Filed electronically with the Securities and Exchange Commission
on December 3, 1998
File No. 2-78724
File No. 811-1444
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 30 / X /
----
And/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 30 / /
----
Value Equity Trust
------------------
(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110
-----------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
--------------
Thomas F. McDonough
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ / On __________________ pursuant to paragraph (b)
/ X / On February 1, 1999 pursuant to paragraph (a) (1)
/ / On __________________ pursuant to paragraph (a) (2) of Rule 485.
If Appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
VALUE EQUITY TRUST
SCUDDER LARGE COMPANY VALUE FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
---------------------------
PART A
- ------
<TABLE>
<CAPTION>
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
<S> <C> <C> <C>
1. Front and Back Cover Pages FRONT AND BACK COVER
2. Risk/Return Summary: FUND SUMMARY
Investments, Risks and Investment Objective and Principal Strategies
Performance Principal Risks
Past Performance
ABOUT THE FUND
Principal Strategies, Investments and Related Risks
Related Risks
3. Risk/Return Summary: Fee EXPENSE INFORMATION
Table
4. Investment Objectives, FUND SUMMARY
Principal Investment Investment Objective and Principal Strategies
Strategies and Related Risks Principal Risks
ABOUT THE FUND
Principal Strategies, Investments and Related Risks
Related Risks
5. Management's Discussion of NOT APPLICABLE
Fund Performance
6. Management, Organization and ABOUT THE FUND
Capital Structure Investment Adviser
Portfolio Management
7. Shareholder Information ABOUT THE FUND
Distribution and Taxes
ABOUT YOUR INVESTMENT
8. Distribution Arrangements FUND SUMMARY
Expense Information
9. Financial Highlights ABOUT THE FUND
Information Financial Highlights
Cross Reference - Page 1
<PAGE>
SCUDDER LARGE COMPANY VALUE FUND
CROSS-REFERENCE SHEET
(continued)
PART B
- ------
Item No. Item Caption Caption in Statement of Additional Information
-------- ------------ ----------------------------------------------
10. Cover Page and Table COVER PAGE
of Contents TABLE OF CONTENTS
11. Fund History FUND ORGANIZATION
12. Description of the THE FUNDS'INVESTMENT OBJECTIVES AND POLICIES
Fund and Its PORTFOLIO TRANSACTIONS- Brokerage Commissions and Portfolio Turnover
Investments and Risks
13. Management of the Fund TRUSTEES AND OFFICERS
REMUNERATION
14. Control Persons and TRUSTEES AND OFFICERS
Principal Holders of
Securities
15. Investment Advisory INVESTMENT ADVISER
and Other Services DISTRIBUTOR
ADDITIONAL INFORMATION - Experts, Other Information
16. Brokerage Allocation PORTFOLIO TRANSACTIONS
and Other Practices BROKERAGE COMMISSIONS
PORTFOLIO TURNOVER
17. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
18. Purchase, Redemption PURCHASES
and Pricing of Shares EXCHANGES AND REDEMPTIONS
FEATURES AND SERVICES OFFERED BY THE FUND - Dividend and Capital
Gain Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
19. Taxation of the Fund DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
20. Underwriters DISTRIBUTOR
21. Calculation of PERFORMANCE INFORMATION
Performance Data
22. Financial Statements FINANCIAL STATEMENTS
Cross Reference - Page 2
<PAGE>
VALUE EQUITY TRUST
SCUDDER VALUE FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
---------------------------
PART A
- ------
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
1. Front and Back Cover Pages FRONT AND BACK COVER
2. Risk / Return Summary: FUND SUMMARY
Investments, Risks and Investment Objective and Principal Strategies
Performance Principal Risks
Past Performance
ABOUT THE FUND
Principal Strategies, Investments and Related Risks
Related Risks
3. Risk/Return Summary: Fee EXPENSE INFORMATION
Table
4. Investment Objectives, FUND SUMMARY
Principal Investment Investment Objective and Principal Strategies
Strategies and Related Risks Principal Risks
ABOUT THE FUND
Principal Strategies, Investments and Related Risks
Related Risks
5. Management's Discussion of NOT APPLICABLE
Fund Performance
6. Management, Organization and ABOUT THE FUND
Capital Structure Investment Adviser
Portfolio Management
7. Shareholder Information ABOUT THE FUND
Distribution and Taxes
ABOUT YOUR INVESTMENT
8. Distribution Arrangements ABOUT THE FUND
Distribution and Taxes
FUND SUMMARY
Expense Information
9. Financial Highlights ABOUT THE FUND
Information Financial Highlights
Cross Reference - Page 3
<PAGE>
SCUDDER VALUE FUND
CROSS-REFERENCE SHEET
(continued)
PART B
- ------
Item No. Item Caption Caption in Statement of Additional Information
-------- ------------ ----------------------------------------------
10. Cover Page and Table COVER PAGE
of Contents TABLE OF CONTENTS
11. Fund History FUND ORGANIZATION
12. Description of the THE FUNDS'INVESTMENT OBJECTIVES AND POLICIES
Fund and Its PORTFOLIO TRANSACTIONS- Brokerage Commissions and Portfolio Turnover
Investments and Risks
13. Management of the Fund TRUSTEES AND OFFICERS
REMUNERATION
14. Control Persons and TRUSTEES AND OFFICERS
Principal Holders of
Securities
15. Investment Advisory INVESTMENT ADVISER
and Other Services DISTRIBUTOR
ADDITIONAL INFORMATION - Experts, Other Information
16. Brokerage Allocation PORTFOLIO TRANSACTIONS
and Other Practices BROKERAGE COMMISSIONS
PORTFOLIO TURNOVER
17. Capital Stock and FUND ORGANIZATION
Other Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
18. Purchase, Redemption PURCHASES
and Pricing of Shares EXCHANGES AND REDEMPTIONS
FEATURES AND SERVICES OFFERED BY THE FUND - Dividend and Capital
Gain Distribution Options
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
19. Taxation of the Fund DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
20. Underwriters DISTRIBUTOR
21. Calculation of PERFORMANCE INFORMATION
Performance Data
22. Financial Statements FINANCIAL STATEMENTS
Cross Reference - Page 4
<PAGE>
VALUE EQUITY TRUST
KEMPER VALUE FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
---------------------------
PART A
- ------
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
1. Front and Back Cover Pages FRONT AND BACK COVER
2. Risk/Return Summary: VALUE STOCK INVESTING
Investments, Risks and Investment Approach
Performance Principal Risk Factors
ABOUT THE FUNDS - KEMPER VALUE FUND
Investment Objective and Strategies
Principal Risks
Past Performance
Principal Strategies and Investments
Related Risks
3. Risk/Return Summary: Fee ABOUT THE FUNDS - KEMPER VALUE FUND
Table Expense Information
4. Investment Objectives, VALUE STOCK INVESTING
Principal Investment Investment Approach
Strategies and Related Risks Principal Risk Factors
ABOUT THE FUNDS - KEMPER VALUE FUND
Investment Objective and Strategies
Principal Risks
Principal Strategies and Investments
Related Risks
5. Management's Discussion of NOT APPLICABLE
Fund Performance
6. Management, Organization and INVESTMENT MANAGER
Capital Structure PORTFOLIO MANAGEMENT
7. Shareholder Information ABOUT YOUR INVESTMENT
Choosing a Share Class
Buying Shares
Selling and Exchanging Shares
Distribution and Taxes
Transaction Information
8. Distribution Arrangements ABOUT THE FUNDS - KEMPER VALUE FUND
Expense Information
9. Financial Highlights ABOUT THE FUNDS - KEMPER VALUE FUND
Information Financial Highlights
Cross Reference - Page 5
<PAGE>
KEMPER VALUE FUND
CROSS-REFERENCE SHEET
(continued)
PART B
- ------
Item No. Item Caption Caption in Statement of Additional Information
-------- ------------ ----------------------------------------------
10. Cover Page and Table COVER PAGE AND TABLE OF CONTENTS
of Contents
11. Fund History INAPPLICABLE
12. Description of the INVESTMENT RESTRICTIONS; INVESTMENT POLICIES AND TECHNIQUES
Fund and Its
Investments and Risks
13. Management of the Fund INVESTMENT MANAGER AND UNDERWRITER
OFFICERS AND TRUSTEES
14. Control Persons and OFFICERS AND TRUSTEES
Principal Holders of
Securities
15. Investment Advisory INVESTMENT MANAGER AND UNDERWRITER; OFFICERS AND TRUSTEES
and Other Services
16. Brokerage Allocation PORTFOLIO TRANSACTIONS
and Other Practices
17. Capital Stock and DIVIDENDS, DISTRIBUTIONS AND TAXES
Other Securities SHAREHOLDER RIGHTS
18. Purchase, Redemption PURCHASE, REPURCHASE AND REDEMPTION OF SHARES
and Pricing of Shares
19. Taxation of the Fund DIVIDENDS AND TAXES
20. Underwriters INVESTMENT MANAGER AND UNDERWRITER
21. Calculation of PERFORMANCE
Performance Data
</TABLE>
22. Financial Statements FINANCIAL STATEMENTS
Cross Reference - Page 6
<PAGE>
KEMPER EQUITY FUNDS - VALUE STYLE
SUPPLEMENT TO PROSPECTUS
DATED FEBRUARY 1, 1999
CLASS I SHARES
Kemper Contrarian Fund
Kemper-Dreman High Return Equity Fund
Kemper Small Cap Value Fund
Kemper-Dreman Financial Services Fund
Kemper Small Cap Relative Value Fund
Kemper U.S. Growth and Income Fund
Kemper Value Fund
The above funds currently offer four classes of shares to provide investors with
different purchasing options. These are Class A, Class B and Class C shares,
which are described in the prospectus, and Class I shares, which are described
in the prospectus as supplemented hereby.
Class I shares are available for purchase exclusively by the following
categories of institutional investors: (1) tax-exempt retirement plans (Profit
Sharing, 401(k), Money Purchase Pension and Defined Benefit Plans) of Scudder
Kemper Investments, Inc. ("Scudder Kemper") and its affiliates and rollover
accounts from those plans; (2) the following investment advisory clients of
Scudder Kemper and its investment advisory affiliates that invest at least $1
million in a Fund: unaffiliated benefit plans, such as qualified retirement
plans (other than individual retirement accounts and self-directed retirement
plans); unaffiliated banks and insurance companies purchasing for their own
accounts; and endowment funds of unaffiliated non-profit organizations; (3)
investment-only accounts for large qualified plans, with at least $50 million in
total plan assets or at least 1000 participants; (4) trust and fiduciary
accounts of trust companies and bank trust departments providing fee based
advisory services that invest at least $1 million in a Fund on behalf of each
trust; and (5) policy holders under Zurich-American Insurance Group's collateral
investment program investing at least $200,000 in a Fund. Class I shares
currently are available for purchase only from Kemper Distributors, Inc.
("KDI"), principal underwriter for the Funds, and, in the case of category 4
above, elected dealers authorized by KDI. Share certificates are not available
for Class I shares.
The primary distinctions among the classes of each Fund's shares lie in their
initial and contingent deferred sales charge schedules and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. Class I shares are offered at net asset value without an
initial sales charge and are not subject to a contingent deferred sales charge
or a Rule 12b-1 distribution fee. Also, there is no administrative services fee
charged to Class I shares. As a result of the relatively lower expenses for
Class I shares, the level of income dividends per share (as a percentage of net
asset value) and, therefore, the overall investment return, will be higher for
Class I shares than for Class A, Class B and Class C shares.
<PAGE>
The following information supplements the indicated sections of the prospectus.
Average Annual Total Returns - Class I shares
For periods ended
December 31, 1998 One Year Five Years Ten Years
Kemper Contrarian Fund
Kemper-Dreman High
Return Equity Fund
Kemper Small Cap Value
Fund
Kemper-Dreman Financial
Services Fund
Kemper Small Cap
Relative Value Fund
Kemper U.S. Growth and
Income Fund
Kemper Value Fund
S&P 500 Stock Index . % . % . %
-- -- -- -- -- --
The S&P 500 Stock Index is a commonly recognized unmanaged measure of 500 widely
held common stocks. Index returns assume reinvestment of dividends and, unlike
the fund's returns, do not reflect any fees or expenses.
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transaction
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Buying shares and Special features sections.
- --------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- --------------------------------------------------------------------------------
<TABLE>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Maximum Maximum
Sales Deferred
Charge on Maximum Sales
Purchases Sales Charge (as
(as a % of Charge on a % of
offering Reinvested Redemption Exchange redemption
price) Dividends Fee Fee proceeds)
- ----------------------------------------------------------------------------------------------------------
Kemper Contrarian Fund
- ----------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity Fund
- ----------------------------------------------------------------------------------------------------------
Kemper Small Cap Value Fund
- ----------------------------------------------------------------------------------------------------------
Kemper-Dreman Financial Services Fund
- ----------------------------------------------------------------------------------------------------------
Kemper Small Cap Relative Value Fund
- ----------------------------------------------------------------------------------------------------------
Kemper U.S. Growth and Income Fund
- ----------------------------------------------------------------------------------------------------------
2
<PAGE>
Kemper Value Fund
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income. These are expressed as a percentage of the fund's average
daily net assets for the year ended .
------
- --------------------------------------------------------------------------------
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total fund
Investment operating
management fee Rule 12b-1 fees Other expenses expenses
- -----------------------------------------------------------------------------------------------------------------
Kemper Contrarian Fund
- -----------------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity Fund
- -----------------------------------------------------------------------------------------------------------------
Kemper Small Cap Value Fund
- -----------------------------------------------------------------------------------------------------------------
Kemper-Dreman Financial Services Fund
- -----------------------------------------------------------------------------------------------------------------
Kemper Small Cap Relative Value Fund
- -----------------------------------------------------------------------------------------------------------------
Kemper U.S. Growth and Income Fund
- -----------------------------------------------------------------------------------------------------------------
Kemper Value Fund
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fees and expenses if you did not sell your
Fees and expenses if you sold shares after: shares:
1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years
Kemper Contrarian
Fund
-------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman High
Return Equity Fund
-------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap
Value Fund
-------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman
Financial Services
Fund
-------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap
Relative Value Fund
-------------------------------------------------------------------------------------------------------------------------
Kemper U.S. Growth
and Income Fund
-------------------------------------------------------------------------------------------------------------------------
Kemper Value Fund
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL HIGHLIGHTS - TO BE UPDATED
Kemper Contrarian Fund
Kemper-Dreman High Return Equity Fund
Kemper Small Cap Value Fund
Kemper-Dreman Financial Services Fund
3
<PAGE>
Kemper Small Cap Relative Value Fund
Kemper U.S. Growth and Income Fund
Kemper Value Fund
SPECIAL FEATURES
Shareholders of a Fund's Class I shares may exchange their shares for (i) shares
of Zurich Money Funds--Zurich Money Market Fund if the shareholders of Class I
shares have purchased shares because they are participants in tax-exempt
retirement plans of Scudder Kemper and its affiliates and (ii) Class I shares of
any other "Kemper Mutual Fund" listed under "Special Features--Class A
Shares--Combined Purchases" in the prospectus. Conversely, shareholders of
Zurich Money Funds--Zurich Money Market Fund who have purchased shares because
they are participants in tax-exempt retirement plans of Scudder Kemper and its
affiliates may exchange their shares for Class I shares of "Kemper Mutual Funds"
to the extent that they are available through their plan. Exchanges will be made
at the relative net asset values of the shares. Exchanges are subject to the
limitations set forth in the prospectus under "Special Features--Exchange
Privilege--General."
February 1, 1999
4
<PAGE>
The Securities and Exchange Commission does not make any judgments as to whether
any mutual fund is a good investment. Nor does it judge the accuracy or
completeness of any mutual fund prospectus. It is a federal offense to suggest
otherwise.
SCUDDER LARGE COMPANY VALUE FUND
PROSPECTUS
FEBRUARY 1, 1999
Seeking maximum capital appreciation over the long term through a value-oriented
approach to investing.
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
- ----------------------
No Sales Charges
- ----------------------
PURE NO-LOAD(TM)
- ----------------------
<PAGE>
CONTENTS
FUND SUMMARY................................................3
An overview of the fund's goal and strategy, main
risks, performance and expenses
ABOUT THE FUND..............................................6
Additional information that you should know about the
fund
PRINCIPAL STRATEGIES, INVESTMENTS AND RELATED RISKS.......6
INVESTMENT ADVISER........................................8
DISTRIBUTIONS AND TAXES...................................9
FINANCIAL HIGHLIGHTS.....................................11
ABOUT YOUR INVESTMENT......................................11
Information about managing your fund account
TRANSACTION INFORMATION..................................11
BUYING AND SELLING SHARES................................13
PURCHASES................................................13
EXCHANGES AND REDEMPTIONS................................14
INVESTMENT PRODUCTS AND SERVICES.........................15
2
<PAGE>
FUND SUMMARY
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Scudder Large Company Value Fund pursues maximum long-term capital appreciation
through a value-oriented approach to investing. The fund invests primarily in a
diversified portfolio of common stocks of large, established U.S. companies --
those with a market value of $1 billion or more.
The fund's portfolio management team uses a value-oriented approach in selecting
large company stocks -- that is, they search for stocks that appear to be
undervalued. A stock is undervalued if its stock price does not reflect its
potential worth.
Stocks trade at a discount for many reasons. Typically, these companies, or
their industries, have fallen out of favor with investors because of such things
as earnings disappointments, negative industry or economic events, or investor
skepticism. As a result, their stock prices may not adequately reflect their
true value. The prices of these securities may rise as business fundamentals
improve or as market conditions change. For example, stock prices are often
affected when a company's earnings exceed general expectations or when investors
begin to appreciate the full extent of a company's business potential.
In searching for undervalued stocks of large companies, the fund's portfolio
management team uses both valuation analysis and fundamental research to uncover
stocks, whose market value has temporarily declined, but appear to be poised for
a rebound. This fund may be an appropriate choice for the growth portion of an
investor's portfolio.
PRINCIPAL RISKS
There are market and investment risks with any security and the value of an
investment in the fund will fluctuate over time.
Stock Market. The fund's returns and net asset value will go up and down, and it
is possible to lose money invested in the fund. Stock market movements will
affect the fund's share prices on a daily basis. Declines are possible both in
the overall stock market or in the types of securities held by the fund.
Value Investing Risk. The determination that a stock is undervalued is
subjective; the market may not agree, and a stock's price may not rise to what
the portfolio management team believes is its full value. It may even decrease
in value. However, because of the fund's focus on undervalued stocks of large
companies, the fund's downside risk may be reduced since value stocks are in
theory already underpriced and large company stocks tend to be less volatile
than small company stocks.
3
<PAGE>
Portfolio Strategy. The portfolio management team's skill in choosing
appropriate investments for the fund will determine in large part the fund's
ability to achieve its investment objective.
PAST PERFORMANCE
The chart and table below illustrate the changes in the fund's performance from
year to year, as well as performance over time. Of course, past performance is
not necessarily an indication of future performance.
Total returns for years ended December 31 [Bar Graphics To Be Inserted]
- --------------------------------------------------------------------------------
Total 33.80 -16.98 42.96 7.09 20.07 -9.87 31.64 19.55 32.54
Return:
- --------------------------------------------------------------------------------
Year: 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
For the periods included in the bar chart, the fund's highest return for a
calendar quarter was [ ]% (the [ ] quarter of [ ]), and the fund's lowest return
for a calendar quarter was [ ]% (the [ ] quarter of [ ]).
- --------------------------------------------------------------------------------
Average annual total returns
- --------------------------------------------------------------------------------
Standard and
For periods ended Poor's 500
December 31, 1998 Fund Index
- --------------------------------------------------------------------------------
One Year xx.xx% xx.xx%
- --------------------------------------------------------------------------------
Five Years xx.xx% xx.xx%
- --------------------------------------------------------------------------------
Ten Years xx.xx% xx.xx%
- --------------------------------------------------------------------------------
The Standard & Poor's 500 Stock Index is a commonly recognized unmanaged measure
of 500 widely held common stocks. Index returns assume reinvestment of dividends
and, unlike the fund's returns, do not reflect any fees or expenses.
4
<PAGE>
EXPENSE INFORMATION
Scudder Family of Funds pure no-load(TM) fund
This information is designed to help you understand the costs of investing in
the fund. With Scudder's pure no-load(TM) funds, you pay no charges 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.
- --------------------------------------------------------------------------------
Shareholder Fees: Fees charged directly to your account in the fund for various
transactions.
- --------------------------------------------------------------------------------
Charges to purchase shares (sales load) NONE
- --------------------------------------------------------------------------------
Deferred charges on purchase of shares NONE
- --------------------------------------------------------------------------------
Charges to reinvest dividends NONE
- --------------------------------------------------------------------------------
Fees to redeem shares NONE*
- --------------------------------------------------------------------------------
Fees to exchange shares NONE
================================================================================
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income. These are expressed as a percentage of the fund's average
daily net assets for the year ended September 30, 1998.
- --------------------------------------------------------------------------------
Investment management fee x.xx%
- --------------------------------------------------------------------------------
Distribution (12b-1) fees NONE
- --------------------------------------------------------------------------------
Other expenses x.xx%
- --------------------------------------------------------------------------------
Total fund operating expenses x.xx%
- --------------------------------------------------------------------------------
* 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 "About Your Investment --
Exchanges and Redemptions."
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. This example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
Investors do not pay these expenses directly; they are paid by the fund before
it distributes its net investment income to shareholders. The expenses would be
the same whether you sold your shares at the end of each period or continued to
hold them.
5
<PAGE>
- --------------------------------------------------------------------------------
One Year $___
- --------------------------------------------------------------------------------
Three Years $___
- --------------------------------------------------------------------------------
Five Years $___
- --------------------------------------------------------------------------------
Ten Years $___
- --------------------------------------------------------------------------------
ABOUT THE FUND
PRINCIPAL STRATEGIES, INVESTMENTS AND RELATED RISKS
Principal strategies and investments
The fund attempts to achieve its objective by investing predominantly in U.S.
large company stocks that appear to have temporarily fallen out of favor with
investors but seem to offer the potential for attractive long-term gains. The
fund's portfolio management team determines what stocks to invest in by using a
disciplined approach that combines both valuation analysis and fundamental
research.
The portfolio management team begins its selection process by using a
proprietary computer model to rank the 1000 stocks that comprise the Russell
1000 Index -- a widely used benchmark of large stock performance -- based on
their relative valuations. A company's valuation is measured by comparing its
stock price to its business fundamentals, such as sales, earnings or book value.
The higher the valuation, the more "expensive" the stock. The portfolio
management team focuses on the "cheapest" 40% of these stocks (or the stocks
with the lowest valuations). These stocks are then further analyzed and rated
using fundamental research, such as an examination of a company's historical
earnings patterns, sales growth and profit margins in order to assess the
likelihood of a rebound if a company's business fundamentals improve or market
conditions change. Based on this information, the fund's portfolio management
team selects approximately 80-100 stocks that the portfolio management team
believes offer the greatest potential for attractive long-term gains.
In addition, the fund's flexible investment strategy enables it to invest in a
broadly diversified portfolio of large company stocks in all sectors of the
market, including foreign markets when the opportunity arises. By diversifying
its assets broadly among undervalued stocks of large companies, the fund may
experience less share price volatility than other mutual funds that pursue
above-average returns.
The fund typically sells a stock when its price is no longer considered to be a
value, it is less likely to benefit from the current market or economic
environment, it experiences deteriorating fundamentals or it falls short of the
portfolio management team's expectations.
Of course, there can be no guarantee that, by following this investment
strategy, the fund will achieve its objective.
6
<PAGE>
From time to time, the fund may invest, without limit, in debt securities,
short-term indebtedness, cash and cash equivalents for temporary defensive
purposes. Because this defensive policy differs from the fund's investment
objective, the fund may not achieve its goal during a defensive period.
Except as otherwise indicated, the fund's investment objective and policies may
be changed without a vote of shareholders.
More information about investments and strategies is provided in the fund's
Statement of Additional Information.
Related Risks
Equity Investing Risk. An investment in the common stock of a company represents
a proportionate ownership interest in that company. Therefore, the fund
participates in the success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on your investment. However, the market value of common stocks can
fluctuate significantly, reflecting such things as the business performance of
the issuing company, investors' perceptions of the company or the overall stock
market and general economic or financial market movements.
Inflation Risk. There is a possibility that the rising prices of goods and
services may have the effect of offsetting a fund's real return.
A MESSAGE FROM THE PRESIDENT
Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide. We manage more than $230 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts.
We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 50 no-load mutual fund portfolios or classes of
shares. We also manage 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 numerous other open- and closed-end funds that invest in this
country and other 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: IRAs, 401(k)s,
Keoghs and other retirement plans are also available.
Services available to shareholders include toll-free access to professional
representatives, easy exchange among the Scudder Family of Funds, shareholder
7
<PAGE>
reports, informative newsletters and the walk-in convenience of Scudder Investor
Centers.
The Scudder Family of Funds is offered without charges to purchase or redeem
shares or to exchange from one fund to another. There are no distribution
(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.
INVESTMENT ADVISER
The fund retains the investment management firm of Scudder Kemper Investments,
Inc., 345 Park Avenue, New York, NY, to manage the fund's daily investment and
business affairs subject to the policies established by the fund's Board.
Scudder Kemper Investments, Inc. actively manages the fund's investments.
Professional management can be an important advantage for investors who do not
have the time or expertise to invest directly in individual securities.
For the fiscal year ended September 30, 1998, Scudder Kemper Investments, Inc.
received an investment management fee of _____% of the fund's average daily net
assets on an annual basis.
PORTFOLIO MANAGEMENT
The fund is managed by a team of investment professionals, who each plays 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 the fund's investment manager's large staff of economists,
research analysts, traders and other investment specialists who work in Scudder
Kemper Investments, Inc.'s offices across the United States and abroad. The
fund's investment manager believes its team approach benefits fund investors by
bringing together many disciplines and leveraging its extensive resources.
The following investment professionals are associated with the fund as
indicated:
- --------------------------------------------------------------------------------
Name and Title Joined the Fund Responsibilities and Background
- --------------------------------------------------------------------------------
Kathleen T. Millard 1995 Joined Scudder Kemper Investments in
Lead Manager 1991. She has fifteen years of
investment experience.
- --------------------------------------------------------------------------------
Lois Friedman Roman 1995 Joined Scudder Kemper Investments in
Manager 1994. She has ten years of investment
experience.
- --------------------------------------------------------------------------------
YEAR 2000 READINESS
Like other mutual funds and financial and business organizations worldwide, the
fund could be adversely affected if computer systems on which the fund relies,
which
8
<PAGE>
primarily include those used by the fund's investment manager, its affiliates or
other service providers, are unable to correctly process date-related
information on and after January 1, 2000. The risk is commonly called the Year
2000 issue. Failure to successfully address the Year 2000 issue could result in
interruptions to and other material adverse effects on the fund's business and
operations. The fund's investment manager has commenced a review of the Year
2000 issue as it may affect the fund and is taking steps it believes are
reasonably designed to address the Year 2000 issue, although there can be no
assurances that these steps will be sufficient. In addition, there can be no
assurances that the Year 2000 issue will not have an adverse effect on the
companies whose securities are held by the fund or on global markets or
economies generally.
EURO CONVERSION
The planned introduction of a new European currency, the Euro, may result in
uncertainties for European securities in the markets in which they trade and
with respect to the operation of the fund's portfolio. Currently, the Euro is
expected to be introduced on January 1, 1999 by eleven European countries that
are members of the European Economic and Monetary Union (EMU). The introduction
of the Euro will require the redenomination of European debt and equity
securities over a period of time, which may result in various accounting
differences and/or tax treatments that otherwise would not likely occur.
Additional questions are raised by the fact that certain other EMU members,
including the United Kingdom, will not officially be implementing the Euro on
January 1, 1999. If the introduction of the Euro does not take place as planned,
there could be negative effects, such as severe currency fluctuations and market
disruptions.
The Adviser is actively working to address Euro-related issues and understands
that other key service providers are taking similar steps. At this time,
however, no one knows precisely what the degree of impact will be. To the extent
that the market impact or effect on a portfolio holding is negative, it could
hurt the portfolio's performance.
DISTRIBUTIONS AND TAXES
Dividends and capital gains distributions
The fund intends to distribute dividends from its net investment income
annually, in December. The fund intends to distribute net realized capital gains
after utilization of capital loss carryforwards, if any, in December. An
additional distribution may be made at a later date, if necessary.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such 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.
9
<PAGE>
A shareholder may choose to 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. Distributions are generally taxable,
whether received in cash or reinvested.
Taxes
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
shareholders as long-term capital gains, regardless of how long shareholders
have owned shares. Short-term capital gains and any other taxable income
distributions are taxable as ordinary income. A portion of dividends from
ordinary income may qualify for the dividends-received deduction for
corporations.
Unless your investment is in a tax-deferred account, you may want to avoid
investing a large amount close to the date of a fund's distribution because you
may receive part of your investment back as a taxable distribution.
A sale or exchange of shares is a taxable event and may result in a capital gain
or loss if the shares were held as a capital asset. Capital gains may be
long-term or short-term, generally depending on how long you owned the shares.
The fund sends detailed tax information to its shareholders about the amount and
type of its distributions by January 31 of the following year.
The fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide the
fund with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Any such withheld amounts may be credited against the
shareholder's U.S. federal income tax liability.
Fund distributions also may be subject to state, local and foreign taxes. You
should consult your own tax adviser regarding the particular tax consequences of
an investment in the fund.
FINANCIAL HIGHLIGHTS
The table below is intended to help you understand the fund's financial
performance for the past five years. The total returns figures show what an
investor would have earned (or lost), assuming reinvestment of all dividends and
distributions. This information has been audited by PricewaterhouseCoopers LLP
whose report, along with the fund's financial statements, is included in the
annual report, which is available upon request (see back cover).
10
<PAGE>
<TABLE>
<CAPTION>
Years Ended September 30,
1998(a) 1997* 1996 1995 1994
==================================================================================================
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 28.98 $ 22.64 $ 22.92 $ 19.54 $ 23.06
Income from investment operations:
Net investment income (loss) .............. .36 .38 .36 .13 (.02)
Net realized and unrealized gain (loss)
on investment transactions .............. (1.59) 8.60 2.94 3.98 (.88)
Total from investment operations .......... (1.23) 8.98 3.30 4.11 (.90)
Less distributions from:
Net investment income ..................... (.24) (.16) (.08) -- --
Net realized gains on investment
transactions ............................ (1.86) (2.48) (3.50) (.73) (2.62)
Total distributions ....................... (2.10) (2.64) (3.58) (.73) (2.62)
Net asset value, end of period ............ $ 25.65 $ 28.98 $ 22.64 $ 22.92 $ 19.54
- -------------------------------------------------------------------------------------------------
Total Return (%) .......................... (4.54) 43.06 15.94 21.96 (4.72)
Ratios and Supplemental Data
Net assets, end of period ($ millions) .... 1,997 2,213 1,651 1,492 1,338
Ratio of operating expenses to average
daily net assets (%) .................... .88 .93 .92 .98 .97
Ratio of net investment income (loss)
to average daily net assets (%) ......... 1.25 1.51 1.62 .62 (.12)
Portfolio turnover rate (%) ............... 39.5 43.0 150.7 153.6 75.8
</TABLE>
(a) Based on monthly average shares outstanding during the period.
* On February 1, 1997, the Fund adopted its current name. Prior to that
date, the Fund was known as the Scudder Capital Growth Fund.
ABOUT YOUR INVESTMENT
TRANSACTION INFORMATION
Share price
Scudder Fund Accounting Corporation determines the net asset value per share of
the fund as of the close of regular trading on the New York Stock Exchange
(NYSE), normally 4 p.m. eastern time, on each day the NYSE 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. Current
market quotations are used to determine the value of the fund's assets. When
market quotations are not available or the adviser believes they are unreliable,
the fund may use valuation procedures established by its Board.
11
<PAGE>
To the extent that the fund invests in foreign securities, these securities may
be listed on foreign exchanges that trade on days when the fund does not price
its shares. As a result, the net asset value of the fund may change at a time
when shareholders are not able to purchase or redeem their shares.
Processing time
All purchase and redemption requests received in good order by the fund's
transfer agent by the close of regular trading on the NYSE are executed at the
net asset value per share calculated at the close of trading that day. All other
requests that are in good order will be executed the following business day.
Signature guarantees
A signature guarantee is required when you sell more than $100,000 worth of
shares. You can obtain one from most brokerage houses and financial
institutions, although not from a notary public. The fund will normally send you
the proceeds within one business day following your request, but may take up to
seven business days (or longer in the case of shares recently purchased by
check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of fund shares (including exchanges) for any reason including when
there is evidence of a pattern of frequent purchases and sales made in response
to short-term fluctuations in the fund's share price.
Minimum balances
Generally, shareholders who maintain a non-fiduciary account balance of less
than $2,500 in the fund and have not established an automatic investment plan
will be assessed an annual $10.00 per fund charge; this fee is paid to the fund.
The fund reserves the right, following 60 days written notice to shareholders,
to redeem all shares in accounts that have a value below $1,000 where such a
reduction in value has occurred due to a redemption, exchange or transfer out of
the account.
Third party transactions
If you buy and sell shares of the fund through a member of the National
Association of Securities Dealers, Inc. (other than Scudder Investor Services,
Inc.), that member may charge a fee for that service.
Redemption-in-kind
The fund reserves the right to honor any request for redemption or repurchase by
making payment in whole or in part in readily marketable securities ("redemption
in
12
<PAGE>
kind"). These securities will be chosen by the fund and valued as they are for
purposes of computing the fund's net asset value. A shareholder may incur
transaction expenses in converting these securities to cash.
BUYING AND SELLING SHARES
Please refer to the following charts for information on how to buy and sell fund
shares. Additional information, including special investment features, may be
found in the Shareholder Services Guide. For information about No-Fee IRAs, Roth
IRAs and other retirement options, call Scudder Investor Relations at
1-800-225-2470. For information on establishing 401(k) and 403(b) plans, call
Scudder Defined Contribution Services at 1-800-323-6105.
PURCHASES
To open an account
The minimum initial investment is $2,500; $1,000 for IRAs. 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
P.O. Box 2291 The Scudder Funds
Boston, MA 66 Brooks Drive
02107-2291 Braintree, MA 02184
- --------------------------------------------------------------------------------
By Wire Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
In Person Visit one of our Investor Centers to complete your
application with the help of a Scudder representative. Investor
Centers are located in Boca Raton, Boston, Chicago, New York and
San Francisco.
- --------------------------------------------------------------------------------
To buy additional shares
The minimum additional investment is $100; $50 for IRAs. 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 Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
In Person Visit one of our Investor Centers to make an additional
investment in your Scudder fund account. Investor Center
locations are listed above.
- --------------------------------------------------------------------------------
By Phone Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
By Automatic You may arrange to make investments of $50 or more on a regular
Investment basis through automatic deductions from your bank checking
Plan account. Please call 1-800-225-5163 for more information and an
enrollment form.
- --------------------------------------------------------------------------------
EXCHANGES AND REDEMPTIONS
To exchange shares
The minimum investments are $2,500 to establish a new account and $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. To access SAIL(TM), The Scudder
Automated Information Line, call 1-800-343-2890 (24 hours a
day).
- --------------------------------------------------------------------------------
By Mail Print or type your instructions and include:
or Fax - 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;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions or by express, or by fax to:
by regular mail to: registered, or
certified mail to: 1-800-821-6234
The Scudder Funds
P.O. Box 2291 The Scudder Funds
Boston, MA 02107-2291 66 Brooks Drive
Braintree, MA 02184
- --------------------------------------------------------------------------------
To sell shares
- --------------------------------------------------------------------------------
By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time. To access SAILTM, The Scudder
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
$100,000 sent to your address of record.
- --------------------------------------------------------------------------------
By Mail Send your instructions for redemption to the appropriate address
or Fax 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;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
- --------------------------------------------------------------------------------
By Automatic You may arrange to receive automatic cash payments periodically.
Withdrawal Call 1-800-225-5163 for more information and an enrollment form.
Plan
- --------------------------------------------------------------------------------
14
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
The Scudder Family of Funds+
Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market
Series-- Managed Shares*
Tax Free Money Market++
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series--
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free+
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund##
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
15
<PAGE>
Retirement Programs and Education accounts
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan **+++(a variable annuity)
Education IRA
UGMA/UTMA
Closed-end funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
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. +Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. ++A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the fund. **Not available in all states. ***Only the Scudder Shares of
the fund are part of the Scudder Family of Funds. ##Only the International
Shares of the fund are part of the Scudder Family of Funds. +++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 Kemper Investments, Inc., are traded on the New
York Stock Exchange and, in some cases, on various foreign stock exchanges.
16
<PAGE>
Additional information about the fund may be found in the Statement of
Additional Information, the Shareholder Service Guide and in shareholder
reports. The Statement of Additional Information contains more detailed
information on fund investments and operations. The Shareholder Service Guide
contains more detailed information about purchases and sales of fund shares. The
semiannual and annual shareholder reports contain a discussion of the market
conditions and the investment strategies that significantly affected the fund's
performance during the last fiscal year, as well as a listing of portfolio
holdings and financial statements. These and other fund documents may be
obtained without charge from the following sources:
- --------------------------------------------------------------------------------
By phone: In person:
- --------------------------------------------------------------------------------
Call Scudder Investor Relations at Public Reference Room
1-800-225-2470 Securities and Exchange
or Commission,
For existing Scudder investors, call the Scudder Washington, D.C.
Automated Information Line (SAIL) at (Call 1-800-SEC-0330
1-800-343-2890 (24 hours a day). for more information).
- --------------------------------------------------------------------------------
By mail: By internet:
- --------------------------------------------------------------------------------
Scudder Investor Services, Inc. http://www.sec.gov
Two International Place Boston, MA 02110-4103 http://www.sec.gov
or
Public Reference Section Securities and
Exchange Commission,
Washington, D.C. 20549-6009
(a duplication fee is charged)
- --------------------------------------------------------------------------------
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file number: 811-1444
Printed with SOYINK Printed on recycled paper
17
<PAGE>
The Securities and Exchange Commission does not make any judgments as to whether
any mutual fund is a good investment. Nor does it judge the accuracy or
completeness of any mutual fund prospectus. It is a federal offense to suggest
otherwise.
SCUDDER VALUE FUND
Value Fund seeks to increase your capital over the long-term through investment
in undervalued equity securities.
PROSPECTUS
FEBRUARY 1, 1999
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
- ------------------------------
No Sales Charges
- ------------------------------
PURE NO-LOAD(TM)
- ------------------------------
<PAGE>
CONTENTS
FUND SUMMARY...................................................................3
An overview of the fund's goal and strategy, main risks,
performance and expenses
ABOUT THE FUND.................................................................6
Additional information that you should know about the fund
PRINCIPAL STRATEGIES, INVESTMENTS AND RELATED RISKS.........................6
INVESTMENT ADVISER..........................................................8
DISTRIBUTIONS AND TAXES....................................................10
FINANCIAL HIGHLIGHTS.......................................................11
ABOUT YOUR INVESTMENT.........................................................11
Information about managing your fund account
TRANSACTION INFORMATION....................................................11
BUYING AND SELLING SHARES..................................................13
PURCHASES..................................................................13
EXCHANGES AND REDEMPTIONS..................................................15
INVESTMENT PRODUCTS AND SERVICES...........................................16
2
<PAGE>
FUND SUMMARY
INVESTMENT OBJECTIVE AND PRINCIPAL STRATEGIES
Value Fund seeks long-term growth of capital through investment in undervalued
equity securities. The fund's investment objective and policies may be changed
without a vote of shareholders. The fund invests in the securities of companies
that the fund's investment manager believes are undervalued in the marketplace
in relation to current and estimated future earnings and dividends. The
principal factor considered by the fund's investment manager in identifying a
value stock is its price to earnings (P/E) ratio. Companies selected by the fund
generally sell at P/E ratios below the market average, as defined by the
Standard & Poor's Corporation 500 Composite Price Index. The objective of value
investing is to reduce the risk of owning stocks by investing in companies with
sound finances whose current market prices are low in relation to earnings. In
determining whether a company's finances are sound, the investment manager
considers, among other things, its cash position and current ratio of assets
compared to current liabilities.
