund offered to U.S. investors.
Over the years, Scudder's global investment perspective and dedication
to research and fundamental investment disciplines have helped Scudder
become one of the largest and most respected investment managers in the
world. Though times have changed since our beginnings, we remain committed
to our longstanding principles: managing money with integrity and
distinction, keeping the interests of our clients first; providing access
to investments and markets that may not be easily available to individuals;
and making investing as simple and convenient as possible through friendly,
comprehensive service.