In selecting among stocks with low P/E ratios, the investment manager also
considers factors such as the following about the issuer:
o Financial strength
o Book-to-market value
o Five and ten-year earnings growth rates
o Five and ten-year dividend growth rates
o Five and ten-year return on equity
o Size of institutional ownership
o Earnings estimates for the next 12 months
PRINCIPAL RISKS
Stock Market. The fund's returns and net asset value will go up and down, and it
is possible to lose money invested in a fund. Stock market movements will affect
the fund's share price on a daily basis. Declines are possible both in the
overall stock market or in the types of securities held by the fund.
Value Stocks. In rising markets, the types of stocks emphasized in the fund may
underperform other types of stocks.
3
<PAGE>
Portfolio Strategy. The portfolio management team's skill in choosing
appropriate investments for the fund will determine in large part the fund's
ability to achieve its investment objective. The determination that a stock is
undervalued is subjective; the market may not agree, and the stock's price may
not rise to the expected level.
PAST PERFORMANCE
The chart and table below illustrate how the Scudder Shares class fund has
performed, and compare this information to three broad measures of market
performance. Of course, past performance is not necessarily an indication of
future performance.
Total returns for years ended December 31 [Bar Graphics To Be Inserted]
------------------------------------------------------
Total
Return:
------------------------------------------------------
Year: 1993 1994 1995 1996 1997 1998
------------------------------------------------------
For the periods included in the bar chart, the fund's highest return for a
calendar quarter was ______ % (the __ quarter of 19__), and the fund's lowest
return for a calendar quarter was _______% (the __ quarter of 19__).
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Average annual total return
- -------------------------------------------------------------------------------------
Standard &
For periods ended December Poor's 500 Russell 2000 Russell 2000
31, 1998 Value Fund Index Index Value Index
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
One Year xx.xx% xx.xx% xx.xx% xx.xx%
- -------------------------------------------------------------------------------------
Five Years xx.xx% xx.xx% xx.xx% xx.xx%
- -------------------------------------------------------------------------------------
Since Inception (12/31/92) xx.xx% xx.xx% xx.xx% xx.xx%
- -------------------------------------------------------------------------------------
</TABLE>
The Standard & Poor's 500 Index is an unmanaged capitalization-weighted measure
of 500 widely held common. The Russell 2000 Index is an unmanaged
capitalization-weighted measure of approximately 2000 small U.S. stocks. The
Russell 2000 Value Index measures the performance of those Russell 2000
companies with lower price-to-book ratios and lower forecasted growth rates.
Index returns assume reinvestment of dividends and, unlike fund returns, do not
reflect any fees or expenses.
4
<PAGE>
EXPENSE INFORMATION
Scudder Family of Funds pure no-load(TM) fund
This information is designed to help you understand the costs of investing in
Scudder Shares. With Scudder's pure no-load(TM) funds, you pay no charges 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.
- --------------------------------------------------------------------------------
Shareholder Fees: Fees charged directly to your account in the fund for various
transactions.
- --------------------------------------------------------------------------------
Charges to purchase shares (sales load) NONE
- --------------------------------------------------------------------------------
Deferred charges on purchase of shares NONE
- --------------------------------------------------------------------------------
Charges to reinvest dividends NONE
- --------------------------------------------------------------------------------
Fees to redeem shares NONE*
- --------------------------------------------------------------------------------
Fees to exchange shares NONE
================================================================================
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income. These are expressed as a percentage of the fund's average
daily net assets for the year ended ____________.
- --------------------------------------------------------------------------------
Investment management fee x.xx%
- --------------------------------------------------------------------------------
Distribution (12b-1) fees NONE
- --------------------------------------------------------------------------------
Other expenses x.xx%
- --------------------------------------------------------------------------------
Total fund operating expenses x.xx%
- --------------------------------------------------------------------------------
* 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 "About Your Investment -- Exchanges
and Redemptions."
Example
This example illustrates the impact of the above fees and expenses on a fund
account with an initial investment of $10,000, based on the expenses shown
above. It assumes a 5% annual return, the reinvestment of all dividends and
distributions and "annual fund operating expenses" remaining the same each year.
This example is hypothetical: actual fund expenses and return vary from year to
year, and may be higher or lower than those shown.
Investors do not pay these expenses directly; they are paid by the fund before
it distributes its net investment income to shareholders. The expenses would be
the same whether you sold your shares at the end of each period or continued to
hold them.
- --------------------------------------------------------------------------------
One Year $___
- --------------------------------------------------------------------------------
Three Years $___
- --------------------------------------------------------------------------------
Five Years $___
- --------------------------------------------------------------------------------
Ten Years $___
- --------------------------------------------------------------------------------
5
<PAGE>
ABOUT THE FUND
PRINCIPAL STRATEGIES, INVESTMENTS AND RELATED RISKS
Principal strategies and investments
The fund invests at least 80% of its assets in equity securities, primarily
those of medium- to large-sized domestic companies with annual revenues or
market capitalization of at least $600 million. The investment manager 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 analysis of:
o the strength of a company's balance sheet
o the accounting practices a company follows
o the volatility of a company's earnings over time
o 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 is considered, only those that, in the
investment manager's opinion, are selling at comparatively large discounts to
intrinsic value are 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.
The fund is distinctive in the manner in which it combines systematic valuation
techniques with intensive, traditional fundamental research. The investment
manager'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 identify and sell appreciated securities as their prices
rise to reflect their earnings potential. The model relies on independent equity
research efforts for estimates of future earnings and dividend growth and
proprietary quality ratings, an important measure of risk. The investment
manager maintains one of the largest equity research departments in the industry
and has done so for more than 60 years.
Although not principal investments, the fund may invest in other types of
securities, including convertible securities, securities of foreign companies,
up to 20% of its assets in debt obligations, those rated below investment grade,
zero coupon securities and commercial paper, may enter into repurchase
agreements and reverse repurchase agreements, purchase illiquid securities. It
may also in derivatives, such as options and
6
<PAGE>
futures. Derivatives, which are primarily used to hedge the fund's performance,
are financial instruments whose value derives from another security or index.
From time to time, the fund may invest without limit in cash and cash
equivalents for temporary defensive purposes. Defensive investments should serve
to lessen volatility in an adverse stock market, although they also generate
lower returns than stocks in most markets. Because this defensive policy differs
from the fund's investment objective, the fund may not achieve its goals during
a defensive period.
More information about investments and strategies is provided in the fund's
Statement of Additional Information. Of course, there can be no guarantee that
by following these strategies, the fund will achieve its objective.
Related Risks
The fund's policy of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
A MESSAGE FROM THE PRESIDENT
Scudder Kemper Investments, Inc., investment adviser to the Scudder Family of
Funds, is one of the largest and most experienced investment management
organizations worldwide. We manage more than $230 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts.
We offered America's first no-load mutual fund in 1928, and today the Scudder
Family of Funds includes over 50 no-load mutual fund portfolios or classes of
shares.
7
<PAGE>
We also manage 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
numerous other open- and closed-end funds that invest in this country and other
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: IRAs, 401(k)s,
Keoghs and other retirement plans are also available.
Services available to shareholders include toll-free access to professional
representatives, easy exchange among the Scudder Family of Funds, shareholder
reports, informative newsletters and the walk-in convenience of Scudder Investor
Centers.
The Scudder Family of Funds is offered without charges to purchase or redeem
shares or to exchange from one fund to another. There are no distribution
(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.
INVESTMENT ADVISER
The fund retains the investment management firm of Scudder Kemper Investments,
Inc., 345 Park Avenue, New York, New York, to manage the fund's daily investment
and business affairs subject to the policies established by the fund's Board of
Trustees. Scudder Kemper Investments, Inc. actively manages the fund's
investments. Professional management can be an important advantage for investors
who do not have the time or expertise to invest directly in individual
securities.
Currently, the fund offers four classes of shares: Class A, Class B, Class C and
Scudder Shares. Shares from other classes may have different fees and expenses
(which may affect performance), may have different minimum investment
requirements and are entitled to different services. This prospectus offers only
the Scudder Shares of the fund.
The fund pays the investment manager an annual fee of 0.70% of the first $500
million of the fund's average daily net assets, and 0.65% of the fund's average
daily net assets in excess of $500 million. As a result, the Adviser received an
investment management fee of ___% for the fiscal year ended October 31, 1998.
PORTFOLIO MANAGEMENT
The fund is managed by a team of investment professionals, who each plays 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
8
<PAGE>
supported by the fund's investment manager's large staff of economists, research
analysts, traders and other investment specialists who work in Scudder Kemper
Investments, Inc.'s offices across the United States and abroad. The fund's
investment manager believes its team approach benefits fund investors by
bringing together many disciplines and leveraging its extensive resources.
The following investment professionals are associated with the fund as
indicated:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Name and Title Joined the fund Responsibilities and Background
- --------------------------------------------------------------------------------------
<S> <C> <C>
Donald E. Hall, Lead 1992 Mr. Hall joined Scudder Kemper
Portfolio Manager Investments in 1982 and has 16 years of
investment industry experience.
- --------------------------------------------------------------------------------------
William J. Wallace, 1992 Mr. Wallace Scudder Kemper Investments
Portfolio Manager and has over ___ years of investment
industry experience.
- --------------------------------------------------------------------------------------
</TABLE>
YEAR 2000 READINESS
Like other mutual funds and financial and business organizations worldwide, the
fund could be adversely affected if computer systems on which the fund relies,
which primarily include those used by the fund's investment manager, its
affiliates or other service providers, are unable to correctly process
date-related information on and after January 1, 2000. The risk is commonly
called the Year 2000 issue. Failure to successfully address the Year 2000 issue
could result in interruptions to and other material adverse effects on the
Fund's business and operations. The fund's investment manager has commenced a
review of the Year 2000 issue as it may affect the funds and is taking steps it
believes are reasonably designed to address the Year 2000 issue, although there
can be no assurances that these steps will be sufficient. In addition, there can
be no assurances that the Year 2000 issue will not have an adverse effect on the
companies whose securities are held by the fund or on global markets or
economies generally.
EURO CONVERSION
The planned introduction of a new European currency, the Euro, may result in
uncertainties for European securities in the markets in which they trade and
with respect to the operation of the fund's portfolio. Currently, the Euro is
expected to be introduced on January 1, 1999 by eleven European countries that
are members of the European Economic and Monetary Union (EMU). The introduction
of the Euro will require the redenomination of European debt and equity
securities over a period of time, which may result in various accounting
differences and/or tax treatments that otherwise would not likely occur.
Additional questions are raised by the fact that certain other EMU members,
including the United Kingdom, will not officially be implementing the Euro on
January 1, 1999. If the introduction of the Euro does not
9
<PAGE>
take place as planned, there could be negative effects, such as severe currency
fluctuations and market disruptions.
The Adviser is actively working to address Euro-related issues and understands
that other key service providers are taking similar steps. At this time,
however, no one knows precisely what the degree of impact will be. To the extent
that the market impact or effect on the fund's portfolio holdings is negative,
it could hurt the fund's performance.
DISTRIBUTIONS AND TAXES
Dividends and capital gains distributions
The fund intends to distribute dividends from its net investment income
annually, in December. The fund intends to distribute net realized capital gains
after utilization of capital loss carryforwards, if any, in December. An
additional distribution may be made at a later date, if necessary.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such 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. Dividends ordinarily will vary
from one class of the fund to another.
A shareholder may choose to receive distributions in cash or have them
reinvested in additional shares of the same class of a 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. Distributions are generally
taxable, whether received in cash or reinvested.
Taxes
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are taxable to
shareholders as long-term capital gains, regardless of the length of time
shareholders have owned shares. Short-term capital gains and any other taxable
income distributions are taxable as ordinary income. A portion of dividends from
ordinary income may qualify for the dividends-received deduction for
corporations.
Unless your investment is in a tax-deferred account, you may want to avoid
investing a large amount close to the date of the fund's distribution because
you may receive part of your investment back as a taxable distribution.
A sale or exchange of shares is a taxable event and may result in a capital gain
or loss if the shares were held as a capital asset. Capital gains may be
long-term or short-term, depending on how long you owned the shares.
10
<PAGE>
The fund sends detailed tax information to its shareholders about the amount and
type of its distributions by January 31 of the following year.
The fund may be required to withhold U.S. federal income tax at the rate of 31%
of all taxable distributions payable to shareholders who fail to provide a fund
with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Any such withheld amounts may be credited against the
shareholder's U.S. federal income tax liability.
Fund distributions also may be subject to state, local and foreign taxes. You
should consult your own tax adviser regarding the particular tax consequences of
an investment in the fund.
FINANCIAL HIGHLIGHTS
The table below is intended to help you understand the fund's financial
performance for the past five years. The total returns figures show what an
investor would have earned (or lost) on an investment in the fund, assuming
reinvestment of all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP whose report, along with the fund's
financial statements, is included in the annual reports, which are available
upon request (see back cover).
[TO BE UPDATED]
ABOUT YOUR INVESTMENT
TRANSACTION INFORMATION
Share price
Scudder Fund Accounting Corporation determines the net asset value per share of
the fund as of the close of regular trading on the New York Stock Exchange
(NYSE), normally 4 p.m. eastern time, on each day the NYSE is open for trading.
Net asset value per share is calculated by dividing the value of total fund
assets attributable to the applicable class, less all liabilities applicable to
that class, by the total number of shares outstanding for that class. Current
market quotations are used to determine the value of the fund's assets. When
reliable market quotations are not available or the adviser believes they are
unreliable, the fund may use valuation procedures established by its Board
To the extent that the fund invests in foreign securities, these securities may
be listed on foreign exchanges that trade on days when the fund does not price
their shares. As
11
<PAGE>
a result, the net asset value of the fund may change at a time when shareholders
are not able to purchase or redeem their shares.
Processing time
All purchase and redemption requests received in good order by the fund's
transfer agent by the close of regular trading on the NYSE are executed at the
net asset value per share calculated at the close of trading that day. All other
requests that are in good order will be executed the following business day.
Signature guarantees
A signature guarantee is required when you sell more than $100,000 worth of
shares. You can obtain one from most brokerage houses and financial
institutions, although not from a notary public. The fund will normally send you
the proceeds within one business day following your request, but may take up to
seven business days (or longer in the case of shares recently purchased by
check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
fund and Scudder Investor Services, Inc. each reserves the right to reject
purchases of fund shares (including exchanges) for any reason including when
there is evidence of a pattern of frequent purchases and sales made in response
to short-term fluctuations in the fund's share price.
Minimum balances
Generally, shareholders who maintain a non-fiduciary account balance of less
than $2,500 in the fund and have not established an automatic investment plan
will be assessed an annual $10.00 per fund charge; this fee is paid to the fund.
The fund reserves the right, following 60 days written notice to shareholders,
to redeem all shares in accounts that have a value below $1,000 where such a
reduction in value has occurred due to a redemption, exchange or transfer out of
the account.
Third party transactions
If you buy and sell shares of the fund through a member of the National
Association of Securities Dealers, Inc. (other than Scudder Investor Services,
Inc.), that member may charge a fee for that service.
Redemption-in-kind
The fund reserves the right to honor any request for redemption or repurchase by
making payment in whole or in part in readily marketable securities ("redemption
in kind"). These securities will be chosen by a fund and valued as they are for
purposes of computing the fund's net asset value. A shareholder may incur
transaction expenses in converting these securities to cash.
12
<PAGE>
BUYING AND SELLING SHARES
Please refer to the following charts for information on how to buy and sell fund
shares. Additional information, including special investment features, may be
found in the Shareholder Services Guide. For information about No-Fee IRAs, Roth
IRAs and other retirement options, call Scudder Investor Relations at
1-800-225-2470. For information on establishing 401(k) and 403(b) plans, call
Scudder Defined Contribution Services at 1-800-323-6105.
PURCHASES
Scudder Shares are generally not available to new investors. Investors in the
fund as of April 15, 1998, can continue to purchase Scudder Shares. Shareowners
of any fund or class of a fund in the Scudder Family of Funds as of April 15,
1998, and their immediate family members at the same address, may also purchase
Scudder Shares. Certain other parties may be eligible to purchase Scudder
Shares. Please see the Shares' Statement of Additional Information for more
details, or call Scudder Investor Relations at 1-800-225-2470.
To open an account
The minimum initial investment is $2,500; $1,000 for IRAs. 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
The Scudder Funds mail to:
P.O. Box 2291 The Scudder Funds
Boston, MA 66 Brooks Drive
02107-2291 Braintree, MA 02184
- --------------------------------------------------------------------------------
By Wire Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
In Person Visit one of our Investor Centers to complete your application with
the help of a Scudder representative. Investor Centers are located
in Boca Raton, Boston, Chicago, New York and San Francisco.
- --------------------------------------------------------------------------------
To buy additional shares
The minimum additional investment is $100; $50 for IRAs. 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 Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
In Person Visit one of our Investor Centers to make an additional
investment in your Scudder fund account. Investor Center
locations are listed above.
- --------------------------------------------------------------------------------
By Phone Call 1-800-225-5163 for instructions.
- --------------------------------------------------------------------------------
By Automatic You may arrange to make investments of $50 or more on a
Investment Plan regular basis through automatic deductions from your bank
checking account. Please call 1-800-225-5163 for more
information and an enrollment form.
- --------------------------------------------------------------------------------
14
<PAGE>
EXCHANGES AND REDEMPTIONS
To exchange shares
The minimum investments are $2,500 to establish a new account and $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. To access SAIL(TM), The
Scudder 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 class, 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 and class you are exchanging into;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions or by express, or by fax to:
by regular mail to: registered, or
The Scudder Funds certified mail to: 1-800-821-6234
P.O. Box 2291 The Scudder Funds
Boston, MA 02107-2291 66 Brooks Drive
Braintree, MA 02184
- --------------------------------------------------------------------------------
To sell shares
- --------------------------------------------------------------------------------
By Telephone To speak with a service representative, call 1-800-225-5163
from 8 a.m. to 8 p.m. eastern time. To access SAIL(TM), The
Scudder 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
$100,000 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 class, 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;
- your signature(s) as it appears on your account; and
- a daytime telephone number.
- --------------------------------------------------------------------------------
By Automatic You may arrange to receive automatic cash payments
Withdrawal Plan periodically. Call 1-800-225-5163 for more information and
an enrollment form.
- --------------------------------------------------------------------------------
15
<PAGE>
INVESTMENT PRODUCTS AND SERVICES
The Scudder Family of Funds+
Money Market
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series --
Prime Reserve Shares*
Premium Shares*
Managed Shares*
Scudder Government Money Market
Series -- Managed Shares*
Tax Free Money Market++
Scudder Tax Free Money Fund
Scudder Tax Free Money Market Series --
Managed Shares*
Scudder California Tax Free Money Fund**
Scudder New York Tax Free Money Fund**
Tax Free++
Scudder Limited Term Tax Free Fund
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund**
Scudder Massachusetts Limited Term Tax Free Fund**
Scudder Massachusetts Tax Free Fund**
Scudder New York Tax Free Fund**
Scudder Ohio Tax Free Fund**
Scudder Pennsylvania Tax Free Fund**
U.S. Income
Scudder Short Term Bond Fund
Scudder Zero Coupon 2000 Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder Corporate Bond Fund
Scudder High Yield Bond Fund
Global Income
Scudder Global Bond Fund
Scudder International Bond Fund
Scudder Emerging Markets Income Fund
Asset Allocation
Scudder Pathway Conservative Portfolio
Scudder Pathway Balanced Portfolio
Scudder Pathway Growth Portfolio
Scudder Pathway International Portfolio
U.S. Growth and Income
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder S&P 500 Index Fund
Scudder Real Estate Investment Fund
U.S. Growth
Value
Scudder Large Company Value Fund
Scudder Value Fund***
Scudder Small Company Value Fund
Scudder Micro Cap Fund
Growth
Scudder Classic Growth Fund***
Scudder Large Company Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
Global Equity
Worldwide
Scudder Global Fund
Scudder International Value Fund
Scudder International Growth and Income Fund
Scudder International Fund##
Scudder International Growth Fund
Scudder Global Discovery Fund***
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
Industry Sector Funds
Choice Series
Scudder Financial Services Fund
Scudder Health Care Fund
Scudder Technology Fund
Preferred Series
Scudder Tax Managed Growth Fund
Scudder Tax Managed Small Company Fund
16
<PAGE>
Retirement Programs and Education accounts
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan **+++(a variable annuity)
Education IRA
UGMA/UTMA
Closed-end funds#
The Argentina Fund, Inc.
The Brazil Fund, Inc.
The Korea Fund, Inc.
Montgomery Street Income Securities, Inc.
Scudder Global High Income Fund, Inc.
Scudder New Asia Fund, Inc.
Scudder New Europe Fund, Inc.
Scudder Spain and Portugal Fund, Inc.
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. +Funds within categories are listed in order from
expected least risk to most risk. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. ++A portion of the income from the
tax-free funds may be subject to federal, state, and local taxes. *A class of
shares of the fund. **Not available in all states. ***Only the Scudder Shares of
the fund are part of the Scudder Family of Funds. ##Only the International
Shares of the fund are part of the Scudder Family of Funds. +++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 Kemper Investments, Inc., are traded on the New
York Stock Exchange and, in some cases, on various foreign stock exchanges.
17
<PAGE>
Additional information about the fund may be found in the Statement of
Additional Information, the Shareholder Service Guide and in shareholder
reports. The Statement of Additional Information contains more detailed
information on fund investments and operations. The Shareholder Service Guide
contains more detailed information about purchases and sales of fund shares. The
semiannual and annual shareholder reports contain a discussion of the market
conditions and the investment strategies that significantly affected the fund's
performance during the last fiscal year, as well as a listing of portfolio
holdings and financial statements. These and other fund documents may be
obtained without charge from the following sources:
- --------------------------------------------------------------------------------
By phone: In person:
- --------------------------------------------------------------------------------
Call Scudder Investor Relations at 1-800-225-2470 Public Reference Room
Or Securities and Exchange
For existing Scudder investors, call the Scudder Commission, Washington, D.C.
Automated Information Line (SAIL) at (Call 1-800-SEC-0330
1-800-343-2890 (24 hours a day). for more information).
- --------------------------------------------------------------------------------
By mail: By internet:
- --------------------------------------------------------------------------------
Scudder Investor Services, Inc. Http://www.sec.gov
Two International Place Boston, MA 02110-4103 Http://www.scudder.com
Or
Public Reference Section Securities and Exchange
Commission, Washington, D.C. 20549-6009
(a duplication fee is charged)
- --------------------------------------------------------------------------------
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file number: 811-4670
Printed with SOYINK Printed on recycled paper
18
<PAGE>
LONG TERM
INVESTING
IN A
SHORT TERM
WORLD
February 1, 1999
Prospectus
Mutual funds:
o are not FDIC-insured
o have no bank guarantees
o may lose value
Kemper Equity Funds
Value Style
Kemper Contrarian Fund
Kemper-Dreman High Return Equity Fund
Kemper Small Cap Value Fund
Kemper-Dreman Financial Services Fund
Kemper Small Cap Relative Value Fund
Kemper U.S. Growth and Income Fund
Kemper Value Fund
The Securities and Exchange Commission does not make
any judgements as to whether any mutual fund is a good investment.
Nor does it judge the accuracy or completeness of any
mutual fund prospectus. It is a federal offense to suggest otherwise.
<PAGE>
CONTENTS
Value Stock Investing..................................................3
Investment approach..................................................3
Principal risk factors...............................................3
ABOUT THE FUNDS...........................................................4
Kemper Contrarian Fund.................................................4
Kemper-Dreman High Return Equity Fund.................................12
Kemper Small Cap Value Fund...........................................20
Kemper-Dreman Financial Services Fund.................................30
Kemper Small Cap Relative Value Fund..................................38
Kemper U.S. Growth and Income Fund....................................45
Kemper Value Fund.....................................................52
Investment Manager..................................................59
ABOUT YOUR INVESTMENT....................................................63
Choosing a share class..............................................63
Buying shares.......................................................65
Selling and exchanging shares.......................................68
Distributions and taxes.............................................69
Transaction information.............................................71
2
<PAGE>
VALUE STOCK INVESTING
Investment approach
Each of the funds presented in this prospectus uses a value approach to
investing - that is, they look for common stocks that the investment manager
believes are undervalued. The principal factors considered by a manager in
identifying the value of a stock is its price-to-earnings (P/E) ratio,
price-to-book (P/B) ratio, price-to-cashflow (P/CF) ratio and dividend yield.
The objective of value investing is to reduce the risk of owning stocks by
investing in companies with sound finances whose current market prices are low
in relation to earnings. In determining whether a company's finances are sound,
the investment manager considers, among other things, its cash position and
current ratio of assets compared to current liabilities.
In selecting among stocks for the funds' portfolios, the investment manager also
considers factors such as the following about the issuer:
o Financial strength
o Book-to-market value
o Five and ten-year earnings growth rates
o Five and ten-year dividend growth rates
o Five and ten-year return on equity
o Size of institutional ownership
o Earnings estimates for the next 12 months
Principal risk factors
Stock Market. Each fund's returns and net asset value will go up and down, and
it is possible to lose money invested in a fund. Stock market movements will
affect the funds' share prices on a daily basis. Declines are possible both in
the overall stock market or in the types of securities held by the funds.
Value Stocks. In rising markets, the types of stocks emphasized in the funds may
underperform other types of stocks.
Portfolio Strategy. The portfolio management team's skill in choosing
appropriate investments for the funds will determine in large part the funds'
ability to achieve their respective investment objectives. The determination
that a stock is undervalued
3
<PAGE>
is subjective; the market may not agree, and the stock's price may not rise to
the expected level and may even fall further.
ABOUT THE FUNDS
KEMPER CONTRARIAN FUND
Investment objective and strategies
Kemper Contrarian Fund seeks long-term capital appreciation with current income
as its secondary objective. The fund's investment objective and policies may be
changed without a vote of shareholders. This fund invests in common stocks of
larger publicly traded companies with the following attributes:
o a record of earnings and dividends
o low price-earnings ratios
o reasonable returns on equity
o sound finances
o perceived intrinsic value.
Principal risks
The fund's principal risks are associated with investing in value stocks, the
stock market in general, and the investment manager's skill in managing the
fund's portfolio. Please refer to "Value Stock Investing" at the front of this
prospectus for details.
4
<PAGE>
KEMPER CONTRARIAN FUND
Past performance
The chart and table that follow illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
- --------------------------------------------------------------------------------
A BAR CHART IS TO BE INSERTED HERE, BUT CHART IS PRESENTLY BLANK.
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's greatest quarterly gain was
______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
Class A Class B Class C
For periods ended S&P 500
December 31, 1998 Stock Index
One Year __.__% __.__% __.__% 33.38%
Five Years __.__% __.__% __.__% 20.25%
Ten Years __.__% __.__% __.__% 18.04%
The S&P 500 Stock Index is a widely recognized unmanaged measure of 500 widely
held common stocks. Index returns assume reinvestment of dividends and, unlike
the fund's returns, do not reflect any fees or expenses.
5
<PAGE>
KEMPER CONTRARIAN FUND
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transactions
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Purchase of shares and Special features sections.
- --------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum Sales Charge on Purchases (as a % of offering 5.75% None None
price)
- --------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
- --------------------------------------------------------------------------------
Redemption Fee None None None
- --------------------------------------------------------------------------------
Exchange Fee None None None
- --------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
- --------------------------------------------------------------------------------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and .50% during the second year.
- --------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income, expressed as a % of average daily net assets, for the year
ended ______.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Investment management fee 0.75% 0.75% 0.75%
- --------------------------------------------------------------------------------
Distribution (12b-1) fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other expenses 0.60% 0.76% 0.97%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.35% 2.26% 2.47%
- --------------------------------------------------------------------------------
6
<PAGE>
KEMPER CONTRARIAN FUND
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- ---------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $700 $630 $250 1 Year $700 $230 $250
- ---------------------------------------------- -----------------------------------------------
3 Years $980 $1,010 $770 3 Years $980 $710 $770
- ---------------------------------------------- -----------------------------------------------
5 Years $1,270 $1,410 $1,310 5 Years $1,270 $1,210 $1,310
- ---------------------------------------------- -----------------------------------------------
10 Years $2,110 $2,160 $2,810 10 Years $2,110 $2,160 $2,810
- ---------------------------------------------- -----------------------------------------------
</TABLE>
Principal strategies and investments
The fund invests principally in a diversified portfolio of undervalued equity
securities. Securities may be undervalued as a result of overreaction by
investors to unfavorable news about a company, industry or the stock markets in
general or as a result of a market decline, poor economic conditions or actual
or anticipated unfavorable developments affecting the company.
Although not principal investments, the fund may invest in other types of
securities, including securities listed on stock exchanges other than the New
York Stock Exchange, those offered over-the-counter, preferred stocks,
convertible securities, foreign securities, and warrants. It may also invest in
derivatives, such as options and futures. Derivatives, which are primarily used
to hedge the fund's performance, are financial instruments whose value derives
from another security or index.
From time to time, the fund may invest up to 50% of its assets in high-grade
debt securities, cash and cash equivalents for temporary defensive purposes.
Defensive investments should serve to lessen volatility in an adverse stock
market, although they will also generate lower returns than stocks in most
markets. Because this defensive policy differs from the fund's investment
objective, the fund may not achieve its goals during a defensive period.
7
<PAGE>
KEMPER CONTRARIAN FUND
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Related risks
The fund's policy of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
8
<PAGE>
KEMPER CONTRARIAN FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the fund would have earned (or lost) assuming reinvestment of all
distributions. This information has been audited by Ernst & Young LLP whose
report, along with the fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
Jan. 1 to Year ended December 31,
Nov. 30,
1997
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Class A Shares
Per Share Operating Performance
Net asset value, beginning of $16.93 16.20 12.18 13.62 13.50 12.38
period
- --------------------------------------------------------------------------------
Income from investment .23 .23 .26 .28 .22 .25
operations:
Net investment income
- --------------------------------------------------------------------------------
Net realized and unrealized 4.25 2.07 5.05 (.28) .96 1.13
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations 4.48 2.30 5.31 -- 1.18 1.38
- --------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income .20 .22 .24 .28 .22 .26
- --------------------------------------------------------------------------------
Distributions from net .08 1.35 1.05 1.16 .84 --
realized gain
- --------------------------------------------------------------------------------
Total dividends .28 1.57 1.29 1.44 1.06 .26
- --------------------------------------------------------------------------------
Net asset value, end of period $21.13 16.93 16.20 12.18 13.62 13.50
- --------------------------------------------------------------------------------
Total Return (not annualized) 26.58% 14.42 44.57 (.03) 9.10 11.32
- --------------------------------------------------------------------------------
Ratios to Average Net Assets
(annualized)
Expenses absorbed by the Fund 1.35% 1.23 1.25 1.25 1.25 1.25
- --------------------------------------------------------------------------------
Net investment income 1.47% 1.56 1.85 1.89 1.64 2.04
- --------------------------------------------------------------------------------
9
<PAGE>
KEMPER CONTRARIAN FUND
- --------------------------------------------------------------------------------
Other Ratios to Average Net Assets
(annualized)
Expenses
1.35% 1.25 1.66 1.42 1.54 1.53
- --------------------------------------------------------------------------------
Net investment income
1.47% 1.54 1.44 1.71 1.34 1.76
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class B Class C
------------------------ ----------------------
Jan. 1 Year Sept. Jan. Year Sept.
to Nov. ended 11 to 1 to ended 11 to
30, 1997 Dec. Dec. Nov. Dec. Dec.
31, 31, 30, 31, 31, 1995
1996 1995 1997 1996
- --------------------------------------------------------- -------------------------
Class B and C Shares
- -----------------------------------------------------------------------------------
Per Share Operating Performance
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $16.92 16.20 15.26 16.90 16.20 15.26
period
- -----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income .08 .11 .07 .06 .11 .08
- -----------------------------------------------------------------------------------
Net realized and unrealized gain 4.22 2.07 1.85 4.20 2.05 1.85
- -----------------------------------------------------------------------------------
Total from investment operations 4.30 2.18 1.92 4.26 2.16 1.93
- -----------------------------------------------------------------------------------
Less dividends: .06 .11 .07 .02 .11 .08
Distributions from net
investment income
- -----------------------------------------------------------------------------------
Distributions from net .08 1.35 .91 .08 1.35 .91
realized gain
- -----------------------------------------------------------------------------------
Total dividends .14 1.46 .98 .10 1.46 .99
- -----------------------------------------------------------------------------------
Net asset value, end of period $21.08 16.92 16.20 21.06 16.90 16.20
- -----------------------------------------------------------------------------------
Total Return (not annualized) 25.44% 13.61 12.83 25.26 13.51 12.85
- -----------------------------------------------------------------------------------
Ratios to Average Net Assets
(annualized)
Expenses absorbed by the Fund 2.26% 2.11 2.00 2.47 2.12 1.95
- -----------------------------------------------------------------------------------
Net investment income .56% .68 .88 .35 .67 .93
- -----------------------------------------------------------------------------------
10
<PAGE>
KEMPER CONTRARIAN FUND
- -----------------------------------------------------------------------------------
Other Ratios to Average Net Assets
(annualized)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Expenses 2.26% 2.34 2.36 2.47 2.80 2.31
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Net investment income .56% .45 .52 .35 (.01) .57
- -----------------------------------------------------------------------------------
All Classes
Jan. 1 Year ended Dec. 31,
to Nov.
30, 1997
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------
Supplemental Data:
Net asset at end of period (in $178,115 77,592 25,482 12,983 17,157 14,884
thousands)
- -----------------------------------------------------------------------------------
Portfolio turnover rate 77% 95 30 16 16 28
(annualized)
- -----------------------------------------------------------------------------------
Average commission rates paid per share on stock transactions for the period from
January 1 to November 30, 1997 and the year ended December 31, 1996 were $.0538
and $.0490, respectively.
- -----------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Investment objective and strategies
Kemper-Dreman High Return Equity Fund seeks to achieve a high rate of total
return. The fund's investment objective and policies may be changed without a
vote of shareholders.
This fund invests in common stocks of larger publicly traded companies with the
following attributes:
o emphasis on high dividends
o a record of earnings and dividends
o low price-earnings ratios
o reasonable returns on equity
o sound finances
o perceived intrinsic value.
Principal risks
The fund's principal risks are associated with investing in value stocks, the
stock market in general, and the investment manager's skill in managing the
fund's portfolio. Please refer to "Value Stock Investing" at the front of this
prospectus for details.
In addition, investing a significant percentage in one or more market sectors
creates exposure to financial, economic, business and other developments
affecting issuers in that sector.
12
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Past performance
The chart and table below illustrate the changes in the fund's performance from
year to year, as well as performance over time. Of course, past performance is
not necessarily an indication of future performance.
Total returns for years ended December 31
- --------------------------------------------------------------------------------
A BAR CHART IS TO BE INSERTED HERE, BUT CHART IS PRESENTLY BLANK.
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's greatest quarterly gain was
______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
Class A Class B Class C
For periods ended S&P 500
December 31, 1998 Stock Index
One Year __.__% __.__% __.__% 33.38%
Five Years __.__% __.__% __.__% 20.25%
Ten Years __.__% __.__% __.__% 18.04%
The S&P 500 Stock Index is a widely recognized unmanaged measure of 500 widely
held common stocks. Index returns assume reinvestment of dividends and, unlike
the fund's returns, do not reflect any fees or expenses.
13
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transactions
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Purchase of shares and Special features sections.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 5.75% None None
price)
- -------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
- -------------------------------------------------------------------------------------
Redemption Fee None None None
- -------------------------------------------------------------------------------------
Exchange Fee None None None
- -------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
- -------------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and .50% during the second year.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income, expressed as a % of average daily net assets, for the year
ended _____.
- --------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment management fee 0.71% 0.71% 0.71%
- -------------------------------------------------------------------------------------
Distribution (12b-1) fees None 0.75% 0.75%
- -------------------------------------------------------------------------------------
Other expenses 0.51% 0.66% 0.64%
- -------------------------------------------------------------------------------------
Total fund operating expenses 1.22% 2.12% 2.10%
- -------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- ----------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $690 $620 $210 1 Year $690 $220 $210
- ----------------------------------------------- ----------------------------------------------
3 Years $940 $960 $660 3 Years $940 $610 $660
- ----------------------------------------------- ----------------------------------------------
- ----------------------------------------------- ----------------------------------------------
5 Years $1,210 $1,340 $1,130 5 Years $1,210 $1,140 $1,130
- ----------------------------------------------- ----------------------------------------------
- ----------------------------------------------- ----------------------------------------------
10 Years $1,970 $2,010 $1,430 10 Years $1,970 $1,010 $1,430
- ----------------------------------------------- ----------------------------------------------
</TABLE>
Principal strategies and investments
The fund invests principally in a diversified portfolio of equity securities the
investment manager believes are undervalued. Securities may be undervalued as a
result of overreaction by investors to unfavorable news about a company,
industry or the stock markets in general or as a result of a market decline,
poor economic conditions, or actual or anticipated unfavorable developments
affecting the company.
Under normal market conditions, the fund invests at least 65% of its total
assets in equity securities. The fund is managed with a view to achieving a high
rate of total return on investors' capital primarily through appreciation of its
common stock holdings, options transactions and by acquiring and selling stock
index futures and options thereon and, to a lesser extent, through dividend and
interest income, all of which are elements of total return.
Although the fund does not invest 25% or more of its total assets in any one
industry, it may, from time to time, invest a significant percentage of its
total assets in one or more market sectors, such as the financial services
sector.
Although not principal investments, the fund may invest in other types of
securities, including securities listed on stock exchanges other than the New
York Stock Exchange, those offered over-the-counter, preferred stocks,
convertible securities, foreign securities, and warrants.
15
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
From time to time, the fund may invest up to 50% of its assets in high-grade
debt securities, cash and cash equivalents for temporary defensive purposes.
Defensive investments should serve to lessen volatility in an adverse stock
market, although they also generate lower returns than stocks in most markets.
Because this defensive policy differs from the fund's investment objective, the
fund may not achieve its goals during a defensive period.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Related risks
The fund's policy of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
16
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the fund would have earned (or lost) assuming reinvestment of all
distributions. This information has been audited by Ernst & Young LLP whose
report, along with the fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
Jan. 1 Year ended Dec. 31,
to Nov.
30,
1997
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
Class A Shares
Per Share Operating Performance
- --------------------------------------------------------------------------------
Net asset value, beginning of $26.52 21.49 15.11 15.50 14.62 12.53
period
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income .54 .39 .26 .25 .21 .24
- --------------------------------------------------------------------------------
Net realized and unrealized 6.89 5.75 6.76 (.39) 1.13 2.21
gain (loss)
- --------------------------------------------------------------------------------
Total from investment operations 7.43 6.14 7.02 (.14) 1.34 2.45
- --------------------------------------------------------------------------------
Less dividends:
Distributions from net .37 .38 .24 .25 .21 .24
investment income
- --------------------------------------------------------------------------------
Distributions from net realized .06 .73 .40 -- .25 .12
gain
- --------------------------------------------------------------------------------
Total dividends .43 1.11 .64 .25 .46 .36
- --------------------------------------------------------------------------------
Net asset value, end of period $33.52 26.52 21.49 15.11 15.50 14.62
- --------------------------------------------------------------------------------
Total Return (not annualized) 28.15% 28.79 46.86 (.99) 9.22 19.80
- --------------------------------------------------------------------------------
Ratios to Average Net Assets 1.22% 1.21 1.25 1.25 1.25 1.25
(annualized)
Expenses absorbed by the Fund
- --------------------------------------------------------------------------------
Net investment income 2.38% 2.12 1.55 1.58 1.47 1.88
- --------------------------------------------------------------------------------
17
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Other Ratios to Average Net 1.22% 1.21 1.57 1.39 1.56 1.70
Assets (annualized)
Expenses
- -----------------------------------------------------------------------------------
Net investment income 2.38% 2.12 1.23 1.44 1.16 1.43
- -----------------------------------------------------------------------------------
Class B Class C
----------------------- ---------------------------
Jan. 1 Year Sept. Jan. 1 Year Sept. 11
to Nov. ended 11 to to ended to Dec.
30, Dec. Dec. Nov. Dec. 31, 1995
1997 31, 31, 30, 31,
1996 1995 1997 1996
- -------------------------------------------------------- ---------------------------
Class B and C Shares
Per Share Operating Performance
- -------------------------------------------------------- ---------------------------
Net asset value, beginning of $26.44 21.47 19.45 26.45 21.48 19.45
period
- -------------------------------------------------------- ---------------------------
Income from investment .31 .19 .07 .32 .20 .09
operations:
Net investment income
- -------------------------------------------------------- ---------------------------
Net realized and unrealized 6.84 5.72 2.41 6.83 5.72 2.41
gain
- -------------------------------------------------------- ---------------------------
Total from investment operations 7.15 5.91 2.48 7.15 5.92 2.50
- -------------------------------------------------------- ---------------------------
Less dividends: .16 .21 .06 .16 .22 .07
Distributions from net
investment income
- -------------------------------------------------------- ---------------------------
Distributions from net .06 .73 .40 .06 .73 .40
realized gain
- -------------------------------------------------------- ---------------------------
Total dividends .22 .94 .46 .22 .95 .47
- -------------------------------------------------------- ---------------------------
Net asset value, end of period $33.37 26.44 21.47 33.38 26.45 21.48
- -------------------------------------------------------- ---------------------------
Total Return (not annualized) 27.10% 27.63 12.88 27.10 27.66 12.94
- -------------------------------------------------------- ---------------------------
Ratios to Average Net Assets
(annualized)
Expenses absorbed by the Fund 2.12% 2.20 2.00 2.10 2.22 1.95
- -------------------------------------------------------- ---------------------------
Net investment income 1.48% 1.13 .61 1.50 1.11 .66
- -------------------------------------------------------- ---------------------------
18
<PAGE>
KEMPER-DREMAN HIGH RETURN EQUITY FUND
- -----------------------------------------------------------------------------------
Other Ratios to Average Net Assets
(annualized)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Expenses 2.12% 2.31 2.35 2.10 2.33 2.30
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
Net investment income 1.48% 1.02 .26 1.50 1.00 .31
- -----------------------------------------------------------------------------------
All Classes
Jan. 1 to Year ended December 31,
Nov. 30,
1997
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------
Supplemental Data:
Net asset at end of period $2,931,721 737,834 98,196 35,005 28,413 14,425
(in thousands)
- -----------------------------------------------------------------------------------
Portfolio turnover rate 5% 10 18 12 14 13
(annualized)
- -----------------------------------------------------------------------------------
</TABLE>
Average commission rates paid per share on stock transactions for the period
from January 1 to November 30, 1997 and the year ended December 31, 1996 were
$.0501 and $.0513, respectively.
19
<PAGE>
KEMPER SMALL CAP VALUE FUND
Investment objective and strategies
Kemper Small Cap Value Fund seeks long-term capital appreciation. The fund's
investment objective and policies may be changed without a vote of shareholders.
This fund invests in common stocks of undervalued small companies, many of which
are similar in size to the stocks in the Russell 2000 Index.
Principal risks
The fund's principal risks are associated with investing in value stocks, the
stock market in general, and the investment manager's skill in managing the
fund's portfolio. Please refer to "Value Stock Investing" at the front of this
prospectus for details.
In addition, the fund's investment focus on smaller companies involves greater
risk than a fund that invests primarily in larger, more established companies.
20
<PAGE>
KEMPER SMALL CAP VALUE FUND
Past performance
The chart and table below illustrate the changes in the fund's performance from
year to year, as well as performance over time. Of course, past performance is
not necessarily an indication of future performance.
Total returns for years ended December 31
- --------------------------------------------------------------------------------
A BAR CHART IS TO BE INSERTED HERE, BUT CHART IS PRESENTLY BLANK.
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's greatest quarterly gain was
______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
For periods ended Class A Class B Class C Index
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
The______ Index is a widely recognized unmanaged measure of ________. Index
returns assume reinvestment of dividends and, unlike the fund's returns, do not
reflect any fees or expenses.
21
<PAGE>
KEMPER SMALL CAP VALUE FUND
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transactions
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Purchase of shares and Special features sections.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- --------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 5.75% None None
price)
- -------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
- -------------------------------------------------------------------------------------
Redemption Fee None None None
- -------------------------------------------------------------------------------------
Exchange Fee None None None
- -------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
- -------------------------------------------------------------------------------------
</TABLE>
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and .50% during the second year.
- --------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income, expressed as a % of average daily net assets, for the year
ended _______.
- --------------------------------------------------------------------------------
Class A Class B Class C
- --------------------------------------------------------------------------------
Investment management fee 0.73% 0.73% 0.73%
- --------------------------------------------------------------------------------
Distribution (12b-1) fees None 0.75% 0.75%
- --------------------------------------------------------------------------------
Other expenses 0.59% 0.86% 0.76%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.32% 2.34% 2.24%
- --------------------------------------------------------------------------------
22
<PAGE>
KEMPER SMALL CAP VALUE FUND
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- -------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $700 $640 $230 1 Year $700 $230 $230
- -------------------------------------------- -------------------------------------------------
3 Years $970 $1,030 $700 3 Years $970 $730 $700
- -------------------------------------------- -------------------------------------------------
5 Years $1,260 $1,450 $1,200 5 Years $1,260 $1,250 $1,200
- -------------------------------------------- -------------------------------------------------
10 Years $2,070 $2,190 $2,570 10 Years $2,070 $2,190 $2,570
- -------------------------------------------- -------------------------------------------------
</TABLE>
Principal strategies and investments
The fund invests principally in a diversified portfolio of equity securities the
investment manager believs are undervalued. Securities may be undervalued as a
result of overreaction by investors to unfavorable news about a company,
industry or the stock markets in general or as a result of a market decline,
poor economic conditions, or actual or anticipated unfavorable developments
affecting the company.
Under normal market conditions, the fund invests at least 65% of its total
assets in securities of companies that are similar in size to those comprising
the Russell 2000 Index. Typically, most companies selected for inclusion in the
fund have market capitalizations ranging from approximately $100 million to $1
billion. The fund sells securities of companies that have grown in market
capitalization above the maximum of the Russell 2000 Index, as necessary to keep
focused on smaller companies.
Although not principal investments, the fund may invest in other types of
securities, including securities listed on stock exchanges other than the New
York Stock Exchange, those offered over-the-counter, preferred stocks,
convertible securities, foreign securities, and warrants. It may also in
derivatives, such as options and futures. Derivatives, which are primarily used
to hedge the fund's performance, are financial instruments whose value derives
from another security or index.
23
<PAGE>
KEMPER SMALL CAP VALUE FUND
From time to time, the fund may invest up to 50% of its assets in high-grade
debt securities, cash and cash equivalents for temporary defensive purposes.
Defensive investments should serve to lessen volatility in an adverse stock
market, although they also generate lower returns than stocks in most markets.
Because this defensive policy differs from the fund's investment objective, the
fund may not achieve its goals during a defensive period.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Related risks
The fund's policy of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
Investments in securities of companies with small market capitalizations are
generally considered to offer greater opportunity for appreciation and to
involve greater risks of depreciation than securities of companies with larger
market capitalizations. Since the securities of such companies are not as
broadly traded as those of companies with larger market capitalizations, these
securities are often subject to wider and more abrupt fluctuations in market
price.
24
<PAGE>
KEMPER SMALL CAP VALUE FUND
Among the reasons for the greater price volatility of these securities are the
less certain growth prospects of smaller firms, a lower degree of liquidity in
the markets for such stocks compared to larger capitalization stocks, and the
greater sensitivity of small companies to changing economic conditions. In
addition to exhibiting greater volatility, small company stocks may, to a
degree, fluctuate independently of larger company stocks. Small company stocks
may decline in price as large company stock prices rise, or rise in price as
large company stock prices decline. Investors should therefore expect that the
share value of the fund may be more volatile than the shares of a fund that
invests in larger capitalization stocks.
25
<PAGE>
KEMPER SMALL CAP VALUE FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the fund would have earned (or lost) assuming reinvestment of all
distributions. This information has been audited by Ernst & Young LLP whose
report, along with the fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
<TABLE>
<CAPTION>
Jan. 1 Year ended December 31,
to Nov.
30,
1997
1996(b) 1995 1994 1993 1992(a)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A Shares
Per Share Operating Performance
Net asset value, beginning of $18.28 14.50 10.85 11.23 11.52 10.00
period
- -----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) .05 .14 (.02) -- .06 .03
- -----------------------------------------------------------------------------------
Net realized and unrealized gain 3.50 4.14 4.64 .02 .23 1.95
- -----------------------------------------------------------------------------------
Total from investment operations 3.55 4.28 4.62 .02 .29 1.98
- -----------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income -- .07 -- -- .06 .03
- -----------------------------------------------------------------------------------
Distributions from net -- .43 .97 .40 .52 .43
realized gain
- -----------------------------------------------------------------------------------
Total dividends -- .50 .97 .40 .58 .46
- -----------------------------------------------------------------------------------
Net asset value, end of period $21.83 18.28 14.50 10.85 11.23 11.52
- -----------------------------------------------------------------------------------
Total Return (not annualized) 19.42% 29.60 43.29 .15 2.54 32.51*
- -----------------------------------------------------------------------------------
Ratios to Average Net Assets
(annualized)
Expenses absorbed by the Fund 1.32% 1.31 1.25 1.25 1.25 1.25
- -----------------------------------------------------------------------------------
26
<PAGE>
KEMPER SMALL CAP VALUE FUND
- -----------------------------------------------------------------------------------
Net investment income .51% .87 (.16) (.03) .53 .81
- -----------------------------------------------------------------------------------
Other Ratios to Average Net Assets
(annualized)
Expenses 1.32% 1.47 1.83 1.82 2.09 4.29
- -----------------------------------------------------------------------------------
Net investment income (loss) .51% .71 (.74) (.61) (.32) (2.24)
- -----------------------------------------------------------------------------------
</TABLE>
* Annualized
(a) For the period May 22, 1992 (commencement of operations) to December 31,
1992.
<TABLE>
<CAPTION>
Class B Class C
----------------------------------------------------
----------------------------------------------------
Jan. 1 Year Sept. Jan. 1 Year Sept.
to Nov. ended 11 to to ended 11 to
30, 1997 Dec. Dec. Nov. Dec. Dec.
31, 31, 1995 30, 31, 31, 1995
1996(b) 1997 1996(b)
- -----------------------------------------------------------------------------------
Class B and C Shares
Per Share Operating Performance
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of $18.14 14.48 15.75 18.17 14.48 15.75
period
- -----------------------------------------------------------------------------------
Income from investment
operations:
Net investment income (loss) (.04) .01 (.02) (.03) .01 (.02)
- -----------------------------------------------------------------------------------
Net realized and unrealized 3.36 4.11 (.41) 3.37 4.14 (.41)
gain (loss)
- -----------------------------------------------------------------------------------
Total from investment 3.32 4.12 (.43) 3.34 4.15 (.43)
operations
- -----------------------------------------------------------------------------------
Less dividends:
Distributions from net
investment income -- .03 -- -- .03 --
- -----------------------------------------------------------------------------------
Distributions from net -- .43 .84 -- .43 .84
realized gain
- -----------------------------------------------------------------------------------
Total dividends -- .46 .84 -- .46 .84
- -----------------------------------------------------------------------------------
Net asset value, end of period $21.46 18.14 14.48 21.51 18.17 14.48
- -----------------------------------------------------------------------------------
Total Return (not annualized) 18.30% 28.54 (2.52) 18.38 28.77 (2.51)
- -----------------------------------------------------------------------------------
Ratios to Average Net Assets
(annualized)
27
<PAGE>
Expenses absorbed by the Fund 2.34% 2.12 2.00 2.24 2.06 1.95
- -----------------------------------------------------------------------------------
28
<PAGE>
KEMPER SMALL CAP VALUE FUND
- -----------------------------------------------------------------------------------
Net investment income (loss) (.51)% (.06) (.99) (.41) .12 (.94)
- -----------------------------------------------------------------------------------
Other Ratios to Average Net Assets
(annualized)
- -----------------------------------------------------------------------------------
Expenses 2.34% 2.49 2.39 2.24 2.19 2.35
- -----------------------------------------------------------------------------------
Net investment loss (.51)% (.31) (1.38) (.41) (.01) (1.34)
- -----------------------------------------------------------------------------------
(b) Per share data for 1996 were determined based on average shares
outstanding.
All Classes
Jan. 1 to Year ended December 31, May 22 to
Nov. 30, Dec. 31,
1997 1992
1996 1995 1994 1993
- ---------------------------------------------------------------------------------
Supplemental Data:
Net asset at end of $1,263,144 273,222 31,606 6,931 4,875 2,385
period (in thousands)
- ---------------------------------------------------------------------------------
Portfolio turnover rate 83% 23 86 140 79 37
(annualized)
- ---------------------------------------------------------------------------------
</TABLE>
Average commission rates paid per share on stock transactions for the period
from January 1 to November 30, 1997 and the year ended December 31, 1996 were
$.0547 and $.0426, respectively.
Note: Total return does not reflect the effect of any sales charges. The
investment manager waived its management fee and absorbed operating expenses of
the funds through December 31, 1996. The "Other Ratios to Average Net Assets"
are computed without this expense waiver or absorption.
29
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Investment objective and strategies
The fund seeks to provide long-term capital appreciation. The fund's investment
objective and policies may be changed without a vote of shareholders.
This fund invests primarily in common stocks and other equity securities of
companies in the financial services industry believed by the Fund's investment
manager to be undervalued.
Principal risks
The fund's principal risks are associated with investing in value stocks, the
stock market in general, and the investment manager's skill in managing the
fund's portfolio. Please refer to "Value Stock Investing" at the front of this
prospectus for details.
The fund's concentration in investments in the financial services industry
creates greater risk than investment across various industries, since the
financial, economic, and business developments affecting issuers in such
industry may have a greater effect on the fund than if it had not concentrated
its assets in the financial services industry. In addition, an investment in the
fund may involve significantly greater risks and greater volatility than a
diversified equity mutual fund that is invested in issuers in various
industries. The fund is subject to the risk that a particular group of related
stocks will decline in price due to industry-specific developments. As a result,
the fund should only be considered a long-term investment and part of a
well-diversified portfolio.
30
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Past performance
The chart and table below illustrate the changes in the fund's performance from
year to year, as well as performance over time. Of course, past performance is
not necessarily an indication of future performance.
Total returns for years ended December 31
- --------------------------------------------------------------------------------
A BAR CHART IS TO BE INSERTED HERE, BUT CHART IS PRESENTLY BLANK.
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's greatest quarterly gain was
______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
For periods ended Class A Class B Class C Index
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
The______ Index is a widely recognized unmanaged measure of ________. Index
returns assume reinvestment of dividends and, unlike the fund's returns, do not
reflect any fees or expenses.
31
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transactions
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Purchase of shares and Special features sections.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 5.75% None None
price)
- -------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
- -------------------------------------------------------------------------------------
Redemption Fee None None None
- -------------------------------------------------------------------------------------
Exchange Fee None None None
- -------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
- -------------------------------------------------------------------------------------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and .50% during the second year.
- -------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income, expressed as a % of average daily net assets, for the year
ended ______.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
Investment management fee 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
Distribution (12b-1) fees None 0.75% 0.75%
- -------------------------------------------------------------------------------------
Other expenses 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
Total fund operating expenses 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
</TABLE>
(Appropriate footnote if fund is in reimbursement)
32
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- -------------------------------------------- -------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $700 $640 $230 1 Year $700 $230 $230
- -------------------------------------------- -------------------------------------------------
3 Years $970 $1,030 $700 3 Years $970 $730 $700
- -------------------------------------------- -------------------------------------------------
5 Years $1,260 $1,450 $1,200 5 Years $1,260 $1,250 $1,200
- -------------------------------------------- -------------------------------------------------
10 Years $2,070 $2,190 $2,570 10 Years $2,070 $2,190 $2,570
- -------------------------------------------- -------------------------------------------------
</TABLE>
Principal strategies and investments
The Fund concentrates its investments in securities of financial services
companies, including:
o commercial banks, insurance companies, thrifts, consumer finance companies,
commercial finance companies, and leasing companies
o securities brokerage firms, asset management firms, and
government-sponsored financial enterprises.
The Fund invests primarily in common stocks of larger,
listed companies with a record of earnings and dividends, low price-earnings
ratios, reasonable returns on equity and sound finances which, in the opinion of
the investment manager, have intrinsic value.
In the opinion of the Fund's investment manager, the Fund offers investors the
opportunity to participate in the substantial long-term appreciation potential
of companies in the financial services sector.
33
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Under normal circumstances, the Fund will invest at least 65% of its assets in
equity securities of companies in the financial services industry. A company
will be considered to be within the financial services industry if at least 50%
of its assets, revenues or net income are related to or derived from the
financial services industry. Earnings and cash flow analyses as well as a
company's conventional dividend payout ratio are important to this process.
Typically, the fund's portfolio will consist of approximately 25 to 55 stocks.
The Fund may invest up to 35% of its assets in investment-grade corporate debt
securities.
Although not principal investments, the fund may invest in when-issued
securities, stocks that pay no dividends, securities listed on stock exchanges
other than the New York Stock Exchange, those offered over-the-counter,
preferred stocks, convertible securities, non-investment grade debt securities,
foreign securities, rights and warrants. It may also invest in derivatives, such
as options and futures. Derivatives, which are primarily used to hedge the
fund's performance, are financial instruments whose value derives from another
security or index.
From time to time, the fund may invest up to 100% of its assets in high-grade
debt securities, cash and cash equivalents for temporary defensive purposes.
Defensive investments should serve to lessen volatility in an adverse stock
market, although they also generate lower returns than stocks in most markets.
Because this defensive policy differs from the fund's investment objective, the
fund may not achieve its goals during a defensive period.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Related risks
The fund's policy of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
34
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements.
35
<PAGE>
KEMPER-DREMAN FINANCIAL SERVICES FUND
Financial highlights
The tables below are intended to help you understand the fund's financial
performance for the past several years. The total return figures show what an
investor in the fund would have earned (or lost) assuming reinvestment of all
distributions. This information has been audited by Ernst & Young LLP whose
report, along with the fund's financial statements, is included in the annual
report, which is available upon request (see back cover).
TO BE UPDATED
36
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Investment objective and strategies
Kemper Small Cap Relative Value Fund seeks long-term capital appreciation. The
fund's investment objective and policies may be changed without a vote of
shareholders.
This fund invests in common stocks of small companies which the investment
manager believes are undervalued relative to stocks of other companies in the
same industry.
Principal risks
The fund's principal risks are associated with investing in value stocks, the
stock market in general, and the investment manager's skill in managing the
fund's portfolio. Please refer to "Value Stock Investing" at the front of this
prospectus for details.
In addition, the fund's investment focus on smaller companies involves greater
risk than a fund that invests primarily in larger, more established companies.
Also, investing a significant percentage in one or more market sectors creates
exposure to financial, economic, business and other developments affecting
issuers in that sector.
37
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Past performance
The following chart and table illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
- --------------------------------------------------------------------------------
A BAR CHART IS TO BE INSERTED HERE, BUT CHART IS PRESENTLY BLANK.
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's greatest quarterly gain was
______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
Class A Class B Class C
For periods ended _______ Index
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
The _______ Index is a widely recognized unmanaged measure of _____________.
Index returns assume reinvestment of dividends and, unlike the fund's returns,
do not reflect any fees or expenses.
38
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transactions
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Purchase of shares and Special features sections.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Class B Class C
- -------------------------------------------------------------------------------------
Maximum Sales Charge on Purchases (as a % of offering 5.75% None None
price)
- -------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
- -------------------------------------------------------------------------------------
Redemption Fee None None None
- -------------------------------------------------------------------------------------
Exchange Fee None None None
- -------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
- -------------------------------------------------------------------------------------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and .50% during the second year.
- -------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income, expressed as a % of average daily net assets, for the year
ended ________.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
Investment management fee 0.75% 0.75% 0.75%
- -------------------------------------------------------------------------------------
Distribution (12b-1) fees None 0.75% 0.75%
- -------------------------------------------------------------------------------------
Other expenses * 1.02% 1.15% 1.12%
- -------------------------------------------------------------------------------------
Total fund operating expenses 1.77% 2.65% 2.62%
- -------------------------------------------------------------------------------------
</TABLE>
(Appropriate footnote if fund is in reimbursement)
39
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- --------------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $720 $640 $240 1 Year $720 $240 $240
- --------------------------------------------- ------------------------------------------------
3 Years $1,030 $1,050 $740 3 Years $1,030 $750 $740
- --------------------------------------------- ------------------------------------------------
</TABLE>
Principal strategies and investments
The fund invests principally in a diversified portfolio of equity securities
which the investment manager believes are undervalued. Securities may be
undervalued as a result of overreaction by investors to unfavorable news about a
company, industry or the stock markets in general or as a result of a market
decline, poor economic conditions, or actual or anticipated unfavorable
developments affecting the company.
The investment manager follows a relative value investment strategy, seeking
undervalued stocks typically found in major sectors of the Russell 2000 Index. A
relative value investment strategy is a strategy whereby stocks are selected
based on whether they are undervalued relative to other stocks in the same
sector. This allows the fund to invest in all sectors, including technology,
healthcare and other areas of the market that typically are underweighted in an
absolute value portfolio.
Under normal market conditions, the fund invests at least 65% of its total
assets in equity securities of companies that are similar in size to those
comprising the Russell 2000 Index. Typically, most companies selected for
inclusion in the fund have market capitalizations ranging from approximately
$100 million to $1 billion. The fund sells securities of companies that have
grown in market capitalization above the maximum of the Russell 2000 Index, as
necessary to keep the fund focused on smaller companies.
40
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Although not principal investments, the fund may invest in other types of
securities, including securities listed on stock exchanges other than the New
York Stock Exchange, those offered over-the-counter, preferred stocks,
convertible securities, foreign securities, and warrants. It may also in
derivatives, such as options and futures. Derivatives, which are primarily used
to hedge the fund's performance, are financial instruments whose value derives
from another security or index.
Although the fund does not invest 25% or more of its total assets in any one
industry, it may, from time to time, invest a significant percentage of its
total assets in one or more market sectors.
From time to time, the fund may invest up to 50% of its assets in high-grade
debt securities, cash and cash equivalents for temporary defensive purposes.
Defensive investments should serve to lessen volatility in an adverse stock
market, although they also generate lower returns than stocks in most markets.
Because this defensive policy differs from the fund's investment objective, the
fund may not achieve its goals during a defensive period.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Related risks
The fund's policy of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
41
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
Investments in securities of companies with small market capitalizations are
generally considered to offer greater opportunity for appreciation and to
involve greater risks of depreciation than securities of companies with larger
market capitalizations. Since the securities of such companies are not as
broadly traded as those of companies with larger market capitalizations, these
securities are often subject to wider and more abrupt fluctuations in market
price.
Among the reasons for the greater price volatility of these securities are the
less certain growth prospects of smaller firms, a lower degree of liquidity in
the markets for such stocks compared to larger capitalization stocks, and the
greater sensitivity of small companies to changing economic conditions. In
addition to exhibiting greater volatility, small company stocks may, to a
degree, fluctuate independently of larger company stocks. Small company stocks
may decline in price as large company stock prices rise, or rise in price as
large company stock prices decline. Investors should therefore expect that the
share value of the fund may be more volatile than the shares of a fund that
invests in larger capitalization stocks.
42
<PAGE>
KEMPER SMALL CAP RELATIVE VALUE FUND
Financial highlights
To Be Updated
43
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
Investment objective and strategies
Kemper U.S. Growth and Income Fund seeks to provide long-term growth of capital,
current income and growth of income. The fund's investment objective and
policies may be changed without a vote of shareholders.
The fund invests primarily in common stocks of U.S. companies that offer the
prospect for growth of earnings while paying current dividends. Over time,
continued growth of earnings tends to lead to higher dividends and enhancement
of capital value.
Principal risks
The fund's principal risks are associated with investing in value stocks, the
stock market in general, and the investment manager's skill in managing the
fund's portfolio. Please refer to "Value Stock Investing" at the front of this
prospectus for details.
44
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
Past performance
The following chart and table illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
- --------------------------------------------------------------------------------
A BAR CHART IS TO BE INSERTED HERE, BUT CHART IS PRESENTLY BLANK.
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's greatest quarterly gain was
______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
<TABLE>
<CAPTION>
Class A Class B Class C
For periods ended _______ Index
December 31, 1998
<S> <C> <C> <C> <C>
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
</TABLE>
The _______ Index is a widely recognized unmanaged measure of _____________.
Index returns assume reinvestment of dividends and, unlike the fund's returns,
do not reflect any fees or expenses.
45
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transactions
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Purchase of shares and Special features sections.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 5.75% None None
price)
- -------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
- -------------------------------------------------------------------------------------
Redemption Fee None None None
- -------------------------------------------------------------------------------------
Exchange Fee None None None
- -------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
- -------------------------------------------------------------------------------------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and .50% during the second year.
- --------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income, expressed as a % of average daily net assets, for the year
ended ______.
- --------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
Investment management fee 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
Distribution (12b-1) fees None 0.75% 0.75%
- -------------------------------------------------------------------------------------
Other expenses * 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
Total fund operating expenses 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
</TABLE>
(Appropriate footnote if fund is in reimbursement)
46
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- --------------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $720 $640 $240 1 Year $720 $240 $240
- --------------------------------------------- ------------------------------------------------
3 Years $1,030 $1,050 $740 3 Years $1,030 $750 $740
- --------------------------------------------- ------------------------------------------------
</TABLE>
Principal strategies and investments
The fund seeks to provide participation in the long-term growth of the economy
through the potential investment returns offered by U.S. common stocks and other
domestic equity securities. It maintains a diversified portfolio of equity
securities of companies with long-standing records of earnings growth and
higher-than-average dividend payouts. These companies, many of which are
mainstays of the U.S. economy, offer prospects for future growth of earnings and
dividends, and therefore may offer investors attractive long-term investment
opportunities. The fund will invest at least 80% of its assets in the equity
securities of U.S. issuers.
The fund's investment strategy, which emphasizes higher-yielding equity
securities issued by U.S. companies deemed to be undervalued by the investment
manager, may be more appropriate for the conservative portion of an investor's
equity portfolio.
The investment manager applies a disciplined investment approach for selecting
holdings for the fund. The first stage of this process involves analyzing a
selected pool of dividend-paying equity securities to identify stocks that have
high yields relative to the yield of the Standard & Poor's 500 Composite Price
Index ("S&P 500"), a commonly-accepted benchmark for the U.S. stock market.
Also, the investment manager screens for stocks that have yields at the upper
end of their historical yield range.
47
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
In the investment manager's opinion, this subset of higher-yielding stocks
identified by applying these criteria offers the potential for returns over time
that are greater than or equal to the S&P 500, at less risk than this market
index. The investment manager believes these favorable risk and return
characteristics exist because the higher dividends offered by these stocks may
act as a "cushion" when markets are volatile and because stocks with higher
yields tend to sell at more attractive valuations (e.g., lower price-to-earning
ratios and lower price-to- book ratios).
Once this subset of higher-yielding stocks is identified, the investment manager
conducts a fundamental analysis of each company's financial strength,
profitability, projected earnings, sustainability of dividends, competitive
outlook, and ability of management. The fund's portfolio may include stocks that
are out of favor in the market, but which, in the opinion of the investment
manager, offer compelling valuations and potential for long-term appreciation in
price and dividends.
In order to diversify the fund's portfolio among different industry sectors, the
investment manager evaluates how each sector reacts to broad economic factors
such as interest rates, inflation, Gross Domestic Product, and consumer
spending. The fund's portfolio is constructed by attaining a proper balance of
stocks in these sectors based on economic forecasts.
The fund has a disciplined criteria for selling stocks as well. When the
investment manager determines that the relative yield of a stock has declined
excessively below the yield of the S&P 500, or that the yield is at the lower
end of the stock's historic range, the stock generally is sold from the fund's
portfolio. Similarly, if the investment manager's fundamental analysis
determines that the payment of the stock's dividend is at risk, or that market
expectations for the stock are unreasonably high, the stock is generally
targeted for sale.
In summary, the investment manager applies disciplined buy and sell criteria,
fundamental company and industry analysis, and economic forecasts in managing
the fund to pursue long-term price appreciation and income with a tendency for
lower overall volatility than the market, as measured by the S&P 500.
48
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
Although not principal investments, the fund may invest in other types of
securities, including securities that do not pay current dividends but that
offer prospects for growth of capital and future income, securities of real
estate investment trusts, preferred stocks, convertible securities zero coupon
securities, illiquid securities, SPDRs and DIAMONDS, and repurchase agreements
and may engage in securities lending. It may also in derivatives, such as
options and futures. Derivatives, which are primarily used to hedge the fund's
performance, are financial instruments whose value derives from another security
or index.
From time to time, the fund may invest without limit in cash and cash
equivalents for temporary defensive purposes. Defensive investments should serve
to lessen volatility in an adverse stock market, although they also generate
lower returns than stocks in most markets. Because this defensive policy differs
from the fund's investment objective, the fund may not achieve its goals during
a defensive period.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Related risks
The fund's policy of investing in securities with attractive valuations differs
from the investment approach followed by many other mutual funds. These
companies tend to have lower price-to-earnings ratios or price-to-book ratios.
It is the investment manager's belief, however, that the securities of sound,
well-managed companies that may be temporarily out of favor due to earnings
declines or other adverse developments are likely to provide a greater total
investment return than securities whose prices appear to reflect anticipated
favorable developments.
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
49
<PAGE>
KEMPER U.S. GROWTH AND INCOME FUND
Financial highlights
To Be Updated
50
<PAGE>
KEMPER VALUE FUND
Investment objective and strategies
Kemper Value Fund seeks long-term growth of capital through investment in
undervalued equity securities. The fund's investment objective and policies may
be changed without a vote of shareholders. This prospectus contains information
regarding Class A, B and C shares of the fund.
The fund invests in the securities of companies that the investment manager
believes 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 Corporation
500 Composite Price Index.
Principal risks
The fund's principal risks are associated with investing in value stocks, the
stock market in general, and the investment manager's skill in managing the
fund's portfolio. Please refer to "Value Stock Investing" at the front of this
prospectus for details.
51
<PAGE>
KEMPER VALUE FUND
Past performance
The following chart and table illustrate the changes in the fund's performance
from year to year, as well as performance over time. Of course, past performance
is not necessarily an indication of future performance.
Total returns for years ended December 31
- --------------------------------------------------------------------------------
A BAR CHART IS TO BE INSERTED HERE, BUT CHART IS PRESENTLY BLANK.
- --------------------------------------------------------------------------------
For the period included in the bar chart, the fund's greatest quarterly gain was
______ % (cite calendar quarter), and the fund's greatest quarterly loss was
_______% (cite calendar quarter).
Average Annual Total Returns
Class A Class B Class C
For periods ended _______ Index
December 31, 1998
One Year __.__% __.__% __.__% __.__%
Five Years __.__% __.__% __.__% __.__%
Ten Years __.__% __.__% __.__% __.__%
The _______ Index is a widely recognized unmanaged measure of _____________.
Index returns assume reinvestment of dividends and, unlike the fund's returns,
do not reflect any fees or expenses.
52
<PAGE>
KEMPER VALUE FUND
Expense information
The following information is designed to help you understand the costs of
investing in the fund. Each class of shares has a different set of transactions
fees, which will vary based on the length of time you hold shares in the fund
and the amount of your investment. You will find details about fee discounts and
waivers in the Purchase of shares and Special features sections.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Shareholder fees: Fees charged directly to your account in the fund for various
transactions.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge on Purchases (as a % of offering 5.75% None None
price)
- -------------------------------------------------------------------------------------
Maximum Sales Charge on Reinvested Dividends None None None
- -------------------------------------------------------------------------------------
Redemption Fee None None None
- -------------------------------------------------------------------------------------
Exchange Fee None None None
- -------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (as a % of redemption None(1) 4% 1%
proceeds)
- -------------------------------------------------------------------------------------
(1) The redemption of Class A shares purchased at net asset value under the
Large Order NAV Purchase Privilege may be subject to a contingent deferred
sales charge of 1% during the first year and .50% during the second year.
- -------------------------------------------------------------------------------------
Annual fund operating expenses: Paid by the fund before it distributes its net
investment income, expressed as a % of average daily net assets, for the year
ended _____.
- -------------------------------------------------------------------------------------
Class A Class B Class C
- -------------------------------------------------------------------------------------
Investment management fee 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
Distribution (12b-1) fees None 0.75% 0.75%
- -------------------------------------------------------------------------------------
Other expenses * 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
Total fund operating expenses 0.__% 0.__% 0.__%
- -------------------------------------------------------------------------------------
</TABLE>
(Appropriate footnote if fund is in reimbursement)
53
<PAGE>
KEMPER VALUE FUND
Example
This example illustrates the impact of the above fees and expenses on an account
with an initial investment of $10,000, based on the expenses shown above. It
assumes a 5% annual return, the reinvestment of all dividends and distributions
and "annual fund operating expenses" remaining the same each year. The example
is hypothetical: actual fund expenses and return vary from year to year, and may
be higher or lower than those shown.
<TABLE>
<CAPTION>
Fees and expenses if you sold shares after: Fees and expenses if you did not sell your shares:
Class A Class B Class C Class A Class B Class C
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $720 $640 $240 1 Year $720 $240 $240
- ---------------------------------------------------------------------------------------------
3 Years $1,030 $1,050 $740 3 Years $1,030 $750 $740
- ---------------------------------------------------------------------------------------------
</TABLE>
Principal strategies and investments
The fund invests at least 80% of its assets in equity securities, primarily
those of medium- to large-sized domestic companies with annual revenues or
market capitalization of at least $600 million. The investment manager 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 analysis of:
o the strength of a company's balance sheet
o the accounting practices a company follows
o the volatility of a company's earnings over time
o 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 is considered, those that, in the investment
manager's opinion, are selling at comparatively large discounts to intrinsic
value are 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.
54
<PAGE>
KEMPER VALUE FUND
The fund is distinctive in the manner in which it combines systematic valuation
techniques with intensive, traditional fundamental research. The investment
manager'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 identify and sell appreciated securities as their prices
rise to reflect their earnings potential. The model relies on independent equity
research efforts for estimates of future earnings and dividend growth and
proprietary quality ratings, an important measure of risk. The investment
manager maintains one of the largest equity research departments in the industry
and has done so for more than 60 years.
Although not principal investments, the fund may invest in other types of
securities, including convertible securities, securities of foreign companies,
up to 20% of its assets in debt obligations, those rated below investment grade,
zero coupon securities and commercial paper, may enter into repurchase
agreements and reverse repurchase agreements, purchase illiquid securities. It
may also in derivatives, such as options and futures. Derivatives, which are
primarily used to hedge the fund's performance, are financial instruments whose
value derives from another security or index.
From time to time, the fund may invest without limit in cash and cash
equivalents for temporary defensive purposes. Defensive investments should serve
to lessen volatility in an adverse stock market, although they also generate
lower returns than stocks in most markets. Because this defensive policy differs
from the fund's investment objective, the fund may not achieve its goals during
a defensive period.
More information about investments and strategies is provided in the Statement
of Additional Information. Of course, there can be no guarantee that by
following these strategies, the fund will achieve its objective.
Related risks
The fund's policy of investing in securities that may be out of favor differs
from the investment approach followed by many other mutual funds. Companies
reporting poor earnings, whose businesses are cyclically down, whose prices have
declined sharply or that are not widely followed are not typically held by most
investment companies. It is the investment manager's belief, however, that the
securities of sound, well-managed companies that may be temporarily out of favor
due to earnings declines or other adverse developments are likely to provide a
greater total investment return than securities whose prices appear to reflect
anticipated favorable developments.
55
<PAGE>
KEMPER VALUE FUND
An investment in the common stock of a company represents a proportionate
ownership interest in that company. Therefore, the fund participates in the
success or failure of any company in which it holds stock.
Compared to other classes of financial assets, such as bonds or cash
equivalents, common stocks have historically offered the greatest potential for
gain on investment. However, the market value of common stock can fluctuate
significantly, reflecting such things as the business performance of the issuing
company, investors' perceptions of the company or the overall stock market and
general economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless.
56
<PAGE>
KEMPER VALUE FUND
Financial highlights
To Be Updated
57
<PAGE>
Investment Manager
The funds retain the investment management firm of Scudder Kemper Investments,
Inc., Two International Place, Boston, MA, to manage their daily investment and
business affairs subject to the policies established by the funds' Boards.
Scudder Kemper Investments, Inc. actively manages the funds' investments.
Professional management can be an important advantage for investors who do not
have the time or expertise to invest directly in individual securities. Scudder
Kemper Investments, Inc. is one of the largest and most experienced investment
management organizations worldwide. It manages more than $230 billion in assets
globally for mutual fund investors, retirement and pension plans, institutional
and corporate clients, and private family and individual accounts.
Each fund pays Scudder Kemper Investments a (graduated) monthly investment
management fee. Fees paid for each fund's most recently completed fiscal year
are show below:
(reflect K-D IMA arrrangement)
Fund 0.__%
Fund 0.__%
Fund 0.__%
Fund 0.__%
Fund 0.__%
Fund 0.__%
Fund 0.__%
Fund 0.__%
* Add footnotes as needed for expense caps.
Dreman Value Management, L.L.C., 10 Exchange Place, New Jersey, is the
sub-adviser for the Kemper-Dreman High Return Equity Fund and Kemper-Dreman
Financial Services Fund. Founded in 1977, Dreman Value Management, L.L.C.
manages over $4 billion in assets.
Portfolio management
The following investment professionals are associated with the funds as
indicated:
Kemper Contrarian Fund
Name & Title Joined the Fund Background
- --------------------------------------------------------------------------------
58
<PAGE>
Thomas Sassi, 1997 Joined Scudder Kemper in 1996. He
Lead Manager began his investment career in 1971.
Frederick L. Gaskin, 1997 Joined Scudder Kemper in 1996. He
Portfolio Manager began his investment career in 1986.
- --------------------------------------------------------------------------------
59
<PAGE>
Kemper-Dreman High Return Equity Fund
Kemper-Dreman Financial Services Fund
<TABLE>
<CAPTION>
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
<S> <C> <C>
David N. Dreman, 1988 Chairman of Dreman Value Management,
Portfolio Manager L.L.C. since 1977. He is a pioneer of
the philosophy of contrarian investing
(buying what is out of favor) and a
leading proponent of the low P/E
investment style. He is a columnist
for Forbes and the author of several
books on the value style of
investing. He began his investment
career in 1957.
- -----------------------------------------------------------------------------------
Kemper Small Cap Value Fund
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
Thomas H. Forester, 1997 Joined Scudder Kemper in 1997. He
Co-Lead Manager began his investment career in 1988.
Steven T. Stokes, 1997 Joined Scudder Kemper in 1996. He
Co-Lead Manager began his investment career in 1986.
- -----------------------------------------------------------------------------------
Kemper Small Cap Relative Value Fund
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
James M. Eysenbach, 1998 Joined Scudder Kemper in 1986. He
Lead Portfolio began his investment career in 1984.
Manager
Philip S. Fortuna, 1998 Joined Scudder Kemper in 1991. He
Portfolio Manager began his investment career in 1984.
Calvin Young, 1998 Joined Scudder Kemper in 1990. He
Portfolio Manager began his investment career in 1988.
- -----------------------------------------------------------------------------------
Kemper U.S. Growth and Income Fund
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
Lori J. Ensinger, 1998 Joined Scudder Kemper in 1993. She
Lead Portfolio began her investment career in 1983.
Manager
Robert T. Hoffman, 1998 Joined Scudder Kemper in 1990. He
Portfolio Manager began his investment career in 1985.
Benjamin W. 1998 Joined Scudder Kemper in 1983. He
Thorndike, began his investment career in 1980.
Portfolio Manager
- -----------------------------------------------------------------------------------
60
<PAGE>
Kemper Value Fund
Name & Title Joined the Fund Background
- -----------------------------------------------------------------------------------
Donald E. Hall, 1992 Joined Scudder Kemper in 1982. He
Lead Portfolio began his investment career in 1982.
Manager
William J. Wallace, 1992 Joined Scudder Kemper in 1987. He
Portfolio Manager began his investment career in 1981.
- -----------------------------------------------------------------------------------
</TABLE>
Year 2000 Readiness
Like other mutual funds and financial and business organizations worldwide, the
funds could be adversely affected if computer systems on which a fund rely,
which primarily include those used by the investment manager, its affiliates or
other service providers, are unable to correctly process date-related
information on and after January 1, 2000. This risk is commonly called the Year
2000 Issue. Failure to successfully address the Year 2000 Issue could result in
interruptions to and other material adverse effects on the funds' business and
operations. The investment manager has commenced a review of the Year 2000 Issue
as it may affect the funds and is taking steps it believes are reasonably
designed to address the Year 2000 Issue, although there can be no assurances
that these steps will be sufficient. In addition, there can be no assurances
that the Year 2000 Issue will not have an adverse effect on the companies whose
securities are held by a fund or on global markets or economies generally.
61
<PAGE>
ABOUT YOUR INVESTMENT
Choosing a share class
Each fund provides investors with the option of purchasing shares in the
following ways:
<TABLE>
<S> <C>
Class A Shares Offered at net asset value plus a maximum sales charge of
5.75% of the offering price. Reduced sales charges apply to
purchases of $50,000 or more. Class A shares purchased at net
asset value under the Large Order NAV Purchase Privilege may
be subject to a 1% contingent deferred sales charge if re
deemed within one year of purchase and a .50% contingent
deferred sales change if redeemed during the second year of
purchase.
Class B Shares Offered at net asset value without an initial
sales charge, but subject to a 0.75% Rule 12b-1
distribution fee and a contingent deferred sales charge
that declines from 4% to zero on certain redemptions made
within six years of purchase. Class B shares
automatically convert into Class A shares (which have
lower ongoing expenses) six years after purchase.
Class C Shares Offered at net asset value without an initial
sales charge, but subject to a 0.75% Rule 12b-1
distribution fee and a 1% contingent deferred sales
charge on redemptions made within one year of purchase.
Class C shares do not convert into another class.
</TABLE>
When placing purchase orders, investors must specify whether the order is for
Class A, Class B or Class C shares. Each class of shares represents interests in
the same portfolio of investments of a fund.
The decision as to which class to choose depends on a number of factors,
including the amount and intended length of the investment. Investors that
qualify for reduced sales charges might consider Class A shares. Investors who
prefer not to pay an initial sales charge and who plan to hold their investment
for more than six years might consider Class B shares. Investors who prefer not
to pay an initial sales charge but who plan to redeem their shares within six
years might consider Class C shares. For more information about the three sales
arrangements, consult your financial representative or the Shareholder Service
Agent. Be aware that financial services firms may receive different compensation
depending upon which class of shares they sell.
62
<PAGE>
Special features
Class A Shares -- Combined Purchases. Each fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of most Kemper
Funds.
Class A Shares -- Letter of Intent. The same reduced sales charges for Class A
shares also apply to the aggregate amount of purchases made by any purchaser
within a 24-month period under a written Letter of Intent ("Letter") provided by
Kemper Distributors. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period.
Class A Shares -- Cumulative Discount. Class A shares of a fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of a fund being purchased, the value of all Class A shares of
the above mentioned Kemper Funds (computed at the maximum offering price at the
time of the purchase for which the discount is applicable) already owned by the
investor.
Exchange Privilege -- General. Shareholders of Class A, Class B and Class C
shares may exchange their shares for shares of the corresponding class of Kemper
Mutual Funds. Shares of a Kemper Fund with a value in excess of $1,000,000
(except Kemper Cash Reserves Fund) acquired by exchange from another Kemper
Fund, or from a Money Market Fund, may not be exchanged thereafter until they
have been owned for 15 days (the "15 Day Hold Policy").
For purposes of determining any contingent deferred sales charge that may be
imposed upon the redemption of the shares received on exchange, amounts
exchanged retain their original cost and purchase date.
63
<PAGE>
Buying shares
Class A Shares
<TABLE>
<CAPTION>
Public Amount of Purchase Sales Charge Sales Charge as
Offering Price. as a % of a % of Net
Including Sales Offering Price Amount Invested
Charge -------------- ---------------
<S> <C> <C> <C>
Less than $50,000 5.75%
$50,000 but less than $100,000 4.50
$100,000 but less than $250,000 3.50
$250,000 but less than $500,000 2.60
$500,000 but less than $1 million 2.00
$1 million and over 0.00**
</TABLE>
**Redemption of shares may be subject to a contingent deferred
sales charge as discussed below.
<TABLE>
<CAPTION>
NAV Purchases Class A shares of a fund may be purchased at net asset value by:
<S> <C>
o shareholders in connection with the investment or
reinvestment of income and capital gain dividends
o a participant-directed qualified retirement plan or a
participant-directed non-qualified deferred compensation
plan or a participant-directed qualified retirement plan
which is not sponsored by a K-12 school district, provided
in each case that such plan has not less than 200 eligible
employees
o any purchaser with Kemper Funds investment totals of at least
$1,000,000
o unitholders of unit investment trusts sponsored by Ranson &
Associates, Inc. or its predecessors through reinvestment
programs described in the prospectuses of such trusts that
have such programs
o officers, trustees, directors, employees (including
retirees) and sales representatives of a fund, its
investment manager, its principal underwriter or certain
affiliated companies, for themselves or members of their
families
o persons who purchase shares through bank trust departments
that process such trades through an automated, integrated
mutual fund clearing program provided by a third party
clearing firm
o registered representatives and employees of broker-dealers
having selling group agreements with Kemper Distributors
o officers, directors, and employees of service agents of the
funds
o members of the plaintiff class in the proceeding known as
Howard and Audrey Tabankin, et al. v. Kemper Short-Term
Global Income Fund, et. al., Case No. 93 C 5231 (N.D.IL)
o selected employees (including their spouses and dependent
children) of banks and other financial services firms that
provide administrative services related to the funds
pursuant to an agreement with Kemper Distributors or one of
its affiliates
o certain professionals who assist in the promotion of Kemper
Funds pursuant to personal services contracts with Kemper
Distributors, for themselves or members of their families
o in connection with the acquisition of the assets of or
merger or consolidation with another investment company
64
<PAGE>
Class A Shares (cont.)
o shareholders who owned shares of Kemper Value Series, Inc.
("KVS") on September 8, 1995, and have continuously owned
shares of KVS (or a Kemper Fund acquired by exchange of KVS
shares) since that date, for themselves or members of their
families
o any trust, pension, profit-sharing or other benefit plan for
only such persons.
o persons who purchase shares of the fund through Kemper
Distributors as part of an automated billing and wage
deduction program administered by RewardsPlus of America
o through certain investment advisers registered under the
Investment Advisers Act of 1940 and other financial services
firms that adhere to certain standards established by Kemper
Distributors, including a requirement that such shares be sold
for the benefit of their clients participating in an investment
advisory program under which such clients pay a fee to the
investment advisor or other firm for portfolio management and
other services. Such shares are sold for investment purposes
and on the condition that they will not be resold except
through redemption or repurchase by the funds
Contingent A contingent deferred sales charge may be imposed upon redemption
Deferred Sales of Class A shares purchased under the Large Order NAV Purchase
Charge Privilege as follows: 1% if they are redeemed within one year of
purchase and .50% if redeemed during the second year following
purchase. The charge will not be imposed upon redemption of
reinvested dividends or share appreciation. The contingent
deferred sales charge will be waived in the event of:
o redemptions under a fund's Systematic Withdrawal Plan at a
maximum of 10% per year of the net asset value of the account
o redemption of shares of a shareholder (including a registered
joint owner) who has died
o redemption of shares of a shareholder (including a
registered joint owner) who after purchase of the shares
being redeemed becomes totally disabled (as evidenced by a
determination by the federal Social Security Administration)
o redemptions by a participant-directed qualified retirement
plan or a participant-directed non-qualified deferred
compensation plan or a participant-directed qualified
retirement plan which is not sponsored by a K-12 school
district
o redemptions by employer sponsored employee benefit plans
using the subaccount record keeping system made available
through the Shareholder Service Agent
o redemptions of shares whose dealer of record at the time of
the investment notifies Kemper Distributors that the dealer
waives the commission applicable to such Large Order NAV
Purchase
Distribution Fee None
Exchange Class A shares may be exchanged for each other at their relative
Privilege net asset values. Shares of Money Market Funds and Kemper Cash
Reserves Fund acquired by purchase (not including shares
acquired by dividend reinvestment) are subject to the
applicable sales charge on exchange
Class A shares purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of any Kemper
Fund or a Money Market Fund without paying any contingent
deferred sales charge. If the Class A shares received on
exchange are redeemed thereafter, a contingent deferred sales
charge may be imposed
65
<PAGE>
Class B Shares
Public Offering Net asset value per share without any sales charge at the time of purchase
Price
Contingent A contingent deferred sales charge may be imposed upon redemption
Deferred Sales of Class B shares. There is no such charge upon redemption of any
Charge share appreciation or reinvested dividends. The charge is computed
at the following rates applied to the value of the shares redeemed
excluding amounts not subject to the charge.
Year of Redemption First Second Third Fourth Fifth Sixth
After Purchase:
--------------------------------------------------------------------
Contingent Deferred 4% 3% 3% 2% 2% 1%
Sales Charge:
--------------------------------------------------------------------
The contingent deferred sales charge will be waived:
o for redemptions to satisfy required minimum distributions after
age 70 1/2 from an IRA account (with the maximum amount
subject to this waiver being based only upon the
shareholder's Kemper IRA accounts)
o for redemptions made pursuant to any IRA systematic
withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic
payments described in Code Section 72(t)(2)(A)(iv) prior to
age 59 1/2
o for redemptions made pursuant to a systematic withdrawal
plan (see "Special Features -- Systematic Withdrawal Plan"
below)
o in the event of the total disability (as evidenced by a
determination by the federal Social Security Administration)
of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed
o in the event of the death of the shareholder (including a
registered joint owner)
The contingent deferred sales charge will also be waived in
connection with the following redemptions of shares held by
employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the
Shareholder Service Agent:
o redemptions to satisfy participant loan advances (note that
loan repayments constitute new purchases for purposes of the
contingent deferred sales charge and the conversion privilege)
o redemptions in connection with retirement distributions
(limited at any one time to 10% of the total value of plan
assets invested in a fund
o redemptions in connection with distributions qualifying under
the hardship provisions of the Code
o redemptions representing returns of excess contributions to
such plans
Distribution Fee 0.75%
Conversion Class B shares of a fund will automatically convert to Class A
Feature shares of the same fund six years after issuance on the basis of
the relative net asset value per share. Shares purchased
through the reinvestment of dividends and other distributions
paid with respect to Class B shares in a shareholder's fund
account will be converted to Class A shares on a pro rata
basis.
Exchange Class B shares of a fund and Class B shares of most Kemper Funds
Privilege may be exchanged for each other at their relative net asset values
without a contingent deferred sales charge.
66
<PAGE>
Class C Shares
Public
Offering Price Net asset value per share without any sales charge at the time of purchase
Contingent
Deferred A contingent deferred sales charge of 1% may be imposed upon
Sales Charge redemption of Class C shares redeemed within one year of
purchase. The charge will not be imposed upon redemption of
reinvested dividends or share appreciation. The contingent
deferred sales charge will be waived in the event of:
o redemptions by a participant-directed qualified
retirement plan described in Code Section 401(a) or a
participant-directed non-qualified deferred compensation
plan described in Code Section 457
o redemptions by employer sponsored employee benefit plans
(or their participants) using the subaccount record
keeping system made available through the Shareholder
Service Agent
o redemption of shares of a shareholder (including a
registered joint owner) who has died
o redemption of shares of a shareholder (including a
registered joint owner) who after purchase of the shares
being redeemed becomes totally disabled (as evidenced by
a determination by the federal Social Security
Administration)
o redemptions under a fund's Systematic Withdrawal Plan at
a maximum of 10% per year of the net asset value of the
account
o redemption of shares by an employer sponsored employee
benefit plan that offers funds in addition to Kemper
Funds and whose dealer of record has waived the advance
of the first year administrative service and
distribution fees applicable to such shares and agrees
to receive such fees quarterly
o redemption of shares purchased through a
dealer-sponsored asset allocation program maintained on
an omnibus record-keeping system provided the dealer of
record has waived the advance of the first year
administrative services and distribution fees applicable
to such shares and has agreed to receive such fees
quarterly
Distribution Fee 0.75%
Conversion Feature None
Exchange Privilege Class C shares of a fund and Class C shares of
most Kemper Funds may be exchanged for each other at their
relative net asset values. Class C shares may be exchanged
without a contingent deferred sales charge.
</TABLE>
67
<PAGE>
Selling and exchanging shares
General
Any shareholder may require a fund to redeem his or her shares. When shares are
held for the account of a shareholder by the funds' transfer agent, the
shareholder may redeem them by sending a written request with signatures
guaranteed to Kemper Mutual Funds, Attention: Redemption Department, P.O. Box
419557, Kansas City, Missouri 64141-6557.
Share certificates
When certificates for shares have been issued, they must be mailed to or
deposited with the Shareholder Service Agent, along with a duly endorsed stock
power and accompanied by a written request for redemption. Redemption requests
and a stock power must be endorsed by the account holder with signatures
guaranteed. The redemption request and stock power must be signed exactly as the
account is registered including any special capacity of the registered owner.
Additional documentation may be requested, and a signature guarantee is normally
required, from institutional and fiduciary account holders, such as
corporations, custodians (e.g., under the Uniform Transfers to Minors Act),
executors, administrators, trustees or guardians.
Repurchases (confirmed redemptions)
A request for repurchase may be communicated by a shareholder through a
securities dealer or other financial services firm to Kemper Distributors, which
each fund has authorized to act as its agent. There is no charge by Kemper
Distributors with respect to repurchases; however, dealers or other firms may
charge customary commissions for their services. The offer to repurchase may be
suspended at any time. Requirements as to stock powers, certificates, payments
and delay of payments are the same as for redemptions.
68
<PAGE>
Reinvestment privilege
Under certain circumstances, a shareholder who has redeemed Class A shares may
reinvest up to the full amount redeemed at net asset value at the time of the
reinvestment. These reinvested shares will retain their original cost and
purchase date for purposes of the contingent deferred sales charge. Also, a
holder of Class B shares who has redeemed shares may reinvest up to the full
amount redeemed, less any applicable contingent deferred sales charge that may
have been imposed upon the redemption of such shares, at net asset value in
Class A shares. The reinvestment privilege may be terminated or modified at any
time.
Distributions and taxes
Dividends and capital gains distributions
Kemper Contrarian Fund, Kemper U.S. Growth and Income Fund and Kemper High
Return Equity Fund normally distribute quarterly dividends of net investment
income. Kemper Small Cap Value Fund, Kemper Small Cap Relative Value Fund and
Kemper Value Fund normally distribute annual dividends of net investment income.
The Kemper-Dreman Financial Services Fund normally distributes dividends of net
investment income semi-annually. Each fund distributes any net realized
short-term and long-term capital gains at least annually.
Income and capital gain dividends, if any, of a fund will be credited to
shareholder accounts in full and fractional shares of the same class of that
fund at net asset value on the reinvestment date, except that, upon written
request to the Shareholder Service Agent, a shareholder may select one of the
following options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of a fund that are reinvested will normally be reinvested in
shares of the same class of that same fund. However, by writing to the
Shareholder Service Agent, you may choose to have dividends of a fund invested
in shares of the same class of another Kemper fund at the net asset value of
that class and fund. To use this privilege, you must maintain a minimum account
value of $1,000 in the fund distributing the dividends. The funds will reinvest
dividend checks (and future dividends) in shares of that same fund and class if
checks are returned as undeliverable. Dividends and other distributions in the
aggregate amount of $10 or less are automatically reinvested in shares of the
same fund unless you request that such policy not be applied to your account.
69
<PAGE>
Taxes
Generally, dividends from net investment income are taxable to you as ordinary
income. Long-term capital gains distributions, if any, are taxable to you as
long-term capital gains, regardless of how long you have owned shares.
Short-term capital gains and any other taxable income distributions are taxable
to you as ordinary income. A portion of dividends from ordinary income may
qualify for the dividends-received deduction for corporations.
Any dividends or capital gains distributions declared in October, November or
December with a record date in such month and paid during the following January
are taxable to you as if paid on December 31 of the calendar year in which they
were declared.
A sale or exchange of shares is a taxable event and may result in a capital gain
or loss which may be long-term or short term, generally depending on how long
you owned the shares. Shareholders of a fund may be subject to state, local and
foreign taxes on fund distributions and dispositions of fund shares. You should
consult your tax advisor regarding the particular tax consequences of an
investment in a fund.
A dividend received shortly after the purchase of shares reduces the net asset
value of the shares by the amount of the dividend and, although in effect a
return of capital, is taxable to the shareholder.
The fund sends you detailed tax information about the amount and type of its
distributions by January 31 of the following year.
Transaction information
Share price
Scudder Fund Accounting Corporation determines the net asset value per share of
the funds as of the close of regular trading on the New York Stock Exchange
(NYSE), normally 4 p.m. eastern time, on each day the NYSE is open for trading.
Market prices are used to determine the value of the funds' assets, but when
reliable market quotations are unavailable, a fund may use procedures
established by its Board of Trustees.
The net asset value per share of each fund is the value of one share and is
determined separately for each class by dividing the value of a fund's net
assets attributable to that class by the number of shares of that class
outstanding. The per share net asset value of the Class B and Class C shares of
the fund will generally be lower than that of the Class A shares of a fund
because of the higher annual expenses borne by the Class B and Class C shares.
70
<PAGE>
Processing time
All requests to buy and sell shares that are received in good order by the
funds' transfer agent by the close of regular trading on the NYSE are executed
at the net asset value per share calculated at the close of trading that day
(subject to any applicable sales load or contingent deferred sales charge).
Orders received by dealers or other financial services firms prior to the
determination of net asset value and received by the funds' transfer agent prior
to the close of its business day will be confirmed at a price based on the net
asset value effective on that day. If an order is accompanied by a check drawn
on a foreign bank, funds must normally be collected before shares will be
purchased.
Signature guarantees
A signature guarantee is required when you sell more than $100,000 worth of
shares. You can obtain one from most brokerage houses and financial
institutions, although not from a notary public. The funds will normally send
you the proceeds within one business day following your request, but may take up
to seven business days (or longer in the case of shares recently purchased by
check).
Purchase restrictions
Purchases and sales should be made for long-term investment purposes only. The
funds and their transfer agent each reserves the right to reject purchases of
fund shares (including exchanges) for any reason including when there is
evidence of a pattern of frequent purchases and sales made in response to
short-term fluctuations in a fund's share price.
The funds reserve the right to withdraw all or any part of the offering made by
this prospectus and to reject purchase orders. Also, from time to time, each
fund may temporarily suspend the offering of its shares or a class of its shares
to new investors. During the period of such suspension, persons who are already
shareholders normally are permitted to continue to purchase additional shares
and to have dividends reinvested.
Minimum balances
The minimum initial investment for each fund is $1,000 and the minimum
subsequent investment is $100. The minimum initial investment for an Individual
Retirement Account is $250 and the minimum subsequent investment is $50. Under
an automatic investment plan, such as Bank Direct Deposit, Payroll Direct
Deposit or Government Direct Deposit, the minimum initial and subsequent
investment is $50. These minimum amounts may be changed at any time in
management's discretion.
71
<PAGE>
Because of the high cost of maintaining small accounts, the funds may assess a
quarterly fee of $9 on an account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer sponsored employee benefit plans
using the subaccount record keeping system made available through the
Shareholder Service Agent.
Third party transactions
If you buy and sell shares of a fund through a member of the National
Association of Securities Dealers, Inc. (other than the funds' transfer agent,
Kemper Distributors), that member may charge a fee for that service. This
prospectus should be read in connection with such firms' material regarding
their fees and services.
Redemption-in-kind
The funds reserve the right to honor any request for redemption or repurchase
order by making payment in whole or in part in readily marketable securities
("redemption in kind"). These securities will be chosen by the fund and valued
as they are for purposes of computing the fund's net asset value. A shareholder
may incur transaction expenses in converting these securities to cash.
Rule 12b-1 plan
Each fund has adopted a plan under Rule 12b-1 that provides for fees payable as
an expense of the Class B shares and the Class C shares that are used by the
transfer agent to pay for distribution and services for those classes. Because
12b-1 fees are paid out of fund assets on an ongoing basis, they will, over
time, increase the cost of investment and may cost more than other types of
sales charges.
72
<PAGE>
Additional information about the funds may be found in the Statement of
Additional Information, the Shareholder Service Guide and in shareholder
reports. The Statement of Additional Information contains more detailed
information on fund investments and operations. The Shareholder Service Guide
contains more detailed information about purchases and sales of fund shares. The
semiannual and annual shareholder reports contain a discussion of the market
conditions and the investment strategies that significantly affected the funds'
performance during the last fiscal year, as well as a listing of portfolio
holdings and financial statements. These and other fund documents may be
obtained without charge from the following sources:
---------------------------------------------------------------------------
By Phone: In Person:
---------------------------------------------------------------------------
Call Kemper at: Public Reference Room
1-800-621-1048 Securities and Exchange Commission,
Washington, D.C.
(Call 1-800-SEC-0330
for more information).
---------------------------------------------------------------------------
By Mail: By Internet:
---------------------------------------------------------------------------
Kemper Distributors, Inc. http://www.sec.gov
222 South Riverside Plaza http://www.kemper.com
Chicago, IL 60606-5808
or
Public Reference Section, Securities
and Exchange Commission, Washington,
D.C. 20549-6009
(a duplication fee is charged)
---------------------------------------------------------------------------
The Statement of Additional Information is incorporated by reference into this
prospectus (is legally a part of this prospectus).
Investment Company Act file numbers:
<TABLE>
<S> <C> <C>
Kemper Contrarian Fund 811-XXX Kemper Small Cap Relative Value 811-XXX
Fund
Kemper-Dreman High Return Equity 811-XXX Kemper U.S. Growth and Income Fund 811-XXX
Fund
Kemper Small Cap Value Fund 811-XXX Kemper Value Fund 811-XXX
Kemper-Dreman Financial Services Fund
</TABLE>
73
<PAGE>
<PAGE>
SCUDDER LARGE COMPANY VALUE FUND
Scudder Large Company Value Fund is a series of Value Equity Trust
A Pure No-Load(TM) (No Sales Charges) Diversified Mutual Fund which Seeks to
Maximize Long-Term Capital Appreciation through
a Value-Driven Investment Program
and
VALUE FUND -- SCUDDER SHARES
Value Fund is a series of Value Equity Trust
A Diversified Mutual Fund Series which Seeks Long-Term Growth of Capital through
Investment in Undervalued Equity Securities
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1999
- --------------------------------------------------------------------------------
This combined Statement of Additional Information is not a prospectus.
The prospectuses of Scudder Large Company Value Fund, dated February 1, 1999,
and of the Scudder Shares class of Value Fund, dated February 1, 1999, as
amended from time to time, may be obtained without charge by writing to Scudder
Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103.
The Annual Reports to Shareholders of Scudder Large Company Value Fund
and of the Scudder Shares of Value Fund dated September 30, 1998 are
incorporated by reference and are hereby deemed to be part of this Statement of
Additional Information.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
THE FUNDS'INVESTMENT OBJECTIVES AND POLICIES...................................................1
General Investment Objective and Policies of Scudder Large Company Value Fund.........1
General Investment Objective and Policies of Value Fund...............................2
Master/feeder structure...............................................................3
Investments and Investment Techniques.................................................3
Investment Restrictions..............................................................15
Other Investment Policies............................................................16
PURCHASES.....................................................................................17
Additional Information About Opening An Account......................................17
Additional Information About Making Subsequent Investments...........................18
Additional Information About Making Subsequent Investments by QuickBuy...............19
Checks...............................................................................20
Wire Transfer of Federal Funds.......................................................20
Share Price..........................................................................20
Share Certificates...................................................................20
Other Information....................................................................20
EXCHANGES AND REDEMPTIONS.....................................................................21
Exchanges............................................................................21
Redemption by Telephone..............................................................22
Redemption By QuickSell..............................................................23
Redemption by Mail or Fax............................................................23
Redemption-in-Kind...................................................................23
Other Information....................................................................24
FEATURES AND SERVICES OFFERED BY THE FUNDS....................................................25
The Pure No-Load(TM)Concept..........................................................25
Internet access......................................................................26
Dividends and Capital Gains Distribution Options.....................................26
Diversification......................................................................27
Scudder Investor Centers.............................................................27
Reports to Shareholders..............................................................27
Transaction Summaries................................................................27
THE SCUDDER FAMILY OF FUNDS...................................................................27
SPECIAL PLAN ACCOUNTS.........................................................................32
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension Plans for
Corporations and Self-Employed Individuals.....................................33
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations and
Self-Employed Individuals .....................................................33
Scudder IRA: Individual Retirement Account..........................................33
Scudder Roth IRA: Individual Retirement Account.....................................34
Scudder 403(b) Plan..................................................................35
Automatic Withdrawal Plan............................................................35
Group or Salary Deduction Plan.......................................................35
Automatic Investment Plan............................................................35
Uniform Transfers/Gifts to Minors Act................................................36
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.....................................................36
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
PERFORMANCE INFORMATION.......................................................................36
Average Annual Total Return..........................................................36
Cumulative Total Return..............................................................37
Total Return.........................................................................38
Comparison of Fund Performance.......................................................38
ORGANIZATION OF THE FUNDS.....................................................................42
INVESTMENT ADVISER............................................................................43
Personal Investments by Employees of the Adviser.....................................47
TRUSTEES AND OFFICERS.........................................................................47
REMUNERATION..................................................................................50
Responsibilities of the Board --Board and Committee Meetings.........................50
Compensation of Officers and Trustees................................................50
DISTRIBUTOR...................................................................................52
TAXES.........................................................................................53
PORTFOLIO TRANSACTIONS........................................................................56
Brokerage Commissions................................................................56
Portfolio Turnover...................................................................58
NET ASSET VALUE...............................................................................58
ADDITIONAL INFORMATION........................................................................59
Experts..............................................................................59
Shareholder Indemnification..........................................................59
Other Information....................................................................60
FINANCIAL STATEMENTS..........................................................................61
Large Company Value Fund.............................................................61
Value Fund...........................................................................61
APPENDIX
</TABLE>
ii
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
(See "FUND SUMMARY - Investment Objective and Principal Strategies and
Principal Risks", and "ABOUT THE FUND Principal Strategies, Investments and
Related Risks" in each Fund's respective prospectus.)
Scudder Large Company Value Fund and Value Fund (the "Funds") are each
diversified series of Value Equity Trust (the "Trust"), an open-end management
company.
Value Fund offers the following classes of shares: Scudder Shares (the
"Scudder Shares" or "Shares") and Value Fund Class A, B and C shares (the
"Kemper Shares"). Only the shares of Scudder Large Company Value Fund and the
Scudder Shares of Value Fund are offered herein.
General Investment Objective and Policies of Scudder Large Company Value Fund
Scudder Large Company Value Fund ("Large Company Value Fund") seeks to
maximize long-term capital appreciation through a value-driven investment
program. The Fund seeks to achieve its objective by investing: (i) in marketable
securities, principally common stocks; (ii) up to 20% of its 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.
Investments in common stocks have a wide range of characteristics, and
management of the Fund believes that opportunity for long-term capital
appreciation 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 will normally invest at least 65% of its assets in the equity
securities of large U.S. companies, i.e. those with $1 billion or more in total
market capitalization. The Fund's investment flexibility enables it to pursue
investment value in all sectors of the stock market, including:
o 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;
o companies that own or develop natural resources, such as
energy exploration companies;
o companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunications companies;
o foreign companies, including those in countries with more
rapid economic growth than the U.S;
o companies whose earnings are temporarily depressed and are
currently out of favor with most investors.
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.
<PAGE>
("Moody's"), or AAA, AA, A or BBB by Standard & Poor's Corporation ("S&P") or,
if unrated, of equivalent quality as determined by the Fund's investment
adviser, Scudder Kemper Investments, 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, commonly referred to as "junk bonds," (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 20% 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.")
The Fund may borrow money for temporary, emergency or other purposes,
including investment leverage purposes, as determined by the Trustees. The Fund
may also engage in reverse repurchase agreements.
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 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 Corporation 500 Composite Price Index (S&P 500).
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 capitalizations 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 is 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 in securities
of foreign companies that meet the same criteria applicable to the Fund's
domestic investments if the performance of foreign securities is believed by the
Adviser to offer more potential than domestic investments.
2
<PAGE>
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 assets in such securities ("high yield/high risk securities" commonly
referred to as "junk bonds") but will invest no more than 10% of its 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 Fund may borrow money for temporary, emergency or other purposes,
including investment leverage purposes, as determined by the Trustees. The Fund
may also engage in reverse repurchase agreements.
The Fund cannot guarantee a gain or eliminate the risk of loss. The net
asset value of a 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.
Master/feeder structure
The Board of Trustees has the discretion to retain the current
distribution arrangement for a Fund while investing in a master fund in a
master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder
fund"), instead of investing directly in a portfolio of securities, invests most
or all of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
Investments and Investment Techniques
Common Stocks. Under normal circumstances, the Funds invest primarily in common
stocks. Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, a
Fund participates in the success or failure of any company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
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.
3
<PAGE>
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, Inc. (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
development, 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
4
<PAGE>
denominated: the strength or weakness of the U.S. dollar against foreign
currencies could account for part of each Fund's investment performance.
Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve a Fund's objective of long-term capital appreciation, the Funds
may invest in debt securities, including bonds of private issuers. Portfolio
debt investments will be selected on the basis of, among other things, credit
quality, and the fundamental outlooks for currency, economic and interest rate
trends, taking into account the ability to hedge a degree of currency or local
bond price risk. The Funds may purchase "investment-grade" bonds, rated Aaa, Aa,
A or Baa by Moody's or AAA, AA, A or BBB by S&P or, if unrated, judged to be of
equivalent quality as determined by the Adviser.
High Yield, High Risk Securities. Below investment-grade securities (commonly
referred to as "junk bonds") (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 assets in debt securities rated
below investment-grade but will invest no more than 10% of its assets in
securities rated B or lower by Moody's or by S&P and may not invest more than 5%
of its assets in securities which are rated C by Moody's or D by S&P or of
equivalent quality as determined by the Adviser.
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. The Funds may each 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
Funds will limit their purchases of convertible securities to debt securities
convertible into common stocks.
5
<PAGE>
The convertible securities in which the Funds 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.
Illiquid Securities. Each Fund may occasionally purchase securities other than
in the open market. While such purchases may often offer attractive
opportunities for investment not otherwise available on the open market, the
securities so purchased are often "restricted securities", i.e., securities
which cannot be sold to the public without registration under the Securities Act
of 1933 or the availability of an exemption from registration (such as Rules 144
or 144A), or which are "not readily marketable" because they are subject to
other legal or contractual delays in or restrictions on resale.
The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid investments may
involve time-consuming negotiation and legal expenses, and it may be difficult
or impossible for the Fund to sell them promptly at an acceptable price. The
Fund may have to bear the extra expense of registering such securities for
resale and the risk of substantial delay in effecting such registration. Also
market quotations are less readily available. The judgment of the Adviser may at
times play a greater role in valuing these securities than in the case of
unrestricted securities.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering
6
<PAGE>
for which a registration statement is in effect under the Securities Act of
1933. The Funds may be deemed to be an "underwriter" for purposes of the
Securities Act of 1933 when selling restricted securities to the public, and in
such event the Fund may be liable to purchasers of such securities if the
registration statement prepared by the issuer, or the prospectus forming a part
of it, is materially inaccurate or misleading.
Borrowing. As a matter of fundamental policy, the Funds will not borrow money,
except as permitted under the Investment Company Act of 1940 (the "1940 Act"),
as amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time. While the Trustees do not currently intend to
borrow for investment leverage purposes, if such a strategy were implemented in
the future it would increase the Funds' volatility and the risk of loss in a
declining market. Borrowing by the Funds will involve special risk
considerations. Although the principal of the Funds' borrowings will be fixed,
the Funds' assets may change in value during the time a borrowing is
outstanding, thus increasing exposure to capital risk.
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 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.
Depository Receipts. Large Company Value Fund may also invest in Standard and
Poor's Depository Receipts ("SPDRs"). SPDRs should typically trade like a share
of common stock and provide investment results that generally correspond to the
price and yield performance of the component common stocks of the S&P 500. There
can be no assurance, however, that this can be accomplished as it may not be
possible for the SPDRs portfolio to replicate the composition and relative
weightings of the securities of the S&P 500. SPDRs are subject to the risks of
an investment in a broadly based portfolio of large-capitalization common
stocks, including the risk that the general level of stock prices may decline,
thereby adversely affecting the value of such investment. SPDRs are also subject
to risks other than those associated with an investment in such a broadly based
portfolio in that the selection of the stocks
7
<PAGE>
included in the SPDRs portfolio may affect trading in SPDRs, as compared with
trading in a broadly based portfolio of common stocks. In addition, there can be
no assurance that that SPDRs will experience similar trading patterns.
Warrants. Each Fund may invest in warrants up to 5% of the value of its
respective net assets. The holder of a warrant has the right, until the warrant
expires, to purchase a given number of shares of a particular issuer at a
specified price. Such investments can provide a greater potential for profit or
loss than an equivalent investment in the underlying security. Prices of
warrants do not necessarily move, however, in tandem with the prices of the
underlying securities and are, therefore, considered speculative investments.
Warrants pay no dividends and confer no rights other than a purchase option.
Thus, if a warrant held by a Fund were not exercised by the date of its
expiration, the Fund would lose the entire purchase price of the warrant.
Reverse Repurchase Agreements. In a reverse repurchase agreement, a Fund sells a
portfolio instrument to another party, such as a bank or broker-dealer, in
return for cash and agrees to repurchase the instrument at a particular price
and time. While a reverse repurchase agreement is outstanding, a Fund will
maintain liquid assets in a segregated custodial account to cover its obligation
under the agreement. Each Fund will enter into reverse repurchase agreements
only with parties whose creditworthiness has been found satisfactory by the
Adviser. Such transactions may increase fluctuations in the market value of a
Fund's assets and may be viewed as a form of leverage.
Zero Coupon Securities. Value Fund may invest in zero coupon securities, which
pay no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with short 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.
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRS") and Certificate of Accrual on Treasuries
("CATS"). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities has stated that for federal tax and securities purposes, in
their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holders of the underlying U.S. Government
securities.
The Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program, as
established by the Treasury Department, is known as "STRIPS" or "Separate
Trading of Registered Interest and Principal of Securities." Under the STRIPS
program, the Fund will be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells.
(See "TAXES.")
8
<PAGE>
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 fixed-income securities 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 to create
leveraged exposure in the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to 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."
9
<PAGE>
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
10
<PAGE>
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
the Federal limits for investing assets in them.
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.
11
<PAGE>
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
12
<PAGE>
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, government exchange controls, blockages, and manipulations
or exchange restrictions imposed by governments can negatively affect purchases
and sales of currency and related instruments. 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
13
<PAGE>
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 cash or liquid 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 assets at least equal to the current amount of the obligation must be
segregated with the custodian. The segregated assets cannot be sold or
transferred unless equivalent assets are substituted in their place or it is no
longer necessary to segregate them. For example, a call option written by a Fund
will require that Fund to hold the securities subject to the call (or securities
convertible into the needed securities without additional consideration) or to
segregate cash or liquid assets 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 cash or liquid assets equal to the excess of the index
value over the exercise price on a current basis. A put option written by a Fund
requires that Fund to segregate cash or liquid assets equal to the exercise
price.
Except when a Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates a Fund to buy or sell currency
will generally require that Fund to hold an amount of that currency or liquid
assets denominated in that currency equal to that Fund's obligations or to
segregate cash or liquid 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 cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by 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 cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.
14
<PAGE>
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 cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, 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 assets 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 cash or liquid 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, cash or liquid assets equal to any remaining obligation would need
to be segregated.
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.
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, 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.
Each Fund has elected to be classified as a diversified series of an
open-end investment company.
As a matter of fundamental policy, each Fund may not:
(1) borrow money, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the 1940
Act, as amended, and as interpreted or modified by regulatory
authority having jurisdiction, from time to time;
(3) concentrate its investments in a particular industry, as that
term is used in the 1940 Act, as amended, and as interpreted
or modified by regulatory authority having jurisdiction, from
time to time;
(4) engage in the business of underwriting securities issued by
others, except to the extent that the Fund may be deemed to be
an underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include
securities of companies which deal in real estate or mortgages
or investments secured by real estate or interests therein,
except that the Fund reserves freedom of action to hold and to
sell real estate acquired as a result of the Fund's ownership
of securities;
(6) purchase physical commodities or contracts relating to
physical commodities; or
15
<PAGE>
(7) Make loans except as permitted under the Investment Company
Act of 1940, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time.
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 currently does not
intend to:
(a) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by
engaging in reverse repurchase agreements, dollar rolls, or
other investments or transactions described in the Fund's
registration statement which may be deemed to be borrowings;
(b) enter into either reverse repurchase agreements or dollar
rolls in an amount greater than 5% of its total assets;
(c) purchase securities on margin or make short sales, except (i)
short sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with
futures contracts, options or other permitted investments,
(iv) that transactions in futures contracts and options shall
not be deemed to constitute selling securities short, and (v)
that the Fund may obtain such short-term credits as may be
necessary for the clearance of securities transactions;
(d) purchase options, unless the aggregate premiums paid on all
such options held by the Fund at any time do not exceed 20% of
its total assets; or sell put options, if as a result, the
aggregate value of the obligations underlying such put options
would exceed 50% of its total assets;
(e) enter into futures contracts or purchase options thereon
unless immediately after the purchase, the value of the
aggregate initial margin with respect to such futures
contracts entered into on behalf of the Fund and the premiums
paid for such options on futures contracts does not exceed 5%
of the fair market value of the Fund's total assets; provided
that in the case of an option that is in-the-money at the time
of purchase, the in-the-money amount may be excluded in
computing the 5% limit;
(f) purchase warrants if as a result, such securities, taken at
the lower of cost or market value, would represent more than
5% of the value of the Fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value); and
(g) lend portfolio securities in an amount greater than 5% of its
total assets.
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 Trust's Trustees and would not require the approval of
shareholders.
16
<PAGE>
PURCHASES
(See "Transaction Information" and "Purchases" " in the
each Fund's respective prospectus.)
Large Company Value Fund and the Scudder Shares of Value Fund each
require a $2,500 minimum initial investment and a minimum subsequent investment
of $100. The minimum investment requirements may be waived or lowered for
investments effected through banks and other institutions that have entered into
special arrangements with the Funds and for investments effected on a group
basis by certain other entities and their employees, such as pursuant to a
payroll deduction plan and for investments made in an Individual Retirement
Account offered by the Funds. Investment minimums may also be waived for
Trustees and officers of the Funds. The Funds, Scudder Investor Services, Inc.,
Kemper Distributors, Inc. and Scudder Financial Intermediary Services Group each
reserve the right to reject any purchase order. All funds will be invested in
full and fractional shares.
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 of Fund
shares through Scudder Investor Services, Inc. (the "Distributor") by letter,
fax, 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 ($2,500 minimum), name of bank or
trust company from which the wire will be sent, the exact registration of the
new account, the tax identification or Social Security number, address and
telephone number. The investor must then call the bank to arrange a wire
transfer to The Scudder Funds, 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 $2,500 under
certain special plan accounts.
The name Scudder Value Fund as used herein and in its prospectus also
means Value Fund, which is a series of Scudder Value Equity Trust. All shares of
Value Fund purchased before April 16, 1998 are considered Scudder Shares of
Value Fund. Investors in Value Fund as of April 15, 1998 can continue to
purchase Scudder Shares. Scudder Shares are not available to new investors with
the following exceptions:
1. Existing shareholders of any fund or class of a fund in the
Scudder Family of Funds as of April 15, 1998, and their
immediate family members residing at the same address, may
purchase Scudder Shares.
2. Shareholders, who owned shares of the Value Fund through any
broker-dealer or service agent omnibus account as of April 15,
1998, may continue to purchase Scudder Shares. Existing
shareholders of any fund in the Scudder Family of Funds
through certain broker-dealers or service agent omnibus
accounts as of April 15, 1998 may purchase Scudder Shares when
made available from that broker-dealer or service agent. Call
the broker-dealer or service agent for more information.
3. Retirement, employee stock, bonus, pension or profit sharing
plans offering the Scudder Family of Funds as of April 15,
1998, may add new participants and accounts. Scudder Shares
are also available to prospective plan sponsors, as well as to
existing plans, which had not previously offered the Value
Fund as an investment option.
17
<PAGE>
4. An employee who owns Scudder Shares through a retirement,
employee stock, bonus, pension or profit sharing plan as of
April 15, 1998, may, at a later date, open a new individual
account to purchase Scudder Shares.
5. Any employee, who owns Scudder Shares through a retirement,
employee stock, bonus, pension or profit sharing plan may
complete a direct rollover to an IRA holding Scudder Shares.
6. Scudder Shares are available to the Scudder Kemper
Investments, Inc. retirement plans.
7. Officers, Fund Trustees and Directors, and full-time employees
of Scudder Kemper Investments, Inc. and its subsidiaries, and
their family members may purchase Scudder Shares.
8. Scudder Shares are available to any accounts managed by
Scudder Kemper Investments, Inc., any advisory products
offered by Scudder Kemper Investments, Inc., or Scudder
Investor Services, Inc., and to the portfolios of Scudder
Pathway Series.
9. Registered investment advisors ("RIAs") and certified
financial planners ("CFPs") with clients invested in the
Scudder Family of Funds as of April 15, 1998 may purchase
additional Scudder Shares or open new individual client or
omnibus accounts purchasing Scudder Shares. RIAs and CFPs who
do not have clients invested in the Funds as of April 15, 1998
may enter into a written agreement with Scudder Investor
Services in order to purchase Scudder Shares. Call Scudder
Financial Intermediary Services at 1-800-854-8525 for more
information.
10. Broker-dealers, RIAs and CFPs who have clients participating
in comprehensive fee programs may enter into an agreement with
Scudder Investor Services in order to purchase Scudder Shares.
Call Scudder Financial Intermediary Services at 1-800-854-8525
for more information.
11. Institutional alliances trading through NSCC/FundServ may
purchase Scudder Shares. Call Scudder Financial Intermediary
Services at 1-800-854-8525 for more information.
12. Partnership shareholders invested in Value Fund as of April
15, 1998, through an account registered in the name of a
partnership may open new accounts to purchase Scudder Shares,
whether or not they are listed on the account registration.
Corporate shareholders invested in Value Fund as of April 15,
1998 may open new accounts using the same registration, or if
the corporation is reorganized, the new companies may purchase
Scudder Shares.
Scudder Investor Services may, at its discretion, require appropriate
documentation that an investor is indeed eligible to purchase Scudder Shares.
For more information, please call Scudder Investor Relations at 1-800-225-2470.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500
($1,000 for fiduciary accounts such as IRAs, and custodial accounts such as
Uniform Gift to Minor Act, and Uniform Trust to Minor Act accounts), which
amount may be changed by the Board of Trustees. A shareholder may open an
account with at least $1,000 ($500 for fiduciary/custodial accounts), if an
automatic investment plan (AIP) of $100/month ($50/month for fiduciary/custodial
accounts) is established. Scudder group retirement plans and certain other
accounts have similar or lower minimum share balance requirements.
Each Fund reserves the right, following 60 days' written notice to
applicable shareholders, to:
o assess an annual $10 per Fund charge (with the fee to be paid
to the Fund) for any non-fiduciary/non-custodial account
without an automatic investment plan (AIP) in place and a
balance of less than $2,500; and
18
<PAGE>
o redeem all shares in a Fund account below $1,000 where a
reduction in value has occurred due to a redemption, exchange
or transfer out of the account. Each Fund will mail the
proceeds of the redeemed account to the shareholder.
Reductions in value that result solely from market activity will not
trigger an involuntary redemption. Shareholders with a combined household
account balance in any of the Scudder Funds of $100,000 or more, as well as
group retirement and certain other accounts will not be subject to a fee or
automatic redemption.
Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or
UTMA) with balances below $100 are subject to automatic redemption following 60
days' written notice to applicable shareholders.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD, and banks. Orders placed in this manner may be directed to any
office of the Distributor listed in the respective prospectus. A confirmation of
the purchase will be mailed out promptly following receipt of a request to buy.
Federal regulations require that payment be received within three business days.
If payment is not received within that time, the order is subject to
cancellation. In the event of such cancellation or cancellation at the
purchaser's request, the purchaser will be responsible for any loss incurred by
a 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 relevant
Fund or the principal underwriter for the loss incurred. Net losses on such
transactions, which are not recovered from the purchaser, will be absorbed by
the principal underwriter. Any net profit on the liquidation of unpaid shares
will accrue to the relevant Fund.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of each Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
Exchange, normally 4 p.m. eastern time. Proceeds in the amount of your purchase
will be transferred from your bank checking account two or three business days
following your call. For requests received by the close of regular trading on
the Exchange, shares will be purchased at the net asset value per share
calculated at the close of trading on the day of your call. QuickBuy requests
received after the close of regular trading on the Exchange will begin their
processing and be purchased at the net asset value calculated the following
business day. If you purchase shares by QuickBuy and redeem them within seven
days of the purchase, a Fund may hold the redemption proceeds for a period of up
to seven business days. If you purchase shares and there are insufficient funds
in your bank account the purchase will be canceled and you will be subject to
any losses or fees incurred in the transaction. QuickBuy transactions are not
available for most retirement plan accounts. However, QuickBuy transactions are
available for Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to Scudder Service Corporation, the Transfer Agent
("Service Corporation" or "Transfer Agent") the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders that wish to add QuickBuy to their account may do so by
completing a QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.
Each Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that a Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. Each Fund will not be liable
for acting upon instructions communicated by telephone that it reasonably
believes to be genuine.
19
<PAGE>
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, an 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 the Distributor pays a fee for receipt by State
Street Bank and Trust Company (the "Custodian") of "wired funds," but the right
to charge investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include: Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of a Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
(per Share for Value Fund) 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 the Distributor, it is the responsibility of that
member broker, rather than the Fund, to forward the purchase order to the Large
Company Value Fund and the Scudder Shares' 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 Large Company Value Fund, formerly known as Capital Growth Fund, share
certificates now in a shareholder's possession may be sent to the Large Company
Value Fund's transfer agent for cancellation and credit to such shareholder's
account. Shareholders who prefer may hold the certificates in their possession
until they wish to exchange or redeem such shares.
Other Information
The Funds have authorized certain members of the NASD other than the
Distributor to accept purchase and redemption orders for the Funds' shares.
Those brokers may also designate other parties to accept purchase and redemption
orders on each Fund's behalf. Orders for purchase or redemption will be deemed
to have been received by a Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between a Fund and the
broker, ordinarily orders will be priced at the respective Fund's or Scudder
Share's net asset value next computed after acceptance by such brokers or their
authorized designees. Further, if purchases or redemptions of a Fund's shares
are arranged and settlement is made at an investor's election through any other
authorized NASD member, that member may, at its discretion, charge a fee for
that service. The Board of Trustees and the Distributor,
20
<PAGE>
also the Funds' principal underwriter, each has the right to limit the amount of
purchases by, and to refuse to sell to, any person. The Trustees and the
Distributor may suspend or terminate the offering of shares of a Fund at any
time for any reason.
The Tax Identification Number section of the Funds' application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g., from exempt 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 each
Fund's respective prospectus.)
Exchanges
Exchanges are comprised of a redemption from one Scudder fund or from
the Scudder Shares and a purchase into another Scudder fund or Scudder Shares
class. The purchase side of the exchange either may be an additional investment
into an existing account or may involve opening a new account in the other fund.
When an exchange involves a new account, the new account will be established
with the same registration, tax identification number, address, telephone
redemption option, "Scudder Automated Information Line" (SAIL) transaction
authorization and dividend option as the existing account. Other features will
not carry over automatically to the new account. Exchanges to a new fund account
must be for a minimum of $2,500. When an exchange represents an additional
investment into an existing account, the account receiving the exchange proceeds
must have identical registration, address, and account options/features as the
account of origin. Exchanges into an existing account must be for $100 or more.
If the account receiving the exchange proceeds is to be different in any
respect, the exchange request must be in writing and must contain an original
signature guarantee as described under "Transaction Information -- Signature
guarantees" in the 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 at current net asset value through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the phone or in writing. Automatic
Exchanges will continue until the shareholder requests by telephone or in
writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
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.
21
<PAGE>
The Scudder funds into which investors may make an exchange are listed
under "THE SCUDDER FAMILY OF FUNDS" herein. Before making an exchange,
shareholders should obtain from the Distributor a prospectus of the Scudder fund
into which the exchange is being contemplated. The exchange privilege may not be
available for certain Scudder funds or classes thereof. For more information,
please call 1-800-225-5163.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Redemption by Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $100,000 and have the proceeds mailed
to their address of record. Shareholders may request to have the proceeds mailed
or wired to their 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 Large Company Value Fund, formerly known
as Scudder 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.
22
<PAGE>
Redemption By QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickSell program may sell shares of a Fund by telephone. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, normally 4 p.m. eastern time, shares will be redeemed at the net asset
value per share calculated at the close of trading on the day of your call.
QuickSell requests received after the close of regular trading on the Exchange
will begin their processing and be redeemed at the net asset value calculated
the following business day. QuickSell transactions are not available for Scudder
IRA accounts and most other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account to which redemption proceeds will be credited. New
investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders that wish to add QuickSell to their account may do so by
completing a QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
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 by Mail or Fax
Any existing share certificates for Large Company Value Fund, formerly
known as Scudder 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.
23
<PAGE>
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 a 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 a 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.
24
<PAGE>
FEATURES AND SERVICES OFFERED BY THE FUNDS
(See "Investment Products and Services" in each Fund's respective prospectus)
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 Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the NASD
Conduct Rules, a mutual fund can call itself a "no-load" fund only if the 12b-1
fee and/or service fee does not exceed 0.25% of a fund's average annual net
assets.
Because funds and classes in the Scudder Family of Funds do not pay any
asset-based sales charges or service fees, Scudder developed and trademarked the
phrase pure no-load(TM) to distinguish Scudder funds and classes 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 Family of Funds 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 No-Load Fund with
Years Pure No-Load(TM) 8.50% Load Fund Load Fund with 0.75% 0.25% 12b-1
Fund 12b-1 Fee 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>
25
<PAGE>
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://funds.scudder.com. The site offers guidance on global investing and
developing strategies to help meet financial goals and provides access to the
Scudder investor relations department via e-mail. The site also enables users to
access or view fund prospectuses and profiles with links between summary
information in Profiles and details in the Prospectus. Users can fill out new
account forms on-line, order free software, and request literature on funds.
The site is designed for interactivity, simplicity and maneuverability.
A section entitled "Planning Resources" provides information on asset
allocation, tuition, and retirement planning to users who fill out interactive
"worksheets." Investors can easily establish a "Personal Page," that presents
price information, updated daily, on funds they're interested in following. The
"Personal Page" also offers easy navigation to other parts of the site. Fund
performance data from both Scudder and Lipper Analytical Services, Inc. is
available on the site. Also offered on the site is a news feature, which
provides timely and topical material on the Scudder Funds.
Scudder has communicated with shareholders and other interested parties
on Prodigy since 1988 and has participated since 1994 in GALT's Networth
"financial marketplace" site on the Internet. The firm made Scudder Funds
information available on America Online in early 1996.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders that have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
A Call Me(TM) feature enables users to speak with a Scudder Investor
Relations telephone representative while viewing their account on the Web site.
In order to use the Call Me(TM) feature, an individual must have two phone lines
and enter on the screen the phone number that is not being used to connect to
the Internet. They are connected to the next available Scudder Investor
Relations representative from 8 a.m. to 8 p.m. eastern time.
Dividends and Capital Gains Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of Large Company Value Fund and Scudder Shares. A
change of instructions for the method of payment must be received by the
Transfer Agent at least five days prior to a dividend record date. Shareholders
also may change their dividend option either by calling 1-800-225-5163 or by
sending written instructions to the Transfer Agent. Please include your account
number with your written request.
Reinvestment is usually made at the closing net asset value determined
on the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of a Fund.
Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the
26
<PAGE>
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 a 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.
Scudder Investor Centers
Investors may visit any of the Investor Centers maintained by the
Distributor listed in each Fund's respective Prospectus. The Centers are
designed to provide individuals with services during any business day. Investors
may pick up literature or obtain assistance with opening an account, adding
monies or special options to existing accounts, making exchanges within the
Scudder Family of Funds, redeeming shares or opening retirement plans. Checks
should not be mailed to the Centers but should be mailed to "The Scudder Funds"
at the address listed under "Purchases" or "Exchanges and Redemptions" 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.
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 each Fund's
respective prospectus.)
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.
MONEY MARKET
Scudder U.S. Treasury Money Fund seeks to provide safety, liquidity and
stability of capital and, consistent therewith, to provide current
income. The Fund seeks to maintain a constant net asset value of $1.00
per share, although in certain circumstances this may not be possible,
and declares dividends daily.
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. SCIT seeks to maintain a
constant net asset value of $1.00 per share, although in certain
circumstances this may not be possible, and declares dividends daily.
27
<PAGE>
Scudder Money Market Series seeks to provide investors with as high a
level of current income as is consistent with its investment polices
and with preservation of capital and liquidity. The Fund seeks to
maintain a constant net asset value of $1.00 per share, but there is no
assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
Scudder Government Money Market Series seeks to provide investors with
as high a level of current income as is consistent with its investment
polices and with preservation of capital and liquidity. The Fund seeks
to maintain a constant net asset value of $1.00 per share, but there is
no assurance that it will be able to do so. The institutional class of
shares of this Fund is not within the Scudder Family of Funds.
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund ("STFMF") seeks to provide income exempt
from regular federal income tax and stability of principal through
investments primarily in municipal securities. STFMF seeks to maintain
a constant net asset value of $1.00 per share, although in extreme
circumstances this may not be possible.
Scudder Tax Free Money Market Series seeks to provide investors with as
high a level of current income that cannot be subjected to federal
income tax by reason of federal law as is consistent with its
investment policies and with preservation of capital and liquidity. The
Fund seeks to maintain a constant net asset value of $1.00 per share,
but there is no assurance that it will be able to do so. The
institutional class of shares of this Fund is not within the Scudder
Family of Funds.
Scudder California Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share while
providing California taxpayers income exempt from both California State
personal and regular federal income taxes. The Fund is a professionally
managed portfolio of high quality, short-term California municipal
securities. There can be no assurance that the stable net asset value
will be maintained.
Scudder New York Tax Free Money Fund* seeks stability of capital and
the maintenance of a constant net asset value of $1.00 per share, while
providing New York taxpayers income exempt from New York State and New
York City personal income taxes and regular federal income tax. There
can be no assurance that the stable net asset value will be maintained.
TAX FREE
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 Medium Term Tax Free Fund seeks to provide a high level of
income free from regular federal income taxes and to limit principal
fluctuation. The Fund will invest primarily in high-grade,
intermediate-term bonds.
Scudder Managed Municipal Bonds seeks to provide income exempt from
regular federal income tax primarily through investments in high-grade,
long-term municipal securities.
Scudder High Yield Tax Free Fund seeks to provide a high level of
interest income, exempt from regular federal income tax, from an
actively managed portfolio consisting primarily of investment-grade
municipal securities.
Scudder California Tax Free Fund* seeks to provide California taxpayers
with income exempt from both California State personal income and
regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of California municipal securities.
- ------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
28
<PAGE>
Scudder Massachusetts Limited Term Tax Free Fund* seeks to provide
Massachusetts taxpayers with as high a level of income exempt from
Massachusetts personal income tax and regular federal income tax, as is
consistent with a high degree of price stability, through a
professionally managed portfolio consisting primarily of
investment-grade municipal securities.
Scudder Massachusetts Tax Free Fund* seeks to provide Massachusetts
taxpayers with income exempt from both Massachusetts personal income
tax and regular federal income tax. The Fund is a professionally
managed portfolio consisting primarily of investment-grade municipal
securities.
Scudder New York Tax Free Fund* seeks to provide New York taxpayers
with income exempt from New York State and New York City personal
income taxes and regular federal income tax. The Fund is a
professionally managed portfolio consisting primarily of New York
municipal securities.
Scudder Ohio Tax Free Fund* seeks to provide Ohio taxpayers with income
exempt from both Ohio personal income tax and regular federal income
tax. The Fund is a professionally managed portfolio consisting
primarily of investment-grade municipal securities.
Scudder Pennsylvania Tax Free Fund* seeks to provide Pennsylvania
taxpayers with income exempt from both Pennsylvania personal income tax
and regular federal income tax. The Fund is a professionally managed
portfolio consisting primarily of investment-grade municipal
securities.
U.S. INCOME
Scudder Short Term Bond Fund seeks to provide a high level of income
consistent with a high degree of principal stability by investing
primarily in high quality short-term bonds.
Scudder Zero Coupon 2000 Fund seeks to provide as high an investment
return over a selected period as is consistent with investment in U.S.
Government securities and the minimization of reinvestment risk.
Scudder GNMA Fund seeks to provide high current income primarily from
U.S. Government guaranteed mortgage-backed (Ginnie Mae) securities.
Scudder Income Fund seeks a high level of income, consistent with the
prudent investment of capital, through a flexible investment program
emphasizing high-grade bonds.
Scudder Corporate Bond Fund seeks a high level of current income
through investment primarily in investment-grade corporate debt
securities.
Scudder High Yield Bond Fund seeks a high level of current income and,
secondarily, capital appreciation through investment primarily in below
investment-grade domestic debt securities.
GLOBAL INCOME
Scudder Global Bond Fund seeks to provide total return with an emphasis
on current income by investing primarily in high-grade bonds
denominated in foreign currencies and the U.S. dollar. As a secondary
objective, the Fund will seek capital appreciation.
Scudder International Bond Fund seeks to provide income primarily by
investing in a managed portfolio of high-grade international bonds. 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.
- ------------------------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
29
<PAGE>
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 by
governments and corporations in emerging markets.
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio seeks primarily current
income and secondarily long-term growth of capital. In pursuing these
objectives, the Portfolio, under normal market conditions, will invest
substantially in a select mix of Scudder bond mutual funds, but will
have some exposure to Scudder equity mutual funds.
Scudder Pathway Series: Balanced Portfolio seeks to provide investors
with a balance of growth and income by investing in a select mix of
Scudder money market, bond and equity mutual funds.
Scudder Pathway Series: Growth Portfolio seeks to provide investors
with long-term growth of capital. In pursuing this objective, the
Portfolio will, under normal market conditions, invest predominantly in
a select mix of Scudder equity mutual funds designed to provide
long-term growth.
Scudder Pathway Series: International Portfolio seeks maximum total
return for investors. Total return consists of any capital appreciation
plus dividend income and interest. To achieve this objective, the
Portfolio invests in a select mix of established international and
global Scudder funds.
U.S. GROWTH AND INCOME
Scudder Balanced Fund seeks a balance of growth and income from a
diversified portfolio of equity and fixed-income securities. The Fund
also seeks long-term preservation of capital through a quality-oriented
approach that is designed to reduce risk.
Scudder Dividend & Growth Fund seeks high current income and long-term
growth of capital through investment in income paying equity
securities.
Scudder Growth and Income Fund seeks long-term growth of capital,
current income, and growth of income.
Scudder S&P 500 Index Fund seeks to provide investment results that,
before expenses, correspond to the total return of common stocks
publicly traded in the United States, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
Scudder Real Estate Investment Fund seeks long-term capital growth and
current income by investing primarily in equity securities of companies
in the real estate industry.
U.S. GROWTH
Value
Scudder Large Company Value Fund seeks to maximize long-term capital
appreciation through a value-driven investment program.
Scudder Value Fund** seeks long-term growth of capital through
investment in undervalued equity securities.
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies.
- ------------------------
** Only the Scudder Shares are part of the Scudder Family of Funds.
30
<PAGE>
Scudder Micro Cap Fund seeks long-term growth of capital by investing
primarily in a diversified portfolio of U.S. micro-capitalization
("micro-cap") common stocks.
Growth
Scudder Classic Growth Fund** seeks to provide long-term growth of
capital with reduced share price volatility compared to other growth
mutual funds.
Scudder Large Company 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 Development Fund seeks long-term growth of capital by investing
primarily in medium-size companies with the potential for sustainable
above-average earnings growth.
Scudder 21st Century Growth Fund seeks long-term growth of capital by
investing primarily in the securities of emerging growth companies
poised to be leaders in the 21st century.
GLOBAL EQUITY
Worldwide
Scudder Global Fund seeks long-term growth of capital through a
diversified portfolio of marketable securities, primarily equity
securities, including common stocks, preferred stocks and debt
securities convertible into common stocks.
Scudder International Value Fund seeks long-term capital appreciation
through investment primarily in undervalued foreign equity securities.
Scudder International Growth and Income Fund seeks long-term growth of
capital and current income primarily from foreign equity securities.
Scudder International Fund*** seeks long-term growth of capital
primarily through a diversified portfolio of marketable foreign equity
securities.
Scudder International Growth Fund seeks long-term capital appreciation
through investment primarily in the equity securities of foreign
companies with high growth potential.
Scudder Global Discovery 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 Emerging Markets Growth Fund seeks long-term growth of capital
primarily through equity investment in emerging markets around the
globe.
Scudder Gold Fund seeks maximum return (principal change and income)
consistent with investing in a portfolio of gold-related equity
securities and gold.
Regional
Scudder Greater Europe Growth Fund seeks long-term growth of capital
through investments primarily in the equity securities of European
companies.
Scudder Pacific Opportunities Fund seeks long-term growth of capital
through investment primarily in the equity securities of Pacific Basin
companies, excluding Japan.
- ------------------------
** Only the Scudder Shares are part of the Scudder Family of Funds.
*** Only the International Shares are part of the Scudder Family of Funds.
31
<PAGE>
Scudder Latin America Fund seeks to provide long-term capital
appreciation through investment primarily in the securities of Latin
American issuers.
The Japan Fund, Inc. seeks long-term capital appreciation by investing
primarily in equity securities (including American Depository Receipts)
of Japanese companies.
INDUSTRY SECTOR FUNDS
Choice Series
Scudder Financial Services Fund seeks long-term growth of capital
primarily through investment in equity securities of financial services
companies.
Scudder Health Care Fund seeks long-term growth of capital primarily
through investment in securities of companies that are engaged in the
development, production or distribution of products or services related
to the treatment or prevention of diseases and other medical problems.
Scudder Technology Fund seeks long-term growth of capital primarily
through investment in securities of companies engaged in the
development, production or distribution of technology-related products
or services.
SCUDDER PREFERRED SERIES
Scudder Tax Managed Growth Fund seeks long-term growth of capital on an
after-tax basis by investing primarily in established, medium- to
large-sized U.S. companies with leading competitive positions.
Scudder Tax Managed Small Company Fund seeks long-term growth of
capital on an after-tax basis through investment primarily in
undervalued stocks of small U.S. companies.
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
service representative of Scudder Investor Relations; and easy telephone
exchanges into other Scudder funds. Certain Scudder funds or classes thereof may
not be available for purchase or exchange. For more information, please call
1-800-225-5163.
SPECIAL PLAN ACCOUNTS
(See "Transaction Information", "Purchases", and "Exchanges and Redemption's" in
each Fund's respective prospectus.)
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
32
<PAGE>
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 Funds'
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of 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 Internal
Revenue Code will be greatly facilitated if it is in such approved form. Under
certain circumstances, the IRS will assume that a plan, adopted in this form,
after special notice to any employees, meets the requirements of Section 401(a)
of the Internal Revenue Code as to form.
Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of 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 the Large Company Value Fund and Scudder Shares may be
purchased as the underlying investment for an Individual Retirement Account that
meets the requirements of Section 408(a) of the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples if only one spouse has
earned income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
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.)
33
<PAGE>
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Annual Rate of Return
Starting
Age of ----------------------------------------------------------------------
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.)
Value of a Non-IRA Account at
Age 65 Assuming $1,380 Annual Contributions
(post tax, $2,000 pretax) and a 31% Tax Bracket
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Annual Rate of Return
Starting
Age of ----------------------------------------------------------------------
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 Roth IRA: Individual Retirement Account
Shares of the Large Company Value Fund and Scudder Shares of Value Fund
may be purchased as the underlying investment for a Roth Individual Retirement
Account which meets the requirements of Section 408A of the Internal Revenue
Code.
A single individual earning below $95,000 can contribute up to $2,000
per year to a Roth IRA. The maximum contribution amount diminishes and gradually
falls to zero for single filers with adjusted gross incomes ranging from $95,000
to $110,000. Married couples earning less than $150,000 combined, and filing
jointly, can contribute a full $4,000 per year ($2,000 per IRA). The maximum
contribution amount for married couples filing jointly phases out from $150,000
to $160,000.
An eligible individual can contribute money to a traditional IRA and a
Roth IRA as long as the total contribution to all IRAs does not exceed $2,000.
No tax deduction is allowed under Section 219 of the Internal Revenue Code for
contributions to a Roth IRA. Contributions to a Roth IRA may be made even after
the individual for whom the account is maintained has attained age 70 1/2.
All income and capital gains derived from Roth IRA investments are
reinvested and compounded tax-free. Such tax-free compounding can lead to
substantial retirement savings. No distributions are required to be taken prior
to the death of the original account holder. If a Roth IRA has been established
for a minimum of five years, distributions can be taken tax-free after reaching
age 59 1/2, for a first-time home purchase ($10,000 maximum, one-time use) or
upon death or disability. All other distributions of earnings from a Roth IRA
are taxable and subject to a 10% tax penalty unless an exception applies.
Exceptions to the 10% penalty include: disability, excess medical expenses, the
purchase of health insurance for an unemployed individual and qualified higher
education expenses.
An individual with an income of $100,000 or less (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
34
<PAGE>
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
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information--Redeeming shares--Signature
guarantees" in each Fund's respective Prospectus. Any such requests must be
received by each Fund's transfer agent ten days prior to the date of the first
automatic withdrawal. An Automatic Withdrawal Plan may be terminated at any time
by the shareholder, the Trust or its agent on written notice, and will be
terminated when all shares of the Fund under the Plan have been liquidated or
upon receipt by the Trust of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where
satisfactory arrangements have been made with Scudder Investor Services, Inc.
for forwarding regular investments through a single source. The minimum annual
investment is $240 per investor, which may be made in monthly, quarterly,
semiannual or annual payments. The minimum monthly deposit per investor is $20.
Except for trustees or custodian fees for certain retirement plans, at present
there is no separate charge for maintaining group or salary deduction plans;
however, the Trust and its agents reserve the right to establish a maintenance
charge in the future depending on the services required by the investor.
The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This
35
<PAGE>
type of regular investment program may be suitable for various investment goals
such as, but not limited to, college planning or saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "DISTRIBUTIONS - Dividends and Capital Gains Distributions and Taxes" in
each Fund's respective prospectus.)
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 "FUND SUMMARY - Past Performance" in each Fund's respective Prospectus)
From time to time, quotations of the Funds' performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. Effective April 16, 1998, Value Fund was divided into four classes of
shares. Shares of Value Fund outstanding on that date were redesignated Scudder
Shares of the Fund. The performance information set forth below reflects the
performance of Value Fund prior to such redesignation. These performance figures
are calculated separately for each class of shares of Value Fund 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
36
<PAGE>
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, 1997
<TABLE>
<CAPTION>
One year Five years Ten years
-------- ---------- ---------
<S> <C> <C><C> <C>
Large Company Value Fund*
One year Life of Fund (1)
-------- ----------------
Value Fund*@
</TABLE>
(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, for the three fiscal
years ended September 30, 1996 and until July 31, 1997 of the
fiscal year ended September 30, 1997. The Average Annual Total
Return for one year, five years and for the life of the Fund,
had the Adviser not maintained Fund expenses, would have been
lower.
@ On April 16, 1998 Value Fund adopted its present name. Prior
to that date the Fund comprised a single class of shares and
was known as Scudder Value Fund. Performance information
provided is for the Fund's Scudder Shares class.
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 or class will vary based on changes in market conditions
and the level of a Fund's and class' 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):
37
<PAGE>
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, 1998
<TABLE>
<CAPTION>
One year Five years Ten years
-------- ---------- ---------
<S> <C> <C><C> <C>
Large Company Value Fund*
One year Life of Fund (1)
-------- ----------------
Value Fund*@
</TABLE>
(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 f or the three fiscal
years ended September 30, 1996 and until July 31, 1997 of the
fiscal year ended September 30, 1997. The Cumulative Total
Return for one year, five years and for the life of the Fund,
had the Adviser not maintained Fund expenses, would have been
lower.
@ On April 16, 1998 Value Fund adopted its present name. Prior
to that date the Fund comprised a single class of shares and
was known as Scudder Value Fund. Performance information
provided is for the Fund's Scudder Shares class.
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.
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' and classes' performance data.
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, each 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, S&P 500, the Nasdaq OTC Composite
Index, the Nasdaq Industrials Index, the Russell 2000 Index, the Wilshire Real
Estate Securities Index and statistics published by the Small Business
Administration.
38
<PAGE>
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, the 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 Trust, a Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.
Each Fund 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 Fund. The
description may include a "risk/return spectrum" which compares each Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment
and money market funds seek stability of principal, these investments are
considered to be less risky than investments in either bond or equity funds,
which may involve the loss of principal. However, all long-term investments,
including investments in bank products, may be subject to inflation risk, which
is the risk of erosion of the value of an investment as prices increase over a
long time period. The risks/returns associated with an investment in bond or
equity funds depend upon many factors. For bond funds these factors include, but
are not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
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.
39
<PAGE>
Evaluation of Fund performance or other relevant statistical
information made by independent sources may also be used in advertisements
concerning the Fund, including reprints of, or selections from, editorials or
articles about this Fund. Sources for Fund performance information and articles
about the Funds 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 Money Fund Report, a weekly publication of IBC Financial Data, Inc.,
reporting on the performance of the nation's money market funds, summarizing
money market fund activity and including certain averages as performance
benchmarks, specifically "IBC's Money Fund Average," and "IBC'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 Business 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.
40
<PAGE>
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,
which 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.
SmartMoney, 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 news weekly that periodically reports
mutual fund performance data.
Value Line Mutual Fund Survey, an independent organization that provides
biweekly performance and other information on mutual funds.
The 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 issued 10 times per year by Capital Publishing
Company, a subsidiary of Fidelity Investments. Focus is placed on personal
financial journalism.
41
<PAGE>
ORGANIZATION OF THE FUNDS
(See "Investment Adviser" in each Fund's respective prospectus.)
The Funds are separate series of Value Equity Trust. Value Equity
Trust, formerly Scudder Equity Trust, 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 Large Company Value Fund are of one class and
have equal rights as to voting, dividends and liquidation. All shares of Value
Fund have been subdivided into four classes: Scudder Shares and Class A, B and C
shares. The Trustees have authorized the division of the Value Fund into share
classes, permitting shares of different classes to be distributed by different
methods. Although shareholders of different classes of a series have an interest
in the same portfolio of assets, shareholders of different classes may bear
different expenses in connection with different methods of distribution. All
shares issued and outstanding will be fully paid and nonassessable by the Trust,
and redeemable as described in this Statement of Additional Information and in
each Fund's respective prospectus.
Each share of each class of a Fund shall be entitled to one vote (or
fraction thereof in respect of a fractional share) on matters that such shares
(or class of shares) shall be entitled to vote. Shareholders of each Fund shall
vote together on any matter, except to the extent otherwise required by the 1940
Act, or when the Board of Trustees has determined that the matter affects only
the interest of shareholders of one or more classes of a Fund, in which case
only the shareholders of such class or classes of that Fund shall be entitled to
vote thereon. Any matter shall be deemed to have been effectively acted upon
with respect to a Fund if acted upon as provided in Rule 18f-2 under the 1940
Act, or any successor rule, and in the Fund's Declaration of Trust. As used in
this Statement of Additional Information, the term "majority", when referring to
the approvals to be obtained from shareholders in connection with general
matters affecting the Funds and all additional portfolios (e.g., election of
directors), means the vote of the lesser of (i) 67% of the Fund's shares
represented at a meeting if the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (ii) more than 50% of the Fund's
outstanding shares. The term "majority", when referring to the approvals to be
obtained from shareholders in connection with matters affecting a single Fund or
any other single portfolio (e.g., annual approval of investment management
contracts), means the vote of the lesser of (i) 67% of the shares of the
portfolio represented at a meeting if the holders of more than 50% of the
outstanding shares of the portfolio are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the portfolio. Shareholders are
entitled to one vote for each full share held and fractional votes for
fractional shares held.
Each share of a Fund represents an equal proportionate interest in that
Fund with each other share of the same Fund and is entitled to such dividends
and distributions out of the income earned on the assets belonging to that Fund
as are declared in the discretion of the Fund's Board of Trustees. In the event
of the liquidation or dissolution of the Fund, shares of a Fund are entitled to
receive the assets attributable to that Fund that are available for
distribution, and a proportionate distribution, based upon the relative net
assets of the Funds, of any general assets not attributable to a Fund that are
available for distribution.
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.
Currently, the assets of Value 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 Value 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
42
<PAGE>
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 Value 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 Value 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 Value 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. Nothing in the
Declaration of Trust, however, protects or indemnifies a Trustee or officer
against any liability to which that person would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of that person's office.
No series of the Trust shall be liable for the obligations of any other
series.
INVESTMENT ADVISER
(See "Investment Adviser" in each Fund's respective prospectus.)
Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Fund. This organization, the predecessor
of which is Scudder, Stevens & Clark, Inc., is one of the most experienced
investment counsel firms in the U. S. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. In 1928 it introduced the first no-load mutual fund to
the public. In 1953 the Adviser introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On June 26, 1997, Scudder,
Stevens & Clark, Inc. ("Scudder") entered into an agreement with Zurich
Insurance Company ("Zurich") pursuant to which Scudder and Zurich agreed to form
an alliance. On December 31, 1997, Zurich acquired a majority interest in
Scudder, and Zurich Kemper Investments, Inc., a Zurich subsidiary, became part
of Scudder. Scudder's name has been changed to Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation
organized under the laws of Switzerland. Its home office is located at
Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from
43
<PAGE>
its operations as an insurer as well as from its ownership of its subsidiaries
and affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.
The principal source of the Adviser's income is professional fees
received from providing continuous investment advice, and the firm derives no
income from brokerage or underwriting of securities. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations. In addition, it manages Montgomery Street Income Securities,
Inc., Scudder California Tax Free Trust, Scudder Cash Investment Trust, Value
Equity Trust, Scudder Fund, Inc., Scudder Funds Trust, Global/International
Fund, Inc., Scudder Global High Income Fund, Inc., Scudder GNMA Fund, Scudder
Portfolio Trust, Scudder Institutional Fund, Inc., Scudder International Fund,
Inc., Investment Trust, Scudder Municipal Trust, Scudder Mutual Funds, Inc.,
Scudder New Asia Fund, Inc., Scudder New Europe Fund, Inc., Scudder Pathway
Series, Scudder Securities Trust, Scudder State Tax Free Trust, Scudder Tax Free
Money Fund, Scudder Tax Free Trust, Scudder U.S. Treasury Money Fund, Scudder
Variable Life Investment Fund, The Argentina Fund, Inc., The Brazil Fund, Inc.,
The Korea Fund, Inc., The Japan Fund, Inc. 0and Scudder Spain and Portugal Fund,
Inc. Some of the foregoing companies or trusts have two or more series.
The Adviser also provides investment advisory services to the mutual
funds which comprise the AARP Investment Program from Scudder. The AARP
Investment Program from Scudder has assets over $13 billion and includes the
AARP Growth Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed
Investment Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between the Adviser and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
the Adviser has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by the Adviser with respect to assets invested by AMA members in
Scudder funds in connection with the AMA InvestmentLink(SM) Program. The Adviser
will also pay AMA Solutions, Inc. a general monthly fee, currently in the amount
of $833. The AMA and AMA Solutions, Inc. are not engaged in the business of
providing investment advice and neither is registered as an investment adviser
or broker/dealer under federal securities laws. Any person who participates in
the AMA InvestmentLink(SM) Program will be a customer of the Adviser (or of a
subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLink(SM) is a service mark of AMA Solutions, Inc.
The Adviser maintains a large research department, which conducts
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 a 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 transaction between Scudder and Zurich resulted in the assignment
of the Funds' investment management agreements with Scudder, these agreements
were deemed to be automatically terminated at the consummation of the
transaction.
44
<PAGE>
In anticipation of the transaction, however, new investment management
agreements between the Funds and the Adviser were approved by the Trust's
Trustees. At the special meetings of each Fund's shareholders held on October
27, 1997, the shareholders also approved proposed the new investment management
agreements. The new investment management agreements (the "Agreements") became
effective as of December 31, 1997.
On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in the Adviser) and the financial services businesses of B.A.T
Industries p.c. ("B.A.T") were combined to form a new global insurance and
financial services company known as Zurich Financial Services Group. By way of a
dual holding company structure, former Zurich shareholders initially owned
approximately 57% of Zurich Financial Services Group, with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, the Funds' existing investment
management agreements with the Adviser were deemed to have been assigned and,
therefore, terminated. The Board approved new investment management agreements
with the Adviser, which are substantially identical to the investment management
agreements dated December 31, 1997, except for the date of execution and
termination. These agreements became effective on September 7, 1998 and were
approved at a special shareholder meeting held on December 15, 1998.
The Agreements dated September 7, 1998 were approved by the Trustees on
August 6, 1998 and ratified on September 15, 1998. The Agreements will continue
in effect until September 30, 1999 and from year to year thereafter only if
their continuance is approved annually by the vote of a majority of those
Trustees who are not parties to such Agreements or interested persons of the
Adviser or the Corporation, cast in person at a meeting called for the purpose
of voting on such approval, and either by a vote of the Trust's Trustees or of a
majority of the outstanding voting securities of the Funds. The Agreements may
be terminated at any time without payment of penalty by either party on sixty
days' notice and automatically terminates in the event of its 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 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.
45
<PAGE>
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, Large Company Value 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; 0.60 of 1% on the next $500
million of such assets, 0.55of 1%on the next $500 million of such assets and
0.50 of 1% of such net assets in excess of 2 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, 1996, 1997 and 1998, Large
Company Value Fund incurred aggregate fees pursuant to its then effective
investment advisory agreement of $10,505,409, $12,187,280 and _________,
respectively.
For the Adviser's services, Value Fund pays the Adviser an annual fee
equal to 0.70 of 1% on the first $500 million of average daily net assets and
0.65 of 1% of such net assets in excess of $500 million, 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, 1996, 1997 and
1998, the Adviser did not impose a portion of its management fees amounting to
$43,951, $59,309 and _____ respectively and the amounts imposed amounted to
$$508,822, $1,073,855 and _____, respectively. The Adviser voluntarily agreed to
waive management fees or reimburse the Fund to the extent necessary so that the
total annualized expenses of the Fund did not exceed 1.25% of the average daily
net assets until July 31, 1997. For the fiscal year ended September 30, 1997,
the Adviser did not impose a portion of its management fee amounting to $59,309
and the amount imposed amounted to $1,073,855, of which $164,234 is unpaid at
September 30, 1997. 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.
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.
The Agreement identifies the Adviser as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Trust's investment products and services.
In reviewing the terms of 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
46
<PAGE>
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.
The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.
None of the officers or Trustees of the Trust may have dealings with a
Fund as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of a Fund.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Position Principal Scudder Investor
Name and Address with Trust Occupation** Services, Inc.
- ---------------- ---------- ------------ --------------
<S> <C> <C> <C>
Daniel Pierce (64)*#+ President and Managing Director of Scudder Vice President and
Trustee Kemper Investments, Inc. Assistant Treasurer
Paul Bancroft III (68 Trustee Venture Capitalist and --
79 Pine Lane Consultant; Retired President,
Box 6639 Chief Executive Officer and
Snowmass Village, CO 81615 Director, Bessemer Securities
Corporation
Sheryle J. Bolton (52) Trustee Chief Executive Officer and --
Scientific Learning Corporation Director, Scientific Learning
1995 University Ave Corporation, Former President
Suite 400 and Chief Operating Officer,
San Francisco, CA 94704 Physicians Online, Inc.
(electronic transmission of
clinical information for
physicians (1994-1995);Member,
Senior Management Team,
Rockefeller & Co. (1990-1993)
47
<PAGE>
Position with
Underwriter,
Position Principal Scudder Investor
Name and Address with Trust Occupation** Services, Inc.
- ---------------- ---------- ------------ --------------
William T. Burgin (55) Trustee General Partner, Bessemer --
83 Walnut Street Venture Partners; General
Wellesley, MA 02481-2101 Partner, Deer & Company;
Director, James River Corp.;
Director Galile Corp., Director
of various privately held
companies
Thomas J. Devine (72) Trustee Consultant --
50 Park Avenue
New York, NY 10022
Keith R. Fox (44) Trustee Private Equity Investor, Exeter --
Exeter Capital Management Capital Management Corporation
Corporation
10 East 53rd Street
New York, NY 10022
William H. Luers (69) Trustee President, The Metropolitan
The Metropolitan Museum of Art Museum of Art (1986 to present)
1000 Fifth Avenue
New York, NY 10028
Wilson Nolen (72) Trustee Consultant (1989 to present); --
1120 Fifth Avenue Corporate Vice President,
New York, NY 10128-0144 Becton, Dickinson & Company
(manufacturer of medical and
scientific products) until 1989
Kathryn L. Quirk(45)*#++ Trustee, Vice Managing Director of Scudder Senior Vice President,
President and Kemper Investments, Inc. Chief Legal Officer and
Assistant Secretary Assistant Clerk
Joan E. Spero (54) Trustee President, The Doris Duke --
Doris Duke Charitable Foundation Charitable Foundation (1997 to
650 Fifth Avenue - 19th Floor present), Undersecretary of
New York, NY 10019 State for Economic, Business and
Agricultural Affairs, (1993-1997)
48
<PAGE>
Position with
Underwriter,
Position Principal Scudder Investor
Name and Address with Trust Occupation** Services, Inc.
- ---------------- ---------- ------------ --------------
Robert G. Stone, Jr. (754 Honorary Trustee Chairman Emeritus and Director, --
405 Lexington Avenue Kirby Corporation (inland and
39th Floor offshore marine transportation
New York, NY 10174 and diesel repairs)
Donald E. Hall (46)@ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Jerard K. Hartman (65)+ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Thomas W. Joseph (58)+ Vice President Senior Vice President of Scudder Vice President,
Kemper Investments, Inc. Treasurer and Assistant
Clerk
Kathleen T. Millard (37)++ Vice President Managing Director of Scudder --
Kemper Investments, Inc.
Thomas F. McDonough(52)+ Vice President and Senior Vice President of Scudder Clerk
Secretary Kemper Investments, Inc.
John R. Hebble (40)+ Treasurer Senior Vice President of Scudder --
Kemper Investments, Inc.
Caroline Pearson (36)+ Assistant Secretary Senior Vice President of Scudder --
Kemper Investments, Inc.;
Associate, Deceit Price & Rhodes
(law firm) 1989 - 1997
* Mr. Pierce and Ms. Quirk 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.
# Mr. Pierce and Ms. Quirk 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>
49
<PAGE>
As of December 31, 1998, 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) _______ shares, or ____% of the shares of
Large Company Value Fund.
As of December 31, 1998, 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) _______ shares, or ____% of the shares of
the Scudder Shares of Value Fund.
Certain accounts for which the Adviser acts as investment adviser owned
______ shares in the aggregate of Large Company Value Fund, or ____% of the
outstanding shares onDecember 31, 1998. The Adviser may be deemed to be the
beneficial owner of such shares but disclaims any beneficial ownership in such
shares.
As of December 31, 1998, ________ shares in the aggregate, ______% of
the outstanding shares of Scudder Value Fund were held in the name of Charles,
Schwab & Co., 101 Montgomery Street, San Francisco, CA 94104, who may be deemed
to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein.
To the best of the Trust's knowledge, as of December 31, 1998 no person
owned beneficially more than 5% of a Fund's or a Class' outstanding shares,
except as stated above.
The Trustees and officers of the Trust also serve in similar capacities
with respect to other Scudder funds.
REMUNERATION
Responsibilities of the Board -- Board and Committee Meetings
The Board of Trustees is responsible for the general oversight of each
Fund's business. A majority of the Board's members are not affiliated with the
Adviser. These "Independent Trustees" have primary responsibility for assuring
that each Fund is managed in the best interests of its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of each Fund and other operational matters, including policies and
procedures designated to assure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, each
Fund's investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates, and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by the Funds' independent public accountants and by
independent legal counsel selected by the Independent Trustees.
All of the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls.
Compensation of Officers and Trustees
The Independent Trustees receive the following compensation from each
Fund of Value Equity Trust: an annual trustee's fee of $3,500; a fee of $325 for
attendance at each board meeting, audit committee meeting, or other meeting held
for the purposes of considering arrangements between the Trust on behalf of each
Fund and the Adviser or any affiliate of the Adviser; $100 for all other
committee meetings and reimbursement of expenses incurred for travel to and from
Board Meetings. No additional compensation is paid to any Independent Trustee
for travel time to meetings, attendance at trustees' educational seminars or
conferences, service on industry or association committees, participation as
speakers at trustees' conferences or service on special trustee task forces or
subcommittees. Independent Trustees do not receive any employee benefits such as
pension or retirement benefits or
50
<PAGE>
health insurance. Notwithstanding the schedule of fees, the Independent Trustees
have in the past and may in the future waive a portion of their compensation. or
other activities.
The Independent Trustees also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type and complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1997 from the Trust and from all of Scudder funds as a group.
<TABLE>
<CAPTION>
Value Equity Trust* All Scudder Funds
------------------- -----------------
Paid by Paid by Paid by Paid by
Name the Trust the Adviser(1) the Funds the Adviser(1)
---- --------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Paul Bancroft III, $15,100 $2,700 $156,922 $25,950 (20 funds)
Trustee
Sheryle J. Bolton, $17,500 $2,700 $86,213 $10,800 (20 funds)
Trustee**
William T. Burgin, $11,682 $2,700 $85,950 $17,550 (20 funds)
Trustee
Thomas J. Devine, Trustee $17,800 $2,700 $186,598 $27,150 (21 funds)
Keith R. Fox, Trustee $18,700 $2,700 $134,390 $17,550 (18 funds)
William H. Luers, $2,534 $0.00 $117,729 $16,350 (20 funds)
Trustee**
Wilson Nolen, Trustee $16,400 $2,700 $189,548 $25,300 (21 funds)
Joan E. Spero,*** Trustee $0.00 $0.00 $0.00 $0.00
(1) The Adviser paid the compensation to the Trustees for meetings
associated with the Adviser's alliance with Zurich Insurance Company.
See "Investment Adviser" for additional information.
* Value Equity Trust consists of two funds: Scudder Large Company Value Fund and Value Fund.
** Elected as Trustee of the Trust in October 1997.
*** Elected as Trustee of the Trust in September 1998.
</TABLE>
51
<PAGE>
DISTRIBUTOR
The Trust, on behalf of each Fund, has an underwriting agreement
pertaining to Large Company Value Fund and the Scudder Shares of Value Fund with
Scudder Investor Services, Inc. Two International Place, Boston, MA 02110 (the
"Distributor"), a Massachusetts corporation, which is a subsidiary of the
Adviser. This underwriting agreement dated September 7, 1998 will remain in
effect until September 30, 1999 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 August 8, 1998.
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 Large Company Value Fund and the Scudder Shares of Value
Fund currently have no 12b-1 Plan and shareholder approval would be
required in order to adopt such plans, 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.
52
<PAGE>
TAXES
(See "DISTRIBUTIONS - Dividends and Capital Gains Distributions and Taxes"
in each Fund's respective prospectus.)
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.
Properly designated 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 proportionate share of federal
income taxes paid by a Fund on such gains as a credit against the shareholder's
federal income tax liability, and will be entitled to increase the adjusted tax
basis of the shareholder's Fund shares by the difference between the
shareholder's pro-rata share of such gains and the shareholder's 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 received in shares or
in cash. Shareholders electing to receive distributions in the form of
53
<PAGE>
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 non-earning 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.
A Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, 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. Any
mark to market losses and any loss from an actual disposition of shares would be
deductible as ordinary losses to the extent of any net mark to market gains
included in income in prior years. The effect of the election would be to treat
excess distributions and 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
54
<PAGE>
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 non-equity 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.
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 non-equity
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." Mixed straddles are subject to the straddle rules of Section
1092 of the Code and may result in the deferral of losses if the non-Section
1256 position is in an unrealized gain at the end of a reporting period.
Notwithstanding any of the foregoing, recent tax law changes may
require a Fund to recognize gain (but not loss) from a constructive sale of
certain "appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if a Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
A portion of the difference between the issue price of zero coupon
securities and their face value ("original issue discount") is considered to be
income to a Fund each year, even though the Fund will not receive cash interest
payments from these securities. This original issue discount imputed income will
comprise a part of the investment company taxable income of the Fund which must
be distributed to shareholders in order to maintain the qualification of the
Fund as a regulated investment company and to avoid federal income tax at the
Fund's level. In addition, if a Fund invests in certain high yield original
issue discount obligations issued by corporations, a portion of the original
issue discount accruing on the obligation may be eligible for the deduction for
dividends received by corporations. In such event, dividends of investment
company taxable income received from the Fund by its corporate shareholders, to
the
55
<PAGE>
extent attributable to such portion of accrued original issue discount, may be
eligible for this deduction for dividends received by corporations if so
designated by the Fund in a written notice to shareholders.
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.
Income received by a Fund from sources within a foreign country may be
subject to foreign and other withholding taxes imposed by that country.
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. A brief
explanation of the form and character of the distribution accompany each
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
The Adviser supervises allocation of brokerage.
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, 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
56
<PAGE>
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 Adviser generally places the Funds' purchases and sales of
fixed-income securities 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 research, market and statistical information to a
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is authorized when placing portfolio transactions for a Fund to pay
a brokerage commission in excess of that which another broker might charge for
executing the same transaction on account of execution services and the receipt
of research, market or statistical information. With respect to Large Company
Value Fund, the Adviser will not place orders with a broker/dealer on the basis
that the broker/dealer has or has not sold shares of a Fund. In selecting among
firms believed to meet the criteria for handling a particular transaction for
Value Fund, however, the Adviser may give consideration to those firms that have
sold or are selling shares of Value Fund or other funds managed by the Adviser.
In effecting transactions in over-the-counter securities, orders are placed with
the principal market makers for the security being traded unless, after
exercising care, it appears that more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker-dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Funds with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Funds for this service.
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 only supplements the Adviser's own research
effort since the information must still be analyzed, weighed, and reviewed by
the Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than a Fund, and the Adviser in connection with a Fund
uses not all such information. 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, 1996, 1997 and 1998, Large
Company Value Fund paid brokerage commissions of $5,768,334, $2,188,295 and
_______ respectively. For the fiscal year ended September 30, 1998, ______ ,
(______% of the total brokerage commissions paid) resulted from orders placed,
consistent with the policy of obtaining the most favorable net results, with
brokers and dealers who provided supplementary research, market and statistical
information to the Trust or Adviser. The total amount of brokerage transactions
aggregated _______, of which ________ (____% of all brokerage transactions) were
transactions which included research commissions.
For the fiscal years ended September 30, 1996, 1997 and 1998, Value
Fund paid brokerage commissions of $181,652, $273,545 and _________,
respectively. For the fiscal year ended September 30, 1998, the ________ (____%
of the total brokerage commissions paid) resulted from orders placed consistent
with the policy of obtaining the
57
<PAGE>
most favorable net results, with brokers and dealers who provided supplementary
research, market and statistical information to the Trust or Adviser. The total
amount of brokerage transactions aggregated $__________, of which _______ (___%
of all brokerage transactions) were transactions which included research
commissions.
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
Large Company Value 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, 1996, 1997 and 1998 was 150.7%, 43.02% and
____, respectively. For the fiscal years ended September 30, 1996, 1997 and
1998, Value Fund had an annualized portfolio turnover rate of 90.8%, 47.4%and
_____, 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 "Value Time"). The Exchange is scheduled to be closed on the following
holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas,
and on the preceding Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively. With respect to Large Company Value
Fund, 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. The net asset value per share of each class of the Value Fund is
computed by dividing the value of the total assets attributable to a specific
class, less all liabilities attributable to that class, by the total number of
outstanding shares of that class.
An exchange-traded equity security is valued at its most recent sale
price on the exchange it is traded as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated Mean") on such exchange as
of the Value Time. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation on such exchange as of the Value Time. An equity security
which is traded on the National Association of Securities Dealers Automated
Quotation ("Nasdaq") system will be valued at its most recent sale price on such
system as of the Value Time. Lacking any sales, the security is valued at the
most recent bid quotation as of the Value Time. The value of an equity security
not quoted on the Nasdaq System, but traded in another over-the-counter market,
is its most recent sale price if there are any sales of such security on such
market as of the Value Time. Lacking any sales, the security is valued at the
Calculated Mean quotation for such security as of the Value Time. Lacking a
Calculated Mean quotation, the security is valued at the most recent bid
quotation as of the Value Time.
Debt securities, other than money market instruments, are valued at
prices supplied by the Fund's pricing agent(s), which reflect broker/dealer
supplied valuations and electronic data processing techniques. Money market
instruments with an original maturity of sixty days or less maturing at par
shall be valued by the amortized cost, which the Board believes approximates
market value. If it is not possible to value a particular debt security pursuant
to these valuation methods, the value of such security is the most recent bid
quotation supplied by a bona fide marketmaker. If it is not possible to value a
particular debt security pursuant to the above methods, the Adviser may
calculate the price of that debt security, subject to limitations established by
the Board.
58
<PAGE>
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 that, 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 each Fund's
prospectus and the Financial Statements incorporated by reference in this
Statement of Additional Information have been so included or incorporated by
reference in reliance on the report of PricewaterhouseCoopers LLPL.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.
Effective July 1, 1998, Coopers & Lybrand L.L.P. and Price Waterhouse LLP merged
to become PricewaterhouseCoopers LLP. PricewaterhouseCoopers LLP is responsible
for performing annual audits of the financial statements and financial
highlights of each Fund in accordance with generally accepted auditing standards
and the preparation of federal tax returns.
Shareholder Indemnification
The Trust is an organization of the type commonly known as a
"Massachusetts business trust". Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in
59
<PAGE>
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 "Value 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 Large Company Value Fund is 81114T-10-9.
The CUSIP number of the Scudder Shares 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.
Information set forth below with respect to Value Fund Series is
provided at the Fund level since that Fund consisted of one class of shares
(which class was re-designated the "Scudder Value Fund Shares") on April 16,
1998.
Scudder Fund Accounting Corporation, Two International Place, Boston,
Massachusetts 02110-4103, a subsidiary of the Adviser, computes net asset values
for the Funds. Each Fund pays Scudder Fund Accounting Corporation an annual fee
equal to 0.025% of the first $150 million of average daily net assets, 0.0075%
of such assets in excess of $150 million and 0.0045% of such assets in excess of
$1 billion, plus holding and transaction charges for this service. For the
fiscal year ended September 30, 1998, Large Company Value Fund and Value Fund
incurred annual fees of $____ and $_____, respectively, of which $____ and
$_____, respectively, are unpaid at September 30, 1998.
Scudder Service Corporation ("Service Corporation"), P.O. Box 2291,
Boston, Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer,
dividend disbursing and shareholder service agent for Large Company Value Fund
and the Scudder Shares of Value 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 maintaining each account for a retail participant of $26.00 and for each
retirement participant of $29.00. For the fiscal year ended September 30, 19978
Large Company Value Fund and Value Fund incurred annual fees of $______ and
$______, respectively, of which $_______ and $_______, respectively, are unpaid
at September 30, 1998.
Scudder Trust Company ("STC"), a subsidiary of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in each Fund. For the year ended September 30,
1998, Large Company Value Fund and Value Fund incurred fees of ____ $_____ and
_____ $_____, respectively, of which $____ and $______, respectively, are unpaid
at September 30, 1997.
60
<PAGE>
The Funds, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
Each of the respective 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 Large Company Value Fund and 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.
FINANCIAL STATEMENTS
Large Company Value Fund
The financial statements, including the investment portfolio of Large
Company 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, 1998, 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 -- Scudder Shares 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, 1998, and are hereby deemed to be part of this Statement of
Additional Information.
61
<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P
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, large
uncertainties or major exposures to adverse conditions outweigh these.
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 that 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 that 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
62
<PAGE>
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 that 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 that 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
that 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 that 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 that are rated Ca represent obligations that 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.
63
<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
February 1, 1999
KEMPER VALUE FUND
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
This Statement of Additional Information is not a prospectus. It is the
Statement of Additional Information for Class A, B and C Shares (the "Shares" or
"Kemper Shares") of Value Fund (the "Fund"), a diversified series of Scudder
Equity Trust (the "Trust"), an open-end management investment company. It should
be read in conjunction with the combined prospectus of the Kemper Shares dated
February 1, 1999. The prospectus may be obtained without charge from the Fund at
the address or telephone number on this cover or the firm from which this
Statement of Additional Information was received.
---------------
TABLE OF CONTENTS
Page
----
Investment Restrictions...... ____
Investment Policies and
Techniques................... ____
Dividends, Distributions
and Taxes.................... ____
Investment Manager and
Underwriter.................. ____
Portfolio Transactions....... ____
Purchase, Redemption and
Repurchase of Shares......... ____
Performance.................. ____
Officers and Trustees........ ____
Shareholder Rights........... ___
The financial statements appearing in the Fund's 1998 Annual Report to
Shareholders are incorporated herein by reference. The Annual Report for the
Fund accompanies this document. Scudder Kemper Investments, Inc. (the "Advisor")
serves as the Fund's investment manager.
KEUF-13 2/99 (RECYCLED LOGO) printed on recycled paper
2
<PAGE>
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions which
cannot be changed without approval of a "majority" of its outstanding voting
Shares. As defined in the Investment Company Act of 1940, as amended (the "1940
Act"), this means the lesser of (1) 67% of the Fund's Shares present at a
meeting where more than 50% of the outstanding Shares are present in person or
by proxy; or (2) more than 50% of the Fund's outstanding Shares.
The Fund has elected to be classified as a diversified series of an open-end
investment company.
The Fund may not, as a fundamental policy:
(1) borrow money, except as permitted under the 1940 Act, as amended,
and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory authority
having jurisdiction, from time to time;
(3) concentrate its investments in a particular industry, as that term
is used in the 1940 Act, as amended, and as interpreted or modified
by regulatory authority having jurisdiction, from time to time;
(4) engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an
underwriter in connection with the disposition of portfolio
securities;
(5) purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the Fund
reserves freedom of action to hold and to sell real estate acquired
as a result of the Fund's ownership of securities;
(6) purchase physical commodities or contracts relating to physical
commodities; or
(7) make loans except as permitted under the 1940 Act, as amended, and
as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
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, the Fund currently does not intend
to:
(a) borrow money in an amount greater than 5% of its total assets,
except (i) for temporary or emergency purposes and (ii) by engaging
in reverse repurchase agreements, dollar rolls, or other investments
or transactions described in the Fund's registration statement which
may be deemed to be borrowings;
(b) enter into either of reverse repurchase agreements or dollar rolls
in an amount greater than 5% of its total assets;
(c) purchase securities on margin or make short sales, except (i) short
sales against the box, (ii) in connection with arbitrage
transactions, (iii) for margin deposits in connection with futures
contracts, options or other permitted investments, (iv) that
transactions in futures contracts and options shall not
3
<PAGE>
be deemed to constitute selling securities short, and (v) that the
Fund may obtain such short-term credits as may be necessary for the
clearance of securities transactions;
(d) purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its total
assets; or sell put options, if as a result, the aggregate value of
the obligations underlying such put options would exceed 50% of its
total assets;
(e) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect to such futures contracts entered into on behalf
of the Fund and the premiums paid for such options on futures
contracts does not exceed 5% of the fair market value of the Fund's
total assets; provided that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be
excluded in computing the 5% limit;
(f) purchase warrants if as a result, such securities, taken at the
lower of cost or market value, would represent more than 5% of the
value of the Fund's total assets (for this purpose, warrants
acquired in units or attached to securities will be deemed to have
no value); and
(g) lend portfolio securities in an amount greater than 5% of its total
assets.
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 the 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 Fund's Trustees and would not require the approval of shareholders.
Master/feeder fund structure. The Trust's Board of Trustees has the discretion
to retain the current distribution arrangement for a Fund while investing in a
master fund in a master/feeder fund structure as described below.
A master/feeder fund structure is one in which a fund (a "feeder fund"),
instead of investing directly in a portfolio of securities, invests most or all
of its investment assets in a separate registered investment company (the
"master fund") with substantially the same investment objective and policies as
the feeder fund. Such a structure permits the pooling of assets of two or more
feeder funds, preserving separate identities or distribution channels at the
feeder fund level. Based on the premise that certain of the expenses of
operating an investment portfolio are relatively fixed, a larger investment
portfolio may eventually achieve a lower ratio of operating expenses to average
net assets. An existing investment company is able to convert to a feeder fund
by selling all of its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or loss, or by contributing
its assets to the master fund and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable gain or loss.
INVESTMENT POLICIES AND TECHNIQUES
GENERAL. 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 Advisor, 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 Corporation 500 Composite Price Index (S&P 500).
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.
4
<PAGE>
The Fund invests primarily in the equity securities of medium-to-large
size domestic companies with annual revenues or market capitalizations of at
least $600 million. The Advisor 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 Advisor'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
Advisor'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 in securities of
foreign companies that meet the same criteria applicable to the Fund's domestic
investments if the performance of foreign securities is believed by the Advisor
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 Advisor.
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 Advisor, 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 assets in such securities ("high yield/high risk securities" commonly
referred to as "junk bonds") but will invest no more than 10% of its 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 Advisor. 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 Fund may borrow money for temporary, emergency or other purposes,
including investment leverage purposes, as determined by the Trustees. The Fund
may also engage in reverse repurchase agreements. The Investment Company Act of
1940 (the "1940 Act") requires borrowings to have 300% asset coverage.
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.
Foreign Securities. While the Fund generally emphasizes investments in companies
domiciled in the U.S., it may invest in listed and unlisted foreign securities
of the same types as the domestic securities in which it may invest, when the
anticipated performance of foreign securities is believed by the Advisor to
offer more potential than domestic alternatives, in keeping with the investment
objectives of the Fund.
Investors should recognize that investing in foreign securities involves
certain special considerations, including those set forth below, which are not
typically associated with investing in U.S. securities and which may favorably
or unfavorably affect the Fund's performance. As foreign companies are not
generally subject to uniform accounting, 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
5
<PAGE>
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 Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in possible
liability to the purchaser. Fixed commissions on some foreign stock exchanges
are generally higher than negotiated commissions on U.S. exchanges although the
Fund will endeavor to achieve the most favorable net results on their portfolio
transactions. Further, the Fund may encounter difficulties or be unable to
pursue legal remedies and obtain judgments in foreign courts. There is generally
less government supervision and regulation of business and industry practices,
stock exchanges, brokers and listed companies than in the U.S. It may be more
difficult for the Fund's agents to keep currently informed about corporate
actions such as stock dividends or other matters which may affect the prices of
portfolio securities. Communications between the U.S. and foreign countries may
be less reliable than within the U.S. 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 Fund 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 Fund will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Advisor, are
speculative.
Investments in foreign securities usually will involve currencies of
foreign countries. Moreover, the Fund may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
the value of the assets for the Fund, as measured in U.S. dollars, may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and the Fund may incur costs in connection
with conversions between various currencies. Although the Fund values its assets
daily in terms of U.S. dollars, the Fund does not intend to convert its holdings
of foreign currencies, if any, into U.S. dollars on a daily basis. The Fund may
do so from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. The Fund will conduct its foreign currency exchange
transactions, if any, either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through forward foreign
currency exchange contracts.
To the extent that the Fund invests in foreign securities, the 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 the Fund's investment performance.
High Yield, High Risk Securities. Below investment-grade securities (commonly
referred to as "junk bonds") (rated below Baa by Moody's and below BBB by S&P)
or unrated securities of equivalent quality in the Advisor'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
6
<PAGE>
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.
The Fund may invest up to 20% of its assets in debt securities rated below
investment-grade but will invest no more than 10% of its assets in securities
rated B or lower by Moody's or by S&P and may not invest more than 5% of its
assets in securities which are rated C by Moody's or D by S&P or of equivalent
quality as determined by the Advisor.
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 the 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 the
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 Advisor 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 the Fund's
investment objective may be more dependent on the Advisor's credit analysis than
is the case for higher quality bonds. Should the rating of a portfolio security
be downgraded the Advisor will determine whether it is in the best interest of
the 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. The Fund may invest in convertible securities; that is,
bonds, notes, debentures, preferred stocks and other securities which are
convertible into common stocks. Investments in convertible securities may
provide income through interest and dividend payments and/or an opportunity for
capital appreciation 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 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. 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,
7
<PAGE>
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 issue price and their value at maturity. Zero coupon
convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with shorter maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
Illiquid Securities. The Fund may occasionally purchase securities other than in
the open market. While such purchases may often offer attractive opportunities
for investment not otherwise available on the open market, the securities so
purchased are often "restricted securities", i.e., securities which cannot be
sold to the public without registration under the Securities Act of 1933 or the
availability of an exemption from registration (such as Rules 144 or 144A), or
which are "not readily marketable" because they are subject to other legal or
contractual delays in or restrictions on resale.
The absence of a trading market can make it difficult to ascertain a
market value for illiquid investments. Disposing of illiquid investments may
involve time-consuming negotiation and legal expenses, and it may be difficult
or impossible for the Fund to sell them promptly at an acceptable price. The
Fund may have to bear the extra expense of registering such securities for
resale and the risk of substantial delay in effecting such registration. Also
market quotations are less readily available. The judgment of the Advisor may at
times play a greater role in valuing these securities than in the case of
unrestricted securities.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the Securities Act of 1933. The Fund may be deemed to be an
"underwriter" for purposes of the Securities Act of 1933 when selling restricted
securities to the public, and in such event the Fund may be liable to purchasers
of such securities if the registration statement prepared by the issuer, or the
prospectus forming a part of it, is materially inaccurate or misleading.
Borrowing. As a matter of fundamental policy, the Fund will not borrow money,
except as permitted under the 1940 Act, as amended, and as interpreted or
modified by regulatory authority having jurisdiction, from time to time. While
the Trustees do not currently intend to borrow for investment leverage purposes,
if such a strategy were implemented in the future it would increase the Fund's
volatility and the risk of loss in a declining market. Borrowing by the Fund
will involve special risk considerations. Although the principal of the Fund's
borrowings will be fixed, the Fund's assets may change in value during the time
a borrowing is outstanding, thus increasing exposure to capital risk.
8
<PAGE>
Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker/dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Advisor to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's or S&P.
A repurchase agreement provides a means for the Fund to earn income on
funds for periods as short as overnight. It is an arrangement under which the
Fund acquires a 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 on repurchase. In either case, the income to the Fund is
unrelated to the interest rate on the Obligation itself. Obligations will be
held by the Fund's custodian or in the Federal Reserve Book Entry System.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to the Fund's investment restrictions
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delay and incur costs
before being able to sell the security. Delays may result in loss of interest or
decline in price of the Obligation. If the court characterizes the transaction
as a loan and the Fund has not perfected a security interest in the Obligation,
the Fund may be required to return the Obligation to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured creditor, the
Fund would be at the risk of losing some or all of the principal and income
involved in the transaction. As with any unsecured debt instrument purchased for
the Fund, the Advisor 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 its sale of the securities underlying the repurchase agreement to a third
party are less than the repurchase price. To protect against such potential
loss, if the market value (including interest) of the Obligation subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Fund will direct the seller of the Obligation to deliver
additional securities so that the market value (including interest) of all
securities subject to the repurchase agreement will equal or exceed the
repurchase price. It is possible that the Fund will be unsuccessful in seeking
to enforce the seller's contractual obligation to deliver additional securities.
Warrants. The Fund may invest in warrants up to 5% of the value of its net
assets. The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered speculative investments. Warrants pay
no dividends and confer no rights other than a purchase option. Thus, if a
warrant held by the Fund were not exercised by the date of its expiration, the
Fund would lose the entire purchase price of the warrant.
Zero Coupon Securities. The Fund may invest in zero coupon securities which pay
no cash income and are sold at substantial discounts from their value at
maturity. When held to maturity, their entire income, which consists of
accretion of discount, comes from the difference between the issue price and
their value at maturity. Zero coupon securities are subject to greater market
value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with short 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.
9
<PAGE>
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRS") and Certificate of Accrual on Treasuries
("CATS"). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities has stated that for federal tax and securities purposes, in
their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holders of the underlying U.S. Government
securities.
The Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program, as
established by the Treasury Department, is known as "STRIPS" or "Separate
Trading of Registered Interest and Principal of Securities." Under the STRIPS
program, the Fund will be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells.
(See "Dividends, Distributions and Taxes.")
Reverse Repurchase Agreements. In a reverse repurchase agreement, a Fund sells a
portfolio instrument to another party, such as a bank or broker-dealer, in
return for cash and agrees to repurchase the instrument at a particular price
and time. While a reverse repurchase agreement is outstanding, a Fund will
maintain liquid assets in a segregated custodial account to cover its obligation
under the agreement. Each Fund will enter into reverse repurchase agreements
only with parties whose creditworthiness has been found satisfactory by the
Advisor. Such transactions may increase fluctuations in the market value of a
Fund's assets and may be viewed as a form of leverage.
Strategic Transactions and Derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of the 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
10
<PAGE>
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 Advisor's ability to predict
pertinent market movements, which cannot be assured. The Fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. Strategic Transactions involving financial futures
and options thereon will be purchased, sold or entered into only for bona fide
hedging, risk management or portfolio management purposes and not to create
leveraged exposure in the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Advisor's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund the right to sell such instrument at the option exercise
price. A call option, upon payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation to sell, the underlying
instrument at the exercise price. The Fund's purchase of a call option on a
security, financial future, index, currency or other instrument might be
intended to protect the Fund against an increase in the price of the underlying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. The Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
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
11
<PAGE>
the value of the underlying instrument exceeds, in the case of a call option, or
is less than, in the case of a put option, the exercise price of the option) at
the time the option is exercised. Frequently, rather than taking or making
delivery of the underlying instrument through the process of exercising the
option, listed options are closed by entering into offsetting purchase or sale
transactions that do not result in ownership of the new option.
The Fund's ability to close out its position as a purchaser or seller of
an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Advisor must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Advisor.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 10% of its assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve as
a partial hedge, to the extent of the option premium, against a decrease in the
value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
The Fund may purchase and sell call options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by the Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described
12
<PAGE>
below as long as the call is outstanding. Even though the Fund will receive the
option premium to help protect it against loss, a call sold by the Fund exposes
the Fund during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying security or
instrument and may require the Fund to hold a security or instrument which it
might otherwise have sold.
The Fund may purchase and sell put options on securities including U.S.
Treasury and agency securities, mortgage-backed securities, corporate debt
securities, equity securities (including convertible securities) and 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. The Fund will not
sell put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that the Fund may be required to buy the underlying
security at a disadvantageous price above the market price.
General Characteristics of Futures. The Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, 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 the Fund, as seller, to deliver to the
buyer the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
The Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission and will be
entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires the Fund to deposit with
a financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark-to-market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of the Fund.
If the Fund exercises an option on a futures contract it will be obligated to
post initial margin (and potential subsequent variation margin) for the
resulting futures position just as it would for any position. Futures contracts
and options thereon are generally settled by entering into an offsetting
transaction but there can be no assurance that the position can be offset prior
to settlement at an advantageous price, nor that delivery will occur.
The Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of the Fund's total assets (taken at current value); however, in
the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
Options On Securities Indices and Other Financial Indices. The Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index 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,
13
<PAGE>
industry or other composite on which the underlying index is based, rather than
price movements in individual securities, as is the case with respect to options
on securities.
Currency Transactions. The Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. The Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or are determined to be of
equivalent credit quality by the Advisor.
The Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of the Fund, which will generally
arise in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
The Fund will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended wholly or partially
to offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging or cross hedging as described below.
The Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, the Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which the Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of the Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of the Fund's securities
denominated in correlated currencies. For example, if the Advisor considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Advisor believes
that the value of schillings will decline against the U.S. dollar, the Advisor
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
Fund enters into a currency hedging transaction, the 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 the Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the
14
<PAGE>
issuing nation. Trading options on currency futures is relatively new, and the
ability to establish and close out positions on such options is subject to the
maintenance of a liquid market which may not always be available. Currency
exchange rates may fluctuate based on factors extrinsic to that country's
economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Advisor, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Advisor's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular investment
or portion of its portfolio, to protect against currency fluctuations, as a
duration management technique or to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date. The Fund intends to
use these transactions as hedges and not as speculative investments and will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
The Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Advisor
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Advisor.
If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
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
15
<PAGE>
instruments. The value of such positions also could be adversely affected by:
(i) other complex foreign political, legal and economic factors, (ii) lesser
availability than in the U.S. of data on which to make trading decisions, (iii)
delays in the Fund's ability to act upon economic events occurring in foreign
markets during non-business hours in the U.S., (iv) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
U.S., and (v) lower trading volume and liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid securities at least equal
to the current amount of the obligation must be segregated with the custodian.
The segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
securities sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
Except when the Fund enters into a forward contract for the purchase or
sale of a security denominated in a particular currency, which requires no
segregation, a currency contract which obligates the Fund to buy or sell
currency will generally require the Fund to hold an amount of that currency or
liquid securities denominated in that currency equal to the Fund's obligations
or to segregate cash or liquid assets equal to the amount of the Fund's
obligation.
OTC options entered into by the Fund, including those on securities,
currency, financial instruments or indices and OCC issued and exchange listed
index options, will generally provide for cash settlement. As a result, when the
Fund sells these instruments it will only segregate an amount of assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by the Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when the Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, the Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by the Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and the Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the excess,
if any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid securities having a
value equal to the accrued excess. Caps, floors and collars require segregation
of assets with a value equal to the Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. The Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating assets if the Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or
16
<PAGE>
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.
Trustees' Power to Change Objectives and Policies. Except as specifically stated
to the contrary, the objectives and policies of the Funds may be changed by the
Trustees without a vote of the shareholders.
DIVIDENDS, DISTRIBUTIONS AND TAXES
TO BE UPDATED
Dividends. The Fund intends to follow the practice of distributing substantially
all of its investment company taxable income, which includes any excess of net
realized short-term capital gains over net realized long-term capital losses.
The Fund may 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 the Fund and its shareholders, the 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" hereafter.) If the 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, the Fund may be subject to that excise tax. (See "TAXES"
hereafter.) In certain circumstances, the Fund may determine that it is in the
interest of shareholders to distribute less than the required amount.
The Fund intends to declare in December any net realized capital gains
resulting from its investment activity and any dividend from investment company
taxable income. The Fund intends 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 the Fund and confirmations will be mailed to each shareholder. If a
shareholder has chosen to receive cash, a check will be sent.
Dividends paid by the Fund with respect to each class of its shares will
be calculated in the same manner, at the same time and on the same day. The
level of income dividends per share (as a percentage of net asset value) will be
lower for Class B and Class C Shares than for Class A Shares primarily as a
result of the distribution services fee applicable to Class B and Class C
Shares. Distributions of capital gains, if any, will be paid in the same amount
for each class.
Income and capital gain dividends, if any, of the Fund will be credited to
shareholder accounts in full and fractional shares of the same class of the Fund
at net asset value on the reinvestment date, except that, upon written request
to the Shareholder Service Agent, a shareholder may select one of the following
options:
(1) To receive income and short-term capital gain dividends in cash and
long-term capital gain dividends in shares of the same class at net asset
value; or
(2) To receive income and capital gain dividends in cash.
Any dividends of the Fund that are reinvested normally will be reinvested in
shares of the same class of that same Fund. However, upon written request to the
Shareholder Service Agent, a shareholder may elect to have dividends of the Fund
invested in shares of the same class of another Kemper Fund at the net asset
value of such class of such other fund. See "Special Features--Class A
Shares--Combined Purchases" for a list of such other Kemper Funds. To use this
privilege of investing dividends of the Fund in shares of another Kemper Fund,
shareholders must maintain a minimum account value of $1,000 in the Fund
distributing the dividends. The Fund will reinvest dividend checks (and future
dividends) in shares of that same Fund and class if checks are returned as
undeliverable. Dividends and other distributions of the Fund in the aggregate
amount of $10 or less are automatically reinvested in shares of the same class
of the Fund unless the shareholder requests that such policy not be applied to
the shareholder's account.
17
<PAGE>
Taxes. The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code or a predecessor statute and has qualified as
such from its inception. The 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 the Fund. Presently, the Fund has no capital loss
carryforward.
The Fund is subject to a 4% nondeductible excise tax on amounts required
to be but not distributed under a prescribed formula. The formula requires
payment to shareholders during a calendar year of distributions at least equal
to the sum of 98% of the Fund's ordinary income for the calendar year, at least
98% of the excess of its capital gains over capital losses (adjusted for certain
ordinary losses 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 the Fund's gross income. To the extent that such dividends
constitute a portion of the Fund's gross income, a portion of the income
distributions of the Fund may be eligible for the 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 the Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as long-term capital
gain distributions during such six-month period.
If any net capital gains are retained by the Fund for reinvestment,
requiring federal income taxes to be paid thereon by the Fund, the Fund intends
to elect to treat such capital gains as having been distributed to shareholders.
As a result, each shareholder will report such capital gains as long-term
capital gains taxable to individual shareholders at a maximum 20% or 28% capital
gains rate (depending on the Fund's holding period for the assets giving rise to
the gain), will be able to claim a relative share of the federal income taxes
paid by the 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 the 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.
18
<PAGE>
Redemptions of shares, including exchanges for shares of another Kemper Mutual
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) the individual is not an active participant in an employer's
retirement plan, or (ii) if the individual is an active participant of an
employee retirement plan, the individual has an adjusted gross income below a
certain level ($50,000 for married individuals filing a joint return, with a
phase-out of the deduction for adjusted gross income between $50,000 and
$60,000; $30,000 for a single individual, with a phase-out for adjusted gross
income between $30,000 and $40,000). 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.
If shares are held in a tax-deferred account, such as a retirement plan,
income and gain will not be taxable each year. Indeed, the taxable portion of
amounts held in a tax-deferred account generally will be subject to tax as
ordinary income only when distributed from that account.
Distributions by the 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 the Fund invests in stock of certain foreign investment companies, the
Fund may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of 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.
The Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, the
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds the Fund's adjusted basis in these
shares. Any mark-to-market losses and any loss from an actual disposition of
shares would be deductible as ordinary losses to the extent of any net
mark-to-market gains included in income in prior years. The effect of the
election would be to treat excess distributions and gain on dispositions as
ordinary income which is not subject to a fund level tax when distributed to
shareholders as a dividend. Alternatively, the Fund may elect to include as
income and gain its share of the ordinary earnings and net capital gain of
certain foreign investment companies in lieu of being taxed in the manner
described above.
Equity options (including covered call options 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 the Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e. long-term or short-term) will generally depend, in the case of a lapse or
sale of the option, on the Fund's holding period for the option, and in the case
of the exercise of a put option, on the Fund's holding period for the underlying
property. The purchase of a put option may constitute a short sale for federal
income
19
<PAGE>
tax purposes, causing an adjustment in the holding period of the underlying
security or a substantially identical security in the Fund's portfolio.
If the 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 the Fund which consist of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes the Fund's risk of loss with respect to such stock
could be treated as a "straddle" which is governed by Section 1092 of the Code,
the operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by a Fund.
Many 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
Fund's portfolio.
Positions of the Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or nonequity option
or other position governed by Section 1256 which substantially diminishes the
Fund's risk of loss with respect to such other position may be treated as a
"mixed straddle." Mixed straddles are subject to the straddle rules of Section
1092 of the Code and may result in the deferral of losses if the non-Section
1256 position is in an unrealized gain at the end of a reporting period.
Notwithstanding any of the foregoing, recent tax law changes may require
the Fund to recognize gain (but not loss) from a constructive sale of certain
"appreciated financial positions" if the Fund enters into a short sale,
offsetting notional principal contract, futures or forward contract transaction
with respect to the appreciated position or substantially identical property.
Appreciated financial positions subject to this constructive sale treatment are
interests (including options, futures and forward contracts and short sales) in
stock, partnership interests, certain actively traded trust instruments and
certain debt instruments. Constructive sale treatment of appreciated financial
positions does not apply to certain transactions closed in the 90-day period
ending with the 30th day after the close of the Fund's taxable year, if certain
conditions are met.
Similarly, if the Fund enters into a short sale of property that becomes
substantially worthless, the Fund will be required to recognize gain at that
time as though it had closed the short sale. Future regulations may apply
similar treatment to other strategic transactions with respect to property that
becomes substantially worthless.
A portion of the difference between the issue price of zero coupon
securities and their face value ("original issue discount") is considered to be
income to the Fund each year, even though the Fund will not receive cash
interest payments from these securities. This original issue discount imputed
income will comprise a part of the investment company taxable income of the Fund
which must be distributed to shareholders in order to maintain the qualification
of the Fund as a regulated investment company and to avoid federal income tax at
the Fund's level. In addition, if the Fund invests in certain high yield
original issue discount obligations issued by corporations, a portion of the
original issue discount accruing on the obligation may be eligible for the
deduction for dividends received by corporations. In such event, dividends of
investment company taxable income received from the Fund by its corporate
shareholders, to the
20
<PAGE>
extent attributable to such portion of accrued original issue discount, may be
eligible for this deduction for dividends received by corporations if so
designated by the Fund in a written notice to shareholders.
Under the Code, gains or losses attributable to fluctuations in exchange
rates which occur between the time the Fund accrues receivables or liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
ordinary loss. Similarly, on disposition of debt securities denominated in a
foreign currency and on disposition of certain 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 the Fund's investment company taxable
income to be distributed to its shareholders as ordinary income.
Income received by the Fund from sources within a foreign country may be
subject to foreign and other withholding taxes imposed by that country. Because
the amount of the Fund's investments in various countries will change from time
to time, it is not possible to determine the effective rate of such taxes in
advance.
The 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 the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in shares, will be reduced by the amounts required to be withheld.
Shareholders may be subject to state and local taxes on distributions
received from the Fund and on redemptions of the Fund's shares. Each
distribution is accompanied by a brief explanation of the form and character of
the distribution. 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 the 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.
A dividend received shortly after the purchase of shares reduces the net
asset value of the shares by the amount of the dividend and, although in effect
a return of capital, will be taxable to the shareholder. Thus, investors should
consider the tax implications of buying shares just prior to a dividend. The
price of shares purchased at that time includes the amount of the forthcoming
dividend, which nevertheless will be taxable to them.
After each transaction, shareholders will receive a confirmation statement
giving complete details of the transaction except that statements will be sent
quarterly for transactions involving reinvestment of dividends and periodic
investment and redemption programs. Information for income tax purposes will be
provided after the end of the calendar year. Shareholders are encouraged to
retain copies of their account confirmation statements or year-end statements
for tax reporting purposes. However, those who have incomplete records may
obtain historical account transaction information at a reasonable fee.
When more than one shareholder resides at the same address, certain
reports and communications to be delivered to such shareholders may be combined
in the same mailing package, and certain duplicate reports and communications
may be eliminated. Similarly, account statements to be sent to such shareholders
may be combined in the same mailing package or consolidated into a single
statement. However, a shareholder may request that the foregoing policies not be
applied to the shareholder's account.
21
<PAGE>
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 advisors about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. ("Scudder Kemper" or the
"Advisor"), 345 Park Avenue, New York, New York, is the Fund's investment
manager. Scudder Kemper is approximately 70% owned by Zurich Financial Services,
Inc., a newly formed global insurance and financial services company. The
balance of the Advisor is owned by its officers and employees. Pursuant to an
investment management agreement, Scudder Kemper acts as the Fund's investment
advisor, manages its investments, administers its business affairs, furnishes
office facilities and equipment, provides clerical, administrative services, and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Fund if elected to such positions. The investment
management agreement provides that the Fund pays the charges and expenses of its
operations, including the fees and expenses of the trustees (except those who
are officers or employees of Scudder Kemper), independent auditors, counsel,
custodian and transfer agent and the cost of share certificates, reports and
notices to shareholders, brokerage commissions or transaction costs, costs of
calculating net asset value and maintaining all accounting records thereto,
taxes and membership dues. The Fund bears the expenses of registration of its
shares with the Securities and Exchange Commission, while Kemper Distributors,
Inc. ("KDI"), as principal underwriter, pays the cost of qualifying and
maintaining the qualification of the Fund's shares for sale under the securities
laws of the various states.
At December 31, 1997, pursuant to the terms of an agreement, Scudder,
Stevens & Clark, Inc. ("Scudder") and Zurich Insurance Company ("Zurich") formed
a new global organization by combining Scudder with Zurich Kemper Investments,
Inc., a former subsidiary of Zurich and former investment manager of the Fund,
and Scudder changed it name to Scudder Kemper Investments, Inc. As a result of
the transaction, Zurich owned approximately 70% of the Advisor, with the balance
owned by the Advisor's officers and employees.
On September 7, 1998, the businesses of Zurich (including Zurich's 70%
interest in Scudder Kemper) and the financial services businesses of B.A.T
Industries p.l.c. ("B.A.T") were combined to form a new global insurance and
financial services company known as Zurich Financial Services, Inc. By way of a
dual holding company structure, former Zurich shareholder initially owned
approximately 57% of Zurich Financial Services, Inc., with the balance initially
owned by former B.A.T shareholders.
Upon consummation of this transaction, the Fund's existing investment
management agreement with Scudder Kemper was deemed to have been assigned and,
therefore, terminated. The Board has approved a new investment management
agreement with Scudder Kemper, which is substantially identical to the current
investment management agreement, except for the date of execution and
termination. This agreement became effective upon the termination of the then
current investment management agreement and will be submitted for shareholder
approval at a special meeting currently scheduled to conclude in December 1998.
The investment management agreement provides that Scudder Kemper shall not
be liable for any error of judgment or of law, or for any loss suffered by the
Fund in connection with the matters to which the agreements relate, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of Scudder Kemper in the performance of its obligations and duties, or by
reason of its reckless disregard of its obligations and duties under each
agreement.
The Fund's investment management agreement continues in effect from year
to year so long as its continuation is approved at least annually (a) by a
majority of the trustees who are not parties to such agreement or interested
persons
22
<PAGE>
of any such party except in their capacity as trustees of the Fund and (b) by
the shareholders or the Board of Trustees. The Fund's investment management
agreement may be terminated at any time for a Portfolio upon 60 days notice by
either party, or by a majority vote of the outstanding shares of the Portfolio,
and will terminate automatically upon assignment. If additional Portfolios
become subject to the investment management agreement, the provisions concerning
continuation, amendment and termination shall be on a Portfolio-by-Portfolio
basis. Additional Portfolios may be subject to a different agreement.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Advisor. Investment decisions for the Fund and other
clients are made with a view toward achieving their respective investment
objectives and after consideration of such factors as their current holdings,
availability of cash for investment and the size of their investments generally.
Frequently, a particular security may be bought or sold for only one client or
in different amounts and at different times for more than one but less than all
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In addition, purchases
or sales of the same security may be made for two or more clients on the same
date. In such event, such transactions will be allocated among the clients in a
manner believed by the Advisor to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Advisor in the interest of achieving
the most favorable net results to the Fund.
The Investment Management Agreement between the Trust, on behalf of Value
Fund, and Scudder was last approved by the Trustees on September 4, 1996 and by
the initial shareholders of the Fund on December 30, 1992. Because the
transaction between Scudder and Zurich resulted in the assignment of the Fund's
investment management agreement with Scudder, these agreements were deemed to be
automatically terminated at the consummation of the transaction. In anticipation
of the transaction, however, new investment management agreements between the
Fund and the Advisor were approved by the Trust's Trustees. At the special
meetings of the Fund's shareholders held on October 27, 1997, the shareholders
also approved proposed new investment management agreements. The new investment
management agreement (the "Agreement") became effective as of December 31, 1997
and will be in effect for an initial term ending on September 30, 1998. The
Agreement is in all material respects on the same terms as the previous
investment management agreement which it supersedes. The Agreement incorporates
conforming changes which promote consistency among all of the funds advised by
the Advisor and which permit ease of administration. The Agreement will continue
in effect from year to year thereafter only if its continuance is approved
annually by the vote of a majority of those Trustees who are not parties to such
Agreement or interested persons of the Advisor 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 the Fund.
The Agreement may be terminated
23
<PAGE>
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 the Agreement, the Advisor regularly provides the Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objective, policies and restrictions and determines 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 Advisor 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 the Fund.
The Advisor renders significant administrative services (not otherwise
provided by third parties) necessary for the Fund's operations as an open-end
investment company including, but not limited to, preparing reports and notices
to the Trustees and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Fund (such as the Fund's transfer agents, pricing agents, custodian, accountants
and others); preparing and making filings with the SEC and other regulatory
agencies; assisting in the preparation and filing of the Fund's federal, state
and local tax returns; preparing and filing the Fund's federal excise tax
returns; assisting with investor and public relations matters; monitoring the
valuation of securities and the calculation of net asset value, monitoring the
registration of shares of the Funds under applicable federal and state
securities laws; maintaining the Fund's books and records to the extent not
otherwise maintained by a third party; assisting in establishing accounting
policies of the Fund; assisting in the resolution of accounting and legal
issues; establishing and monitoring the Fund's operating budget; processing the
payment of the Fund's bills; assisting the Fund in, and otherwise arranging for,
the payment of distributions and dividends and otherwise assisting the Funds in
the conduct of its business, subject to the direction and control of the
Trustees.
The Advisor 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 Advisor and makes available, without expense to the Fund,
the services of the Advisor'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 Advisor's services, the Fund pays the Advisor 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 Advisor 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, 1996, 1997 and 1998, the Advisor did not
impose a portion of its management fees amounting to $43,951, $59,309 and __
respectively and the amounts imposed amounted to $508,822, $1,073,855 and __,
respectively. The Advisor voluntarily agreed to waive management fees or
reimburse the Fund to the extent necessary so that the total annualized expenses
of the Fund did not exceed 1.25% of the average daily net assets until July 31,
1997. For the fiscal year ended September 30, 1998, the Advisor did not impose a
portion of its management fee amounting to $__ and the amount imposed amounted
to $__, of which $__ is unpaid at September 30, 1998. The Advisor 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.
24
<PAGE>
The Agreement identifies the Advisor as the exclusive licensee of the
rights to use and sublicense the names "Scudder," "Scudder Kemper Investments,
Inc." and "Scudder Stevens and Clark, Inc." (together, the "Scudder Marks").
Under this license, the Trust, with respect to the Fund, has the non-exclusive
right to use and sublicense the Scudder name and marks as part of its name, and
to use the Scudder Marks in the Trust's investment products and services.
In reviewing the terms of the Agreement and in discussions with the
Advisor concerning the Agreement, Trustees who are not "interested persons" of
the Trust are represented by independent counsel at the Fund's expense.
Officers and employees of the Advisor from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Advisor's opinion that the terms and conditions of those transactions were not
influenced by existing or potential custodial or other Fund relationships.
The Advisor may serve as advisor to other funds with investment objectives
and policies similar to those of the Fund that may have different distribution
arrangements or expenses, which may affect performance.
None of the officers or Trustees of the Trust may have dealings with the
Fund as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Fund.
Personal Investments by Employees of the Advisor
Employees of the Advisor are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Advisor's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Kemper Distributors, Inc. ("KDI"), 222
South Riverside Plaza, Chicago, Illinois, 60606, an affiliate of the Advisor, is
the principal underwriter and distributor for the Class A, B and C shares of the
Fund and acts as agent of the Fund in the continuous offering of its Shares. KDI
bears all of its expenses of providing services pursuant to the distribution
agreement, including the payment of any commissions. The Fund pays the cost for
the prospectus and shareholder reports to be set in type and printed for
existing shareholders, and KDI, as principal underwriter, pays for the printing
and distribution of copies thereof used in connection with the offering of
Shares to prospective investors. KDI also pays for supplementary sales
literature and advertising costs.
The distribution agreement dated September 7, 1998, continues in effect
from year to year so long as such continuance is approved for each class at
least annually by a vote of the Board of Trustees of the Trust, including
25
<PAGE>
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the agreement. The distribution agreement
automatically terminates in the event of its assignment and may be terminated
for a class at any time without penalty by the Fund or by KDI upon 60 days'
notice. Termination by the Fund with respect to a class may be by vote of a
majority of the Board of Trustees or a majority of the Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the distribution agreement or a "majority of the outstanding voting
securities" of the class of the Fund, as defined under the 1940 Act. The
distribution agreement may not be amended for a class to increase the fee to be
paid by the Fund with respect to such class without approval by a majority of
the outstanding voting securities of such class of the Fund, and all material
amendments must in any event be approved by the Board of Trustees in the manner
described above with respect to the continuation of the distribution agreement.
CLASS A SHARES. KDI receives no compensation from the Fund as principal
underwriter for Class A shares and pays all expenses of distribution of the
Fund's Class A shares under the distribution agreements not otherwise paid by
dealers or other financial services firms. As indicated under "Purchase of
Shares," KDI retains the sales charge upon the purchase of Class A shares and
pays out a portion of this sales charge or allows concessions or discounts to
firms for the sale of the Fund's Class A shares.
The following information concerns the underwriting commissions paid in
connection with the Fund's Class A shares for the fiscal years ended September
30 1996, 1997 and 1998.
Commissions Commissions
Commissions KDI Paid Paid to KDI
Year Retained by KDI to All Firms Affiliated Firms
1998
1997
1996
CLASS B SHARES. For its services under the Rule 12b-1Plan, KDI receives a fee
from the Fund, payable monthly, at the annual rate of 0.75% of average daily net
assets of the Fund attributable to its Class B shares. This fee is accrued daily
as an expense of Class B shares. KDI also receives any contingent deferred sales
charges received on redemptions of Class B shares. See "Redemption or Repurchase
of Shares--Contingent Deferred Sales Charge--Class B Shares." KDI currently
compensates firms for sales of Class B shares at a commission rate of 3.75%.
CLASS C SHARES. For its services under the Rule 12b-1 Plan , KDI receives a fee
from the Fund, payable monthly, at the annual rate of 0.75% of average daily net
assets of the Fund attributable to its Class C shares. This fee is accrued daily
as an expense of Class C shares. KDI currently advances to firms the first year
distribution fee at a rate of 0.75% of the purchase price of Class C shares. For
periods after the first year, KDI currently pays firms for sales of Class C
shares a distribution fee, payable quarterly, at an annual rate of 0.75% of net
assets attributable to Class C shares maintained and serviced by the firm and
the fee continues until terminated by KDI or the Fund. KDI also receives any
contingent deferred sales charges. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charges--Class C Shares."
RULE 12B-1 PLANS. Since the Rule 12b-1 Plan provides for fees payable as an
expense of each of the Class B shares and the Class C shares that are used by
KDI to pay for distribution services for those classes, each agreement is
approved and reviewed separately for the Class B shares and the Class C shares
in accordance with Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"), which regulates the manner in which an investment company may,
directly or indirectly, bear the expenses of distributing its shares. Because
12b-1 fees are paid out of fund assets on an ongoing basis they will, over time,
increase the cost of the investment and may cost more than other types of sales
charges. As of December 31, 1997 the Fund's Rule 12b-1 Plan has been separated
from its distribution agreement.
26
<PAGE>
The table below shows the amount paid in connection with the Fund's Rule 12b-1
Plan for the 1998 fiscal year:
<TABLE>
<CAPTION>
Distribution Expenses Incurred Distribution Paid by Fund to Contingent Deferred
by KDI KDI Sales Charge Paid to KDI
Class B Class C Class B Class C Class B Class C
<S> <C> <C> <C> <C>
$--
</TABLE>
If a Rule 12b-1 Plan (the "Plan") for a class is terminated in accordance with
its terms, the obligation of the Fund to make payments to KDI pursuant to such
Plan will cease and the Fund will not be required to make any payments past the
termination date. Thus, there is no legal obligation for the Fund to pay any
expenses incurred by KDI in excess of its fees under a Plan, if for any reason
the Plan is terminated in accordance with its terms. Future fees under a Plan
may or may not be sufficient to reimburse KDI for its expenses incurred. (See
"Principal Underwriter" for more information.)
Expenses of the Fund and of KDI, in connection with the Rule 12b-1 Plans for the
Class B and Class C shares for the fiscal years ended September 30, 1996, 1997
and 1998 are set forth below. A portion of the marketing, sales and operating
expenses shown below could be considered overhead expenses.
<TABLE>
<CAPTION>
Other Distribution Expenses paid by KDI
Contingent Total Distribution
Deferred Distribution Paid by
Distribution Sales Fees Paid KDI to KDI Advertising Marketing Misc.
Fiscal Fees Paid by Charges by KDI to Affiliated and Prospectus and Sales Operating Interest
Year Fund to KDI Paid to KDI Firms Firms Literature Printing Expenses Expenses Expenses
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class B To be
Shares 1998 updated
1997
1996
Class C
Shares 1998
1997
1996
</TABLE>
ADMINISTRATIVE SERVICES. Administrative services are provided to the Shares
under an administrative services agreement ("administrative agreement") with
KDI. KDI bears all its expenses of providing services pursuant to the
administrative agreement between KDI and the Fund, including the payment of
service fees. The Fund pays KDI an administrative services fee, payable monthly,
at an annual rate of up to 0.25% of average daily net assets of Class A, B and C
shares of the Fund.
KDI enters into related arrangements with various broker-dealer firms and
other service or administrative firms ("firms") that provide services and
facilities for their customers or clients who are investors in the Fund. The
firms provide such office space and equipment, telephone facilities and
personnel as is necessary or beneficial for providing information and services
to their clients. Such services and assistance may include, but are not limited
to, establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund,
assistance to clients in changing dividend and investment options, account
designations and addresses and such other administrative services as may be
agreed upon from time to time and permitted by applicable statute, rule or
regulation. With respect to Class A Shares, KDI pays each firm a service fee,
payable quarterly, at an annual rate of up to 0.25% of the net assets in Fund
accounts that it maintains and services attributable to Class A Shares,
commencing with the month after investment. With respect to Class B and Class C
Shares, KDI currently advances to firms the first-year service fee at a rate of
up to 0.25% of the purchase price of such Shares. For periods after the first
year, KDI currently intends to pay firms a service fee at a rate of up to 0.25%
(calculated monthly and paid quarterly) of the net assets attributable to Class
B and Class C Shares maintained and serviced by the firm. After the first year,
a firm becomes eligible for the quarterly service fee and the fee continues
until terminated by KDI or the Fund. Firms to which service fees may be paid may
include affiliates of KDI.
27
<PAGE>
The following information concerns the administrative services fee paid by the
Fund to KDI for fiscal years ended 1998, 1997 and 1996:.
<TABLE>
<CAPTION>
Administrative Service Fees Paid by the Fund
Total Service Service Fees Paid by
Fiscal Fees Paid by KDI KDI to KDI Affiliated
Year Class A Class B Class C to Firms Firms
<S> <C> <C> <C> <C> <C>
1998 To be
updated
1997
1996
</TABLE>
KDI also may provide some of the above services and may retain any portion
of the fee under the administrative agreement not paid to firms to compensate
itself for administrative functions performed for the Fund. Currently, the
administrative services fee payable to KDI is based only upon Fund assets in
accounts for which a firm provides administrative services listed on the Fund's
records, and it is intended that KDI will pay all the administrative services
fee that it receives from the Fund to firms in the form of service fees. The
effective administrative services fee rate to be charged against all assets of
the Fund while this procedure is in effect will depend upon the proportion of
Fund assets that is in accounts for which a firm of record provides
administrative services. The Board of Trustees of the Fund, in its discretion,
may approve basing the fee to KDI on all Fund assets in the future.
Certain trustees or officers of the Trust are also directors or officers
of the Advisor or KDI, as indicated under "Officers and Trustees."
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation, Two International
Place, Boston, Massachusetts 02110-4103, a subsidiary of the Advisor, computes
net asset values for the Fund. The Fund pays Scudder Fund Accounting Corporation
an annual fee equal to 0.025% of the first $150 million of average daily net
assets, 0.0075% of such assets in excess of $150 million and 0.0045% of such
assets in excess of $1 billion, plus holding and transaction charges for this
service. For the fiscal year ended September 30, 1998, Value Fund, consisting of
multiple classes of shares, incurred annual fees of $__, of which $__ was unpaid
at September 30, 1998. For the fiscal year ended September 30, 1997, Value Fund,
which did not consist of multiple classes of shares during such period, incurred
annual fees of $50,128, of which $5,562 was unpaid at September 30, 1997.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. State Street Bank and
Trust Company, as custodian, has custody of all securities and cash of the Fund
held outside the United States and of all securities and cash of the Fund. The
Custodian attends to the collection of principal, income and payment for and
collection of proceeds of securities bought and sold by the Fund. Kemper
Services Company ("KSvC"), an affiliate of the Advisor, is also transfer agent
for the Kemper Shares, shareholder service agent and dividend paying agent. KSvC
receives as transfer agent annual account fees of $6 per account plus account
set up, transaction and maintenance charges, annual fees associated with the
contingent deferred sales charge (Class B Shares only) and out-of-pocket expense
reimbursement.
The following shows the shareholder service fees IFTC remitted to KSvC for the
fiscal year ended September 30, 1998, 1997 and 1996:
Fees IFTC paid to KSvC
1998 $__
1997
1996
INDEPENDENT AUDITORS AND REPORTS TO SHAREHOLDERS. The Financial Highlights of
the Fund included in the Shares' prospectus and the Financial Statements
incorporated by reference in this Statement of Additional Information have been
so included or incorporated by reference in reliance on the report of
PricewaterhouseCoopers, 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.
28
<PAGE>
PORTFOLIO TRANSACTIONS
Brokerage
Allocation of brokerage may be placed by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund's portfolio is to obtain the most favorable
net results taking into account such factors as price, commission where
applicable, size of order, difficulty of execution and skill required of the
executing broker/dealer. The Adviser seeks to evaluate the overall
reasonableness of brokerage commissions paid (to the extent applicable) through
familiarity with commissions charged on comparable transactions, as well as by
comparing commissions paid by the Fund to reported commissions paid by others.
The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply research, market and statistical information to the
Fund. The term "research, market and statistical information" includes advice as
to the value of securities; the advisability of investing in, purchasing or
selling securities; the availability of securities or purchasers or sellers of
securities; and analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy and the performance of accounts.
The Adviser is not authorized when placing portfolio transactions for the Fund
to pay a brokerage commission in excess of that which another broker might
charge for executing the same transaction solely on account of the receipt of
research, market or statistical information. 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.
In selecting among firms believed to meet the criteria for handling a
particular transaction, the Adviser may give consideration to those firms that
have sold or are selling shares of the Fund or other funds managed by the
Adviser.
To the maximum extent feasible, it is expected that the Adviser will place
orders for portfolio transactions through Scudder Investor Services, Inc.
("SIS"), a corporation registered as a broker-dealer and a subsidiary of the
Adviser. SIS will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. SIS will not receive any commission, fee or other
remuneration from the Fund for this service.
Although certain research, market and statistical information from
broker/dealers may be useful to the Fund and to the Adviser, it is the opinion
of the Adviser that such information only supplements its own research effort
since the information must still be analyzed, weighed and reviewed by the
Adviser's staff. Such information may be useful to the Adviser in providing
services to clients other than the Fund and not all such information is used by
the Adviser in connection with the Fund. Conversely, such information provided
to the Adviser by broker/dealers through whom other clients of the Adviser
effect securities transactions may be useful to the Adviser in providing
services to the Fund.
The Trustees of the Fund review from time to time whether the recapture
for the benefit of the Fund of some portion of the brokerage commissions or
similar fees paid by the Fund on portfolio transactions is legally permissible
and advisable.
The Fund's average portfolio turnover rate is the ratio of the lesser of
sales or purchases to the monthly average value of the portfolio securities
owned during the year, excluding all securities with maturities or expiration
dates at the time of acquisition of one year or less. A higher rate involves
greater brokerage transaction expenses to the Fund and may result in the
realization of net capital gains, which would be taxable to shareholders when
distributed. Purchases and sales are made for the Fund's portfolio whenever
necessary, in management's opinion, to meet the Fund's objective.
29
<PAGE>
Under normal investment conditions, it is anticipated that the portfolio
turnover rate in the Fund's initial fiscal year will not exceed 100%.
For the fiscal years ended September 30, 1996, 1997 and 1998, Value Fund
paid brokerage commissions of $181,652, $273,545 and $__ respectively. For the
fiscal year ended September 30, 1998, the Fund paid brokerage commissions of $__
(__% 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 Advisor. The amount
of such transactions aggregated $__ (__% 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.
Portfolio Turnover
For the fiscal years ended September 30, 1996, 1997 and 1998, Value Fund
had an annualized portfolio turnover rate of 90.8%, 47.4% and __%, respectively.
Higher levels of activity by the Fund results in higher transaction costs and
may also result in taxes on realized capital gains to be borne by the Fund's
shareholders. Purchases and sales are made for the Fund whenever necessary, in
management's opinion, to meet the Fund's objectives.
NET ASSET VALUE
The net asset value per share of a Fund is the value of one share and is
determined separately for each class by dividing the value of a Fund's net
assets attributable to the class by the number of shares of that class
outstanding. The per share net asset value of each of Class B and Class C shares
of the Fund will generally be lower than that of the Class A shares of a Fund
because of the higher expenses borne by the Class B and Class C shares. The net
asset value of shares of a Fund is computed as of the close of regular trading
(the "value time") on the New York Stock Exchange (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, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
Portfolio securities for which market quotations are readily available are
generally valued at market value as of the value time in the manner described
below. All other securities may be valued at fair value as determined in good
faith by or under the direction of the Board.
With respect to the Funds with securities listed primarily on foreign exchanges,
such securities may trade on days when the Fund's net asset value is not
computed; and therefore, the net asset value of a Fund may be significantly
affected on days when the investor has no access to the Fund.
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 Nasdaq Stock Market Inc.
("Nasdaq") is valued at its most recent sale price. Lacking any sales, the
security is valued at the most recent bid quotation. The value of an equity
security not quoted on Nasdaq, 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 are valued at prices supplied by a pricing agent(s) which
reflect broker/dealer supplied valuations and electronic data processing
techniques. Money market instruments purchased with an original maturity of
sixty days or less, maturing at par, shall be valued at amortized cost, which
the Board believes approximates market value. If it is not possible to value a
particular debt security pursuant to these valuation methods, the value of such
security is the most recent bid quotation supplied by a bona fide marketmaker.
If it is not possible to value a particular debt security pursuant to the above
methods, the investment manager of the particular fund 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
30
<PAGE>
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 on the valuation date.
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 Valuation Committee of the Board of Trustees, 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 market value of the property on the valuation date.
Following the valuations of securities or other portfolios 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.
31
<PAGE>
PURCHASE, REDEMPTION AND REPURCHASE OF SHARES
PURCHASE OF SHARES
ALTERNATIVE PURCHASE ARRANGEMENTS. Class A shares of the Fund are sold to
investors subject to an initial sales charge. Class B shares are sold without an
initial sales charge but are subject to higher ongoing expenses than Class A
shares and a contingent deferred sales charge payable upon certain redemptions.
Class B shares automatically convert to Class A shares six years after issuance.
Class C shares are sold without an initial sales charge but are subject to
higher ongoing expenses than Class A shares, are subject to a contingent
deferred sales charge payable upon certain redemptions within the first year
following purchase, and do not convert into another class. When placing purchase
orders, investors must specify whether the order is for Class A, Class B or
Class C shares.
The primary distinctions among the classes of the Fund's shares lie in their
initial and contingent deferred sales charge structures and in their ongoing
expenses, including asset-based sales charges in the form of Rule 12b-1
distribution fees. These differences are summarized in the table below. See,
also, "Summary of Expenses." Each class has distinct advantages and
disadvantages for different investors, and investors may choose the class that
best suits their circumstances and objectives.
<TABLE>
<CAPTION>
Annual 12b-1 Fees
(as a % of average
Sales Charge daily net assets) Other Information
<S> <C> <C> <C>
Class A Maximum initial sales charge None Initial sales
of 5.75% of the public charge waived or
offering price reduced for certain
purchases (1)
Class B Maximum contingent deferred 0.75% Shares convert to
sales charge of 4% of Class A shares six
redemption proceeds; declines years after issuance
to zero after six years
Class C Contingent deferred sales 0.75% No conversion
charge of 1% of redemption feature
proceeds for redemptions made
during first year after
purchase
</TABLE>
- ----------
(1) Class A shares purchased at net asset value under the "Large Order NAV
Purchase Privilege" may be subject to a 1% contingent deferred sales charge if
redeemed within one year of purchase and a 0.50% contingent deferred sales
charge if redeemed within the second year of purchase.
The minimum initial investment for each of class A, B and C of the Fund is
$1,000 and the minimum subsequent investment is $100. The minimum initial
investment for an Individual Retirement Account is $250 and the minimum
subsequent investment is $50. Under an automatic investment plan, such as Bank
Direct Deposit, Payroll Direct Deposit or Government Direct Deposit, the minimum
initial and subsequent investment is $50. These minimum amounts may be changed
at any time in management's discretion.
Share certificates will not be issued unless requested in writing and may not be
available for certain types of account registrations. It is recommended that
investors not request share certificates unless needed for a specific purpose.
You cannot redeem shares by telephone or wire transfer or use the telephone
exchange privilege if share certificates have been issued. A lost or destroyed
certificate is difficult to replace and can be expensive to the shareholder (a
bond worth 2% or more of the certificate value is normally required).
32
<PAGE>
INITIAL SALES CHARGE ALTERNATIVE--Class A Shares. The public offering price of
Class A shares for purchasers choosing the initial sales charge alternative is
the net asset value plus a sales charge, as set forth below.
<TABLE>
<CAPTION>
Sales Charge
Allowed to Dealers
As a As a Percentage as a Percentage
Percentage of of Net Asset of Offering
Amount of Purchase Offering Price Value* Price
<S> <C> <C> <C>
Less than $50,000.......... 5.75% 6.10% 5.20%
$50,000 but less than
$100,000................... 4.50 4.71 4.00
$100,000 but less than
$250,000................... 3.50 3.63 3.00
$250,000 but less than
$500,000................... 2.60 2.67 2.25
$500,000 but less than $1
million.................... 2.00 2.04 1.75
$1 million and over........ .00** .00** ***
</TABLE>
- ----------
* Rounded to the nearest one-hundredth percent.
** Redemption of shares may be subject to a contingent deferred sales charge
as discussed below.
*** Commission is payable by KDI as discussed below.
The Fund receives the entire net asset value of all its shares sold. KDI, the
Fund's principal underwriter, retains the sales charge on sales of Class A
shares from which it allows discounts from the applicable public offering price
to investment dealers, which discounts are uniform for all dealers in the United
States and its territories. The normal discount allowed to dealers is set forth
in the above table. Upon notice to all dealers with whom it has sales
agreements, KDI may re-allow to dealers up to the full applicable sales charge,
as shown in the above table, during periods and for transactions specified in
such notice and such re-allowances may be based upon attainment of minimum sales
levels. During periods when 90% or more of the sales charge is re-allowed, such
dealers may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.
Class A shares of the Fund may be purchased at net asset value by: (a) any
purchaser, provided that the amount invested in such Fund or other Kemper Fund
listed under "Special Features--Class A Shares--Combined Purchases" totals at
least $1,000,000 including purchases of Class A shares pursuant to the "Combined
Purchases," "Letter of Intent" and "Cumulative Discount" features described
under "Special Features"; or (b) a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district, provided in each
case that such plan has not less than 200 eligible employees (the "Large Order
NAV Purchase Privilege"). Redemption within two years of the purchase of shares
purchased under the Large Order NAV Purchase Privilege may be subject to a
contingent deferred sales charge. See "Redemption or Repurchase of
Shares--Contingent Deferred Sales Charge--Large Order NAV Purchase Privilege."
KDI may at its discretion compensate investment dealers or other financial
services firms in connection with the sale of Class A shares of the Fund at net
asset value in accordance with the Large Order NAV Purchase Privilege up to the
following amounts: 1.00% of the net asset value of shares sold on amounts up to
$5 million, 0.50% on the next $45 million and 0.25% on amounts over $50 million.
The commission schedule will be reset on a calendar year basis for sales of
Shares pursuant to the Large Order NAV Purchase Privilege to employer-sponsored
employee benefit plans using the subaccount recordkeeping system made available
through Kemper Service Company. For purposes of determining the appropriate
commission percentage to be applied to a particular sale, KDI will consider the
cumulative amount invested by the purchaser in the Fund and other Kemper Fund
listed under "Special Features--Class A Shares--Combined Purchases," including
purchases pursuant to the "Combined Purchases," "Letter of Intent" and
"Cumulative Discount" features referred to above. The privilege of purchasing
Class A shares of the Fund at net asset value under the Large Order NAV Purchase
Privilege is not available if another net asset value purchase privilege also
applies.
33
<PAGE>
Class A shares of the Fund or of any other Kemper Fund listed under "Special
Features--Class A Shares--Combined Purchases" may be purchased at net asset
value in any amount by members of the plaintiff class in the proceeding known as
Howard and Audrey Tabankin, et al. v. Kemper Short-Term Global Income Fund, et
al., Case No. 93 C 5231 (N.D. IL). This privilege is generally non-transferable
and continues for the lifetime of individual class members and for a ten year
period for non-individual class members. To make a purchase at net asset value
under this privilege, the investor must, at the time of purchase, submit a
written request that the purchase be processed at net asset value pursuant to
this privilege specifically identifying the purchaser as a member of the
"Tabankin Class." Shares purchased under this privilege will be maintained in a
separate account that includes only shares purchased under this privilege. For
more details concerning this privilege, class members should refer to the Notice
of (1) Proposed Settlement with Defendants; and (2) Hearing to Determine
Fairness of Proposed Settlement, dated August 31, 1995, issued in connection
with the aforementioned court proceeding. For sales of Fund shares at net asset
value pursuant to this privilege, KDI may in its discretion pay investment
dealers and other financial services firms a concession, payable quarterly, at
an annual rate of up to 0.25% of net assets attributable to such Shares
maintained and serviced by the firm. A firm becomes eligible for the concession
based upon assets in accounts attributable to Shares purchased under this
privilege in the month after the month of purchase and the concession continues
until terminated by KDI. The privilege of purchasing Class A shares of the Fund
at net asset value under this privilege is not available if another net asset
value purchase privilege also applies.
Class A shares of a Fund may be purchased at net asset value by persons who
purchase such Shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm.
Class A shares of the Fund may be purchased at net asset value in any amount by
certain professionals who assist in the promotion of Kemper Funds pursuant to
personal services contracts with KDI, for themselves or members of their
families. KDI in its discretion may compensate financial services firms for
sales of Class A shares under this privilege at a commission rate of 0.50% of
the amount of Class A shares purchased.
Class A shares of a Fund may be purchased at net asset value by persons who
purchase shares of the Fund through KDI as part of an automated billing and wage
deduction program administered by RewardsPlus of America for the benefit of
employees of participating employer groups.
Class A shares may be sold at net asset value in any amount to: (a) officers,
trustees, employees (including retirees) and sales representatives of the Fund,
its investment manager, its principal underwriter or certain affiliated
companies, for themselves or members of their families; (b) registered
representatives and employees of broker-dealers having selling group agreements
with KDI and officers, directors and employees of service agents of the Fund,
for themselves or their spouses or dependent children; (c) any trust, pension,
profit-sharing or other benefit plan for only such persons; (d) persons who
purchase such shares through bank trust departments that process such trades
through an automated, integrated mutual fund clearing program provided by a
third party clearing firm; and (e) persons who purchase shares of the Fund
through KDI as part of an automated billing and wage deduction program
administered by RewardsPlus of America for the benefit of employees of
participating employer groups. Class A shares may be sold at net asset value in
any amount to selected employees (including their spouses and dependent
children) of banks and other financial services firms that provide
administrative services related to order placement and payment to facilitate
transactions in Shares of the Fund for their clients pursuant to an agreement
with KDI or one of its affiliates. Only those employees of such banks and other
firms who as part of their usual duties provide services related to transactions
in Fund shares may purchase Fund Class A shares at net asset value hereunder.
Class A shares may be sold at net asset value in any amount to unit investment
trusts sponsored by Ranson & Associates, Inc. In addition, unitholders of unit
investment trusts sponsored by Ranson & Associates, Inc. or its predecessors may
purchase the Fund's Class A shares at net asset value through reinvestment
programs of such trusts that have such programs. Class A shares of the Fund may
be sold at net asset value through certain investment advisors registered under
the 1940 Act and other financial services firms that adhere to certain standards
established by KDI, including a requirement that such Shares be sold for the
benefit of their clients participating in an investment advisory program under
which such clients pay a fee to the investment advisor or other firm for
portfolio management and other services. Such Shares are sold for investment
purposes and on the condition that they will not be resold except through
redemption or repurchase by the Fund. The Fund may also issue Class A shares at
net asset value in connection with the acquisition of the assets of or merger or
consolidation with another investment company, or to shareholders in connection
with the investment or reinvestment of income and capital gain dividends.
34
<PAGE>
The sales charge scale is applicable to purchases made at one time by any
"purchaser" which includes: an individual; or an individual, his or her spouse
and children under the age of 21; or a trustee or other fiduciary of a single
trust estate or single fiduciary account; or an organization exempt from federal
income tax under Section 501(c)(3) or (13) of the Code; or a pension,
profit-sharing or other employee benefit plan whether or not qualified under
Section 401 of the Code; or other organized group of persons whether
incorporated or not, provided the organization has been in existence for at
least six months and has some purpose other than the purchase of redeemable
securities of a registered investment company at a discount. In order to qualify
for a lower sales charge, all orders from an organized group will have to be
placed through a single investment dealer or other firm and identified as
originating from a qualifying purchaser.
DEFERRED SALES CHARGE ALTERNATIVE--Class B Shares. Investors choosing the
deferred sales charge alternative may purchase Class B shares at net asset value
per share without any sales charge at the time of purchase. Since Class B shares
are being sold without an initial sales charge, the full amount of the
investor's purchase payment will be invested in Class B shares for his or her
account. A contingent deferred sales charge may be imposed upon redemption of
Class B shares. See "Redemption or Repurchase of Shares--Contingent Deferred
Sales Charge--Class B Shares."
KDI compensates firms for sales of Class B shares at the time of sale at a
commission rate of up to 3.75% of the amount of Class B shares purchased. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class B shares. See "Investment Manager and Underwriter."
Class B shares of the Fund will automatically convert to Class A shares of the
Fund six years after issuance on the basis of the relative net asset value per
share of the Class B shares. The purpose of the conversion feature is to relieve
holders of Class B shares from the distribution services fee when they have been
outstanding long enough for KDI to have been compensated for distribution
related expenses. For purposes of conversion to Class A shares, shares purchased
through the reinvestment of dividends and other distributions paid with respect
to Class B shares in a shareholder's Fund account will be converted to Class A
shares on a pro rata basis.
PURCHASE OF CLASS C SHARES. The public offering price of the Class C shares of
the Fund is the next determined net asset value. No initial sales charge is
imposed. Since Class C shares are sold without an initial sales charge, the full
amount of the investor's purchase payment will be invested in Class C shares for
his or her account. A contingent deferred sales charge may be imposed upon the
redemption of Class C shares if they are redeemed within one year of purchase.
See "Redemption or Repurchase of Shares--Contingent Deferred Sales Charge--Class
C Shares." KDI currently advances to firms the first year distribution fee at a
rate of 0.75% of the purchase price of such shares. For periods after the first
year, KDI currently intends to pay firms for sales of Class C shares a
distribution fee, payable quarterly, at an annual rate of 0.75% of net assets
attributable to Class C shares maintained and serviced by the firm. KDI is
compensated by the Fund for services as distributor and principal underwriter
for Class C shares. See "Investment Manager and Underwriter."
GENERAL. Banks and other financial services firms may provide administrative
services related to order placement and payment to facilitate transactions in
Shares of the Fund for their clients, and KDI may pay them a transaction fee up
to the level of the discount or commission allowable or payable to dealers, as
described above. Banks are currently prohibited under the Glass-Steagall Act
from providing certain underwriting or distribution services. Banks or other
financial services firms may be subject to various state laws regarding the
services described above and may be required to register as dealers pursuant to
state law. If banking firms were prohibited from acting in any capacity or
providing any of the described services, management would consider what action,
if any, would be appropriate. KDI does not believe that termination of a
relationship with a bank would result in any material adverse consequences to
the Fund.
KDI may, from time to time, pay or allow to firms a 1% commission on the amount
of Shares of the Fund sold under the following conditions: (i) the purchased
Shares are held in a Kemper IRA account, (ii) the Shares are purchased as a
direct "roll over" of a distribution from a qualified retirement plan account
maintained on a participant subaccount record keeping system provided by Kemper
Service Company, (iii) the registered representative placing the trade is a
member of ProStar, a group of persons designated by KDI in acknowledgment of
their dedication to the employee benefit plan area; and (iv) the purchase is not
otherwise subject to a commission.
35
<PAGE>
In addition to the discounts or commissions described above, KDI will, from time
to time, pay or allow additional discounts, commissions or promotional
incentives, in the form of cash or other compensation, to firms that sell Shares
of the Fund. Non cash compensation includes luxury merchandise and trips to
luxury resorts. In some instances, such discounts, commissions or other
incentives will be offered only to certain firms that sell during specified time
periods certain minimum amounts of shares of the Fund, or other Fund
underwritten by KDI.
Orders for the purchase of shares of the Fund will be confirmed at a price based
on the net asset value per share of the Fund next determined after receipt in
good order by KDI of the order accompanied by payment. However, orders received
by dealers or other financial services firms prior to the determination of net
asset value (see "Net Asset Value") and received in good order by KDI prior to
the close of its business day will be confirmed at a price based on the net
asset value per Share effective on that day ("trade date"). The Fund reserves
the right to determine the net asset value more frequently than once a day if
deemed desirable. Dealers and other financial services firms are obligated to
transmit orders promptly. Collection may take significantly longer for a check
drawn on a foreign bank than for a check drawn on a domestic bank. Therefore, if
an order is accompanied by a check drawn on a foreign bank, funds must normally
be collected before shares will be purchased. See "Purchase, Redemption and
Repurchase of Shares" herein.
Investment dealers and other firms provide varying arrangements for their
clients to purchase and redeem the Fund's Shares. Some may establish higher
minimum investment requirements than set forth above. Firms may arrange with
their clients for other investment or administrative services. Such firms may
independently establish and charge additional amounts to their clients for such
services, which charges would reduce the clients' return. Firms also may hold
the Fund's Shares in nominee or street name as agent for and on behalf of their
customers. In such instances, the Fund's transfer agent will have no information
with respect to or control over the accounts of specific shareholders. Such
shareholders may obtain access to their accounts and information about their
accounts only from their firm. Certain of these firms may receive compensation
from the Fund through the Shareholder Service Agent for recordkeeping and other
expenses relating to these nominee accounts. In addition, certain privileges
with respect to the purchase and redemption of shares or the reinvestment of
dividends may not be available through such firms. Some firms may participate in
a program allowing them access to their clients' accounts for servicing
including, without limitation, transfers of registration and dividend payee
changes; and may perform functions such as generation of confirmation statements
and disbursement of cash dividends. Such firms, including affiliates of KDI, may
receive compensation from the Fund through the Shareholder Service Agent for
these services. This statement of additional information should be read in
connection with such firms' material regarding their fees and services.
The Fund reserves the right to withdraw all or any part of the offering made by
this statement of additional information and to reject purchase orders for any
reason. Also, from time to time, the Fund may temporarily suspend the offering
of any class of its shares to new investors. During the period of such
suspension, persons who are already shareholders of such class of such Fund
normally are permitted to continue to purchase additional shares of such class
and to have dividends reinvested.
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 correct 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 correct
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
correct certified Social Security or tax identification number. A shareholder
may avoid involuntary redemption by providing the applicable Fund with a tax
identification number during the 30-day notice period.
Shareholders should direct their inquiries to Kemper Service Company, 811 Main
Street, Kansas City, Missouri 64105-2005 or to the firm from which they received
this statement of additional information.
As described herein, Fund Shares are sold at their public offering price,
which is the net asset value per such shares next determined after an order is
received in proper form plus, with respect to Class A Shares, an initial sales
charge. The minimum initial investment for each of class A, B and C is $1,000
and the minimum subsequent investment is $100 but such minimum amounts may be
changed at any time.
36
<PAGE>
The Fund may waive the minimum for purchases by trustees, directors, officers or
employees of the Fund or the Advisor and its affiliates. An order for the
purchase of Shares that is accompanied by a check drawn on a foreign bank (other
than a check drawn on a Canadian bank in U.S. Dollars) will not be considered in
proper form and will not be processed unless and until the Fund determines that
it has received payment of the proceeds of the check. The time required for such
a determination will vary and cannot be determined in advance.
Upon receipt by the Shareholder Service Agent of a request for redemption,
Shares of the Fund will be redeemed by the Fund at the applicable net asset
value per share of the Fund as described herein.
Scheduled variations in or the elimination of the initial sales charge for
purchases of Class A Shares or the contingent deferred sales charge for
redemptions of Class B or Class C Shares by certain classes of persons or
through certain types of transactions as described herein are provided because
of anticipated economies of scale in sales and sales-related efforts.
The net asset value per Share of the Fund is determined separately for
each class by dividing the value of the Fund's net assets attributable to that
class by the number of Shares of that class outstanding. The per share net asset
value of the Class B and Class C Shares of the Fund will generally be lower than
that of the Class A Shares of the Fund because of the higher expenses borne by
the Class B and Class C Shares. The net asset value of Shares of the Fund is
computed as of the close of regular trading on the Exchange on each day the
Exchange is open for trading. The Exchange is scheduled to be closed on the
following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
The Fund has authorized certain members of the National Association of
Securities Dealers, Inc. ("NASD"), other than Kemper Distributors, Inc. ("KDI")
to accept purchase and redemption orders for the Fund's shares. Those brokers
may also designate other parties to accept purchase and redemption orders on the
Fund's behalf. Orders for purchase or redemption will be deemed to have been
received by the Fund when such brokers or their authorized designees accept the
orders. Subject to the terms of the contract between the Fund and the broker,
ordinarily orders will be priced as the Fund's net asset value next computed
after acceptance by such brokers or their authorized designees. Further, if
purchases or redemptions of the Fund's shares are arranged and settlement is
made at an investor's election through any other authorized NASD member, that
member may, at its discretion, charge a fee for that service. The Board of
Trustees or Directors as the case may be ("Board") of the Fund and KDI each has
the right to limit the amount of purchases by, and to refuse to sell to, any
person. The Board and KDI may suspend or terminate the offering of shares of the
Fund at any time for any reason. The Fund has authorized certain members of the
National Association of Securities Dealers, Inc. ("NASD"), other than Kemper
Distributors, Inc. ("KDI") to accept purchase and redemption orders for the
Fund's shares. Those brokers may also designate other parties to accept purchase
and redemption orders on the Fund's behalf. Orders for purchase or redemption
will be deemed to have been received by the Fund when such brokers or their
authorized designees accept the orders. Subject to the terms of the contract
between the Fund and the broker, ordinarily orders will be priced as the Fund's
net asset value next computed after acceptance by such brokers or their
authorized designees. Further, if purchases or redemptions of the Fund's shares
are arranged and settlement is made at an investor's election through any other
authorized NASD member, that member may, at its discretion, charge a fee for
that service. The Board of Trustees or Directors as the case may be ("Board") of
the Fund and KDI each has the right to limit the amount of purchases by, and to
refuse to sell to, any person. The Board and KDI may suspend or terminate the
offering of shares of the Fund at any time for any reason.
37
<PAGE>
REDEMPTION OR REPURCHASE OF SHARES
GENERAL. Any shareholder may require the Fund to redeem his or her Shares. When
Shares are held for the account of a shareholder by the Kemper Shares' transfer
agent, the shareholder may redeem such Shares by sending a written request with
signatures guaranteed to Kemper Funds, Attention: Redemption Department, P.O.
Box 419557, Kansas City, Missouri 64141-6557. When certificates for Shares have
been issued, they must be mailed to or deposited with the Shareholder Service
Agent, along with a duly endorsed stock power and accompanied by a written
request for redemption. Redemption requests and a stock power must be endorsed
by the account holder with signatures guaranteed by a commercial bank, trust
company, savings and loan association, federal savings bank, member firm of a
national securities exchange or other eligible financial institution. The
redemption request and stock power must be signed exactly as the account is
registered including any special capacity of the registered owner. Additional
documentation may be requested, and a signature guarantee is normally required,
from institutional and fiduciary account holders, such as corporations,
custodians (e.g., under the Uniform Transfers to Minors Act), executors,
administrators, trustees or guardians.
The redemption price for shares of a class of the Fund will be the net asset
value per share of that class of the Fund next determined following receipt by
the Shareholder Service Agent of a properly executed request with any required
documents as described above. Payment for shares redeemed will be made in cash
as promptly as practicable but in no event later than seven days after receipt
of a properly executed request accompanied by any outstanding share certificates
in proper form for transfer. When the Fund is asked to redeem shares for which
it may not have yet received good payment (i.e., purchases by check,
EXPRESS-Transfer or Bank Direct Deposit), it may delay transmittal of redemption
proceeds until it has determined that collected funds have been received for the
purchase of such shares, which will be up to 10 days from receipt by the Fund of
the purchase amount. The redemption within two years of Class A shares purchased
at net asset value under the Large Order NAV Purchase Privilege may be subject
to a contingent deferred sales charge (see "Purchase of Shares--Initial Sales
Charge Alternative--Class A Shares"), the redemption of Class B shares within
six years may be subject to a contingent deferred sales charge (see "Contingent
Deferred Sales Charge--Class B Shares" below), and the redemption of Class C
shares within the first year following purchase may be subject to a contingent
deferred sales charge (see "Contingent Deferred Sales Charge--Class C Shares"
below).
Because of the high cost of maintaining small accounts, the Fund may assess a
quarterly fee of $9 on any account with a balance below $1,000 for the quarter.
The fee will not apply to accounts enrolled in an automatic investment program,
Individual Retirement Accounts or employer-sponsored employee benefit plans
using the subaccount record-keeping system made available through the
Shareholder Service Agent.
Shareholders can request the following telephone privileges: expedited wire
transfer redemptions and EXPRESS-Transfer transactions (see "Special Features")
and exchange transactions for individual and institutional accounts and
pre-authorized telephone redemption transactions for certain institutional
accounts. Shareholders may choose these privileges on the account application or
by contacting the Shareholder Service Agent for appropriate instructions. Please
note that the telephone exchange privilege is automatic unless the shareholder
refuses it on the account application. The Fund or its agents may be liable for
any losses, expenses or costs arising out of fraudulent or unauthorized
telephone requests pursuant to these privileges unless the Fund or its agents
reasonably believe, based upon reasonable verification procedures, that the
telephonic instructions are genuine. The shareholder will bear the risk of loss,
including loss resulting from fraudulent or unauthorized transactions, so long
as reasonable verification procedures are followed. Verification procedures
include recording instructions, requiring certain identifying information before
acting upon instructions and sending written confirmations.
TELEPHONE REDEMPTIONS. If the proceeds of the redemption (prior to the
imposition of any contingent deferred sales charge) are $50,000 or less and the
proceeds are payable to the shareholder of record at the address of record,
normally a telephone request or a written request by any one account holder
without a signature guarantee is sufficient for redemptions by individual or
joint account holders, and trust, executor and guardian account holders
(excluding custodial accounts for gifts and transfers to minors), provided the
trustee, executor or guardian is named in the account registration. Other
institutional account holders and guardian account holders of custodial accounts
for gifts and transfers to minors may exercise this special privilege of
redeeming shares by telephone request or written request without signature
guarantee subject to the same conditions as individual account holders and
subject to the limitations on liability described under "General" above,
provided that this privilege has been pre-authorized by the institutional
account holder
38
<PAGE>
or guardian account holder by written instruction to the Shareholder Service
Agent with signatures guaranteed. Telephone requests may be made by calling
1-800-621-1048. Shares purchased by check or through EXPRESS-Transfer or Bank
Direct Deposit may not be redeemed under this privilege of redeeming shares by
telephone request until such shares have been owned for at least 10 days. This
privilege of redeeming shares by telephone request or by written request without
a signature guarantee may not be used to redeem shares held in certificated form
and may not be used if the shareholder's account has had an address change
within 30 days of the redemption request. During periods when it is difficult to
contact the Shareholder Service Agent by telephone, it may be difficult to use
the telephone redemption privilege, although investors can still redeem by mail.
The Fund reserves the right to terminate or modify this privilege at any time.
REPURCHASES (CONFIRMED REDEMPTIONS). A request for repurchase may be
communicated by a shareholder through a securities dealer or other financial
services firm to KDI, which the Fund has authorized to act as its agent. The
repurchase price will be the net asset value per Share of the Fund next
determined after receipt of a request by KDI. However, requests for repurchases
received by dealers or other firms prior to the determination of net asset value
per Share (see "Net Asset Value") and received by KDI prior to the close of
KDI's business day will be confirmed at the net asset value effective on that
day. The offer to repurchase may be suspended at any time. There is no charge by
KDI with respect to repurchases; however, dealers or other firms may charge
customary commissions for their services. Dealers and other financial services
firms are obligated to transmit orders promptly. Requirements as to stock
powers, certificates, payments and delay of payments are the same as for
redemptions.
EXPEDITED WIRE TRANSFER REDEMPTIONS. If the account holder has given
authorization for expedited wire redemption to the account holder's brokerage or
bank account, shares of the Fund can be redeemed and proceeds sent by federal
wire transfer to a single previously designated account. Requests received by
the Shareholder Service Agent prior to the determination of net asset value will
result in Shares being redeemed that day at the net asset value per Share of the
Fund effective on that day and normally the proceeds will be sent to the
designated account the following business day. Delivery of the proceeds of a
wire redemption of $250,000 or more may be delayed by the Fund for up to seven
days if the Fund or the Shareholder Service Agent deems it appropriate under
then-current market conditions. Once authorization is on file, the Shareholder
Service Agent will honor requests by telephone at 1-800-621-1048 or in writing,
subject to the limitations on liability described under "General" above. The
Fund is not responsible for the efficiency of the federal wire system or the
account holder's financial services firm or bank. The Fund currently does not
charge the account holder for wire transfers. The account holder is responsible
for any charges imposed by the account holder's firm or bank. There is a $1,000
wire redemption minimum (including any contingent deferred sales charge). To
change the designated account to receive wire redemption proceeds, send a
written request to the Shareholder Service Agent with signatures guaranteed as
described above or contact the firm through which shares of the Fund were
purchased. Shares purchased by check or through EXPRESS-Transfer or Bank Direct
Deposit may not be redeemed by wire transfer until such Shares have been owned
for at least 10 days. Account holders may not use this privilege to redeem
Shares held in certificated form. During periods when it is difficult to contact
the Shareholder Service Agent by telephone, it may be difficult to use the
expedited wire transfer redemption privilege, although investors can still
redeem by mail. The Fund reserves the right to terminate or modify this
privilege at any time.
CONTINGENT DEFERRED SALES CHARGE--LARGE ORDER NAV PURCHASE PRIVILEGE. A
contingent deferred sales charge may be imposed upon redemption of Class A
shares that are purchased under the Large Order NAV Purchase Privilege as
follows: 1% if they are redeemed within one year of purchase and 0.50% if they
are redeemed during the second year after purchase. The charge will not be
imposed upon redemption of reinvested dividends or share appreciation. The
charge is applied to the value of the shares redeemed, excluding amounts not
subject to the charge. The contingent deferred sales charge will be waived in
the event of: (a) redemptions by a participant-directed qualified retirement
plan described in Code Section 401(a), a participant-directed non-qualified
deferred compensation plan described in Code Section 457 or a
participant-directed qualified retirement plan described in Code Section
403(b)(7) which is not sponsored by a K-12 school district; (b) redemptions by
employer-sponsored employee benefit plans using the subaccount record keeping
system made available through the Shareholder Service Agent; (c) redemption of
Shares of a shareholder (including a registered joint owner) who has died; (d)
redemption of Shares of a shareholder (including a registered joint owner) who
after purchase of the shares being redeemed becomes totally disabled (as
evidenced by a determination by the federal Social Security Administration); (e)
redemptions under the Fund's Systematic Withdrawal Plan at a maximum of 10% per
year of the net asset value of the account; and (f)
39
<PAGE>
redemptions of shares whose dealer of record at the time of the investment
notifies KDI that the dealer waives the discretionary commission applicable to
such Large Order NAV Purchase.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES. A contingent deferred sales
charge may be imposed upon redemption of Class B shares. There is no such charge
upon redemption of any share appreciation or reinvested dividends on Class B
shares. The charge is computed at the following rates applied to the value of
the Shares redeemed, excluding amounts not subject to the charge.
Contingent
Deferred
Year of Redemption After Purchase Sales Charge
First....................... 4%
Second...................... 3%
Third....................... 3%
Fourth...................... 2%
Fifth....................... 2%
Sixth....................... 1%
The contingent deferred sales charge will be waived: (a) in the event of the
total disability (as evidenced by a determination by the federal Social Security
Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (see "Special
Features--Systematic Withdrawal Plan" below), (d) for redemptions made pursuant
to any IRA systematic withdrawal based on the shareholder's life expectancy
including, but not limited to, substantially equal periodic payments described
in Internal Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2 and (e) for
redemptions to satisfy required minimum distributions after age 70 1/2 from an
IRA account (with the maximum amount subject to this waiver being based only
upon the shareholder's Kemper IRA accounts). The contingent deferred sales
charge will also be waived in connection with the following redemptions of
shares held by employer sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent: (a) redemptions to satisfy participant loan advances (note that loan
repayments constitute new purchases for purposes of the contingent deferred
sales charge and the conversion privilege), (b) redemptions in connection with
retirement distributions (limited at any one time to 10% of the total value of
plan assets invested in the Fund), (c) redemptions in connection with
distributions qualifying under the hardship provisions of the Internal Revenue
Code and (d) redemptions representing returns of excess contributions to such
plans.
CONTINGENT DEFERRED SALES CHARGE--CLASS C SHARES. A contingent deferred sales
charge of 1% may be imposed upon redemption of Class C shares if they are
redeemed within one year of purchase. The charge will not be imposed upon
redemption of reinvested dividends or share appreciation. The charge is applied
to the value of the Shares redeemed, excluding amounts not subject to the
charge. The contingent deferred sales charge will be waived: (a) in the event of
the total disability (as evidenced by a determination by the federal Social
Security Administration) of the shareholder (including a registered joint owner)
occurring after the purchase of the shares being redeemed, (b) in the event of
the death of the shareholder (including a registered joint owner), (c) for
redemptions made pursuant to a systematic withdrawal plan (limited to 10% of the
net asset value of the account during the first year, see "Special
Features--Systematic Withdrawal Plan"), (d) for redemptions made pursuant to any
IRA systematic withdrawal based on the shareholder's life expectancy including,
but not limited to, substantially equal periodic payments described in Internal
Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2, (e) for redemptions to
satisfy required minimum distributions after age 70 1/2 from an IRA account
(with the maximum amount subject to this waiver being based only upon the
shareholder's Kemper IRA accounts), (f) for any participant-directed redemption
of shares held by employer-sponsored employee benefit plans maintained on the
subaccount record keeping system made available by the Shareholder Service
Agent, (g) for redemption of shares by an employer sponsored employee benefit
plan that (i) offers funds in addition to Kemper Funds (i.e., "multi-manager"),
and (ii) whose dealer of record has waived the advance of the first year
administrative service and distribution fees applicable to such shares and has
agreed to receive such fees quarterly, and (h) redemption of shares purchased
through a dealer-sponsored asset allocation program maintained on an omnibus
record-keeping system provided the dealer of record has waived the advance of
the first year and administrative services and distribution fees applicable to
such shares and has agreed to receive such fees quarterly.
40
<PAGE>
CONTINGENT DEFERRED SALES CHARGE--GENERAL. The following example will illustrate
the operation of the contingent deferred sales charge. Assume that an investor
makes a single purchase of $10,000 of the Fund's Class B shares and that 16
months later the value of the shares has grown by $1,000 through reinvested
dividends and by an additional $1,000 of share appreciation to a total of
$12,000. If the investor were then to redeem the entire $12,000 in share value,
the contingent deferred sales charge would be payable only with respect to
$10,000 because neither the $1,000 of reinvested dividends nor the $1,000 of
share appreciation is subject to the charge. The charge would be at the rate of
3% ($300) because it was in the second year after the purchase was made.
The rate of the contingent deferred sales charge is determined by the length of
the period of ownership. Investments are tracked on a monthly basis. The period
of ownership for this purpose begins the first day of the month in which the
order for the investment is received. For example, an investment made in May
1998 will be eligible for the second year's charge if redeemed on or after May
1, 1999. In the event no specific order is requested when redeeming shares
subject to a contingent deferred sales charge, the redemption will be made first
from shares representing reinvested dividends and then from the earliest
purchase of shares. KDI receives any contingent deferred sales charge directly.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Class A shares of the
Fund or any other Kemper Fund listed under "Special Features--Class A
Shares--Combined Purchases" (other than shares of the Kemper Cash Reserves Fund
purchased directly at net asset value) may reinvest up to the full amount
redeemed at net asset value per Share at the time of the reinvestment in Class A
shares of the Fund or of the other listed Kemper Funds. A shareholder of the
Fund or other Kemper Funds who redeems Class A shares purchased under the Large
Order NAV Purchase Privilege (see "Purchase of Shares--Initial Sales Charge
Alternative--Class A Shares") or Class B shares or Class C shares and incurs a
contingent deferred sales charge may reinvest up to the full amount redeemed at
net asset value per Share at the time of the reinvestment, in the same class of
shares as the case may be, of the Fund or of other Kemper Funds. The amount of
any contingent deferred sales charge also will be reinvested. These reinvested
shares will retain their original cost and purchase date for purposes of the
contingent deferred sales charge schedule. Also, a holder of Class B shares who
has redeemed Shares may reinvest up to the full amount redeemed, less any
applicable contingent deferred sales charge that may have been imposed upon the
redemption of such Shares, at net asset value in Class A shares of the Fund or
of the other Kemper Funds listed under "Special Features--Class A
Shares--Combined Purchases." Purchases through the reinvestment privilege are
subject to the minimum investment requirements applicable to the shares being
purchased and may only be made for Kemper Funds available for sale in the
shareholder's state of residence as listed under "Special Features--Exchange
Privilege." The reinvestment privilege can be used only once as to any specific
Shares and reinvestment must be effected within six months of the redemption. If
a loss is realized on the redemption of shares of the Fund, the reinvestment in
Shares of the Fund may be subject to the "wash sale" rules if made within 30
days of the redemption, resulting in a postponement of the recognition of such
loss for federal income tax purposes. The reinvestment privilege may be
terminated or modified at any time.
REDEMPTION IN KIND. Although it is the Fund's present policy to redeem in cash,
if the Board of Trustees determines that a material adverse effect would be
experienced by the remaining shareholders if payment were made wholly in cash,
the Fund will satisfy the redemption request in whole or in part by a
distribution of portfolio securities in lieu of cash, in conformity with the
applicable rules of the Securities and Exchange Commission, taking such
securities at the same value used to determine net asset value, and selecting
the securities in such manner as the Board of Trustees may deem fair and
equitable. If such a distribution occurred, shareholders receiving securities
and selling them could receive less than the redemption value of such securities
and in addition would incur certain transaction costs. Such a redemption would
not be as liquid as a redemption entirely in 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 a Share at the beginning of the period.
SPECIAL FEATURES
CLASS A SHARES--COMBINED PURCHASES. The Fund's Class A shares (or the
equivalent) may be purchased at the rate applicable to the discount bracket
attained by combining concurrent investments in Class A shares of any of the
following Funds: Kemper Technology Fund, Kemper Total Return Fund, Kemper Growth
Fund, Kemper Small Capitalization Equity Fund, Kemper Income and Capital
Preservation Fund, Kemper Municipal Bond Fund, Kemper Diversified Income Fund,
Kemper High Yield Series, Kemper U.S. Government Securities Fund, Kemper
International
41
<PAGE>
Fund, Kemper State Tax-Free Income Series, Kemper Adjustable Rate U.S.
Government Fund, Kemper Blue Chip Fund, Kemper Global Income Fund, Kemper Target
Equity Fund (series are subject to a limited offering period), Kemper
Intermediate Municipal Bond Fund, Kemper Cash Reserves Fund, Kemper U.S.
Mortgage Fund, Kemper Short-Intermediate Government Fund, Kemper Value Series,
Inc., Kemper Value+ Growth Fund, Kemper Quantitative Equity Fund, Kemper Horizon
Fund, Kemper Europe Fund, Kemper Asian Growth Fund, Kemper Global/International
Series, Inc., Kemper Equity Trust, Kemper Securities Trust, Kemper Aggressive
Growth Fund, Kemper Value Fund, Kemper Global Discovery Fund, and Kemper Classic
Growth Fund ("Kemper Funds"). Except as noted below, there is no combined
purchase credit for direct purchases of shares of Zurich Money Funds, Cash
Equivalent Fund, Tax-Exempt California Money Market Fund, Cash Account Trust,
Investor's Municipal Cash Fund or Investors Cash Trust ("Money Market Funds"),
which are not considered a "Kemper Fund" for purposes hereof. For purposes of
the Combined Purchases feature described above as well as for the Letter of
Intent and Cumulative Discount features described below, employer sponsored
employee benefit plans using the subaccount record keeping system made available
through the Shareholder Service Agent may include: (a) Money Market Funds as
"Kemper Funds", (b) all classes of shares of any Kemper Fund and (c) the value
of any other plan investment, such as guaranteed investment contracts and
employer stock, maintained on such subaccount record keeping system.
CLASS A SHARES--LETTER OF INTENT. The same reduced sales charges for Class A
shares, as shown in this statement of additional information, also apply to the
aggregate amount of purchases of such Kemper Funds listed above made by any
purchaser within a 24-month period under a written Letter of Intent ("Letter")
provided by KDI. The Letter, which imposes no obligation to purchase or sell
additional Class A shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides that the first
purchase following execution of the Letter must be at least 5% of the amount of
the intended purchase, and that 5% of the amount of the intended purchase
normally will be held in escrow in the form of shares pending completion of the
intended purchase. If the total investments under the Letter are less than the
intended amount and thereby qualify only for a higher sales charge than actually
paid, the appropriate number of escrowed shares are redeemed and the proceeds
used toward satisfaction of the obligation to pay the increased sales charge.
The Letter for an employer-sponsored employee benefit plan maintained on the
subaccount record keeping system available through the Shareholder Service Agent
may have special provisions regarding payment of any increased sales charge
resulting from a failure to complete the intended purchase under the Letter. A
shareholder may include the value (at the maximum offering price) of all shares
of such Kemper Funds held of record as of the initial purchase date under the
Letter as an "accumulation credit" toward the completion of the Letter, but no
price adjustment will be made on such shares. Only investments in Class A shares
are included for this privilege.
CLASS A SHARES--CUMULATIVE DISCOUNT. Class A shares of the Fund may also be
purchased at the rate applicable to the discount bracket attained by adding to
the cost of shares of the Fund being purchased, the value of all Class A shares
of the above mentioned Kemper Funds (computed at the maximum offering price at
the time of the purchase for which the discount is applicable) already owned by
the investor.
CLASS A SHARES--AVAILABILITY OF QUANTITY DISCOUNTS. An investor or the
investor's dealer or other financial services firm must notify the Shareholder
Service Agent or KDI whenever a quantity discount or reduced sales charge is
applicable to a purchase. Upon such notification, the investor will receive the
lowest applicable sales charge. Quantity discounts described above may be
modified or terminated at any time.
EXCHANGE PRIVILEGE. Shareholders of Class A, Class B and Class C shares may
exchange their shares for shares of the corresponding class of other Kemper
Funds in accordance with the provisions below.
CLASS A SHARES. Class A shares of the Kemper Funds and shares of the Money
Market Funds listed under "Special Features--Class A Shares--Combined Purchases"
above may be exchanged for each other at their relative net asset values. Shares
of Money Market Funds and the Kemper Cash Reserves Fund that were acquired by
purchase (not including shares acquired by dividend reinvestment) are subject to
the applicable sales charge on exchange. Series of Kemper Target Equity Fund are
available on exchange only during the Offering Period for such series as
described in this statement of additional information. Cash Equivalent Fund,
Tax-Exempt California Money Market Fund, Cash Account Trust, Investors Municipal
Cash Fund and Investors Cash Trust are available on exchange but only through a
financial services firm having a services agreement with KDI.
42
<PAGE>
Class A shares of the Fund purchased under the Large Order NAV Purchase
Privilege may be exchanged for Class A shares of another Kemper Fund or a Money
Market Fund under the exchange privilege described above without paying any
contingent deferred sales charge at the time of exchange. If the Class A shares
received on exchange are redeemed thereafter, a contingent deferred sales charge
may be imposed in accordance with the foregoing requirements provided that the
shares redeemed will retain their original cost and purchase date for purposes
of calculating the contingent deferred sales charge.
CLASS B SHARES. Class B shares of the Fund and Class B shares of any other
Kemper Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class B
shares may be exchanged without a contingent deferred sales charge being imposed
at the time of exchange. For purposes of calculating the contingent deferred
sales charge that may be imposed upon the redemption of the Class B shares
received on exchange, amounts exchanged retain their original cost and purchase
date.
CLASS C SHARES. Class C shares of the Fund and Class C shares of any other
Kemper Fund listed under "Special Features--Class A Shares--Combined Purchases"
may be exchanged for each other at their relative net asset values. Class C
shares may be exchanged without a contingent deferred sales charge being imposed
at the time of exchange. For purposes of determining whether there is a
contingent deferred sales charge that may be imposed upon the redemption of the
Class C shares received by exchange, such Shares received by exchange the cost
and purchase date of the Shares that were originally purchased and exchanged.
GENERAL. Shares of a Kemper Fund with a value in excess of $1,000,000 (except
Kemper Cash Reserves Fund) acquired by exchange through another Kemper Fund, or
from a Money Market Fund, may not be exchanged thereafter until they have been
owned for 15 days (the "15-Day Hold Policy"). For purposes of determining
whether the 15-Day Hold Policy applies to a particular exchange, the value of
the shares to be exchanged shall be computed by aggregating the value of shares
being exchanged for all accounts under common control, discretion or advice,
including, without limitation, accounts administered by a financial services
firm offering market timing, asset allocation or similar services. The total
value of shares being exchanged must at least equal the minimum investment
requirement of the Kemper Fund into which they are being exchanged. Exchanges
are made based on relative dollar values of the shares involved in the exchange.
There is no service fee for an exchange; however, dealers or other firms may
charge for their services in effecting exchange transactions. Exchanges will be
effected by redemption of shares of the fund held and purchase of shares of the
other fund. For federal income tax purposes, any such exchange constitutes a
sale upon which a gain or loss may be realized, depending upon whether the value
of the shares being exchanged is more or less than the shareholder's adjusted
cost basis of such shares. Shareholders interested in exercising the exchange
privilege may obtain prospectuses of the other Funds from dealers, other firms
or KDI. Exchanges may be accomplished by a written request to Kemper Service
Company, Attention: Exchange Department, P.O. Box 419557, Kansas City, Missouri
64141-6557, or by telephone if the shareholder has given authorization. Once the
authorization is on file, the Shareholder Service Agent will honor requests by
telephone at 1-800-621-1048, subject to the limitations on liability under
"Redemption or Repurchase of Shares--General." Any share certificates must be
deposited prior to any exchange of such shares. During periods when it is
difficult to contact the Shareholder Service Agent by telephone, it may be
difficult to use the telephone exchange privilege. The exchange privilege is not
a right and may be suspended, terminated or modified at any time. Exchanges may
only be made for Funds that are available for sale in the shareholder's state of
residence. Currently, Tax-Exempt California Money Market Fund is available for
sale only in California and Investors Municipal Cash Fund is available for sale
only in certain states. Except as otherwise permitted by applicable regulations,
60 days' prior written notice of any termination or material change will be
provided.
The Fund may suspend the right of redemption or delay payment more than
seven days (a) during any period when the New York Stock Exchange ("Exchange")
is closed other than customary weekend and holiday closings or during any period
in which trading on the Exchange is restricted, (b) during any period when an
emergency exists as a result of which (i) disposal of the Fund's investments is
not reasonably practicable, or (ii) it is not reasonably practicable for the
Fund to determine the value of its net assets, or (c) for such other periods as
the Securities and Exchange Commission may by order permit for the protection of
the Fund's shareholders.
Although it is the Fund's present policy to redeem in cash, if the Board of
Trustees determines that a material adverse effect would be experienced by the
remaining shareholders if payment were made wholly in cash, the Fund will
satisfy
43
<PAGE>
the redemption request in whole or in part by a distribution of portfolio
securities in lieu of cash, in conformity with the applicable rules of the
Securities and Exchange Commission, taking such securities at the same value
used to determine net asset value, and selecting the securities in such manner
as the Board of Trustees may deem fair and equitable. If such a distribution
occurred, shareholders receiving securities and selling them could receive less
than the redemption value of such securities and in addition would incur certain
transaction costs. Such a redemption would not be so liquid as a redemption
entirely in cash.
The conversion of Class B Shares to Class A Shares may be subject to the
continuing availability of an opinion of counsel, ruling by the Internal Revenue
Service or other assurance acceptable to the Fund to the effect that (a) the
assessment of the distribution services fee with respect to Class B Shares and
not Class A Shares does not result in the Fund's dividends constituting
"preferential dividends" under the Internal Revenue Code, and (b) that the
conversion of Class B Shares to Class A Shares does not constitute a taxable
event under the Internal Revenue Code. The conversion of Class B Shares to Class
A Shares may be suspended if such assurance is not available. In that event, no
further conversions of Class B Shares would occur, and Shares might continue to
be subject to the distribution services fee for an indefinite period that may
extend beyond the proposed conversion date as described herein.
SYSTEMATIC EXCHANGE PRIVILEGE. The owner of $1,000 or more of any class of the
shares of a Kemper Fund or Money Market Fund may authorize the automatic
exchange of a specified amount ($100 minimum) of such shares for shares of the
same class of another such Kemper Fund. If selected, exchanges will be made
automatically until the privilege is terminated by the shareholder or the Kemper
Fund. Exchanges are subject to the terms and conditions described above under
"Exchange Privilege," except that the $1,000 minimum investment requirement for
the Kemper Fund acquired on exchange is not applicable. This privilege may not
be used for the exchange of shares held in certificated form.
EXPRESS-Transfer. EXPRESS-Transfer permits the transfer of money via the
Automated Clearing House System (minimum $100 and maximum $50,000) from a
shareholder's bank, savings and loan, or credit union account to purchase shares
in the Fund. Shareholders can also redeem Shares (minimum $100 and maximum
$50,000) from their Fund account and transfer the proceeds to their bank,
savings and loan, or credit union checking account. Shares purchased by check or
through EXPRESS-Transfer or Bank Direct Deposit may not be redeemed under this
privilege until such Shares have been owned for at least 10 days. By enrolling
in EXPRESS-Transfer, the shareholder authorizes the Shareholder Service Agent to
rely upon telephone instructions from any person to transfer the specified
amounts between the shareholder's Fund account and the predesignated bank,
savings and loan or credit union account, subject to the limitations on
liability under "Redemption or Repurchase of Shares--General." Once enrolled in
EXPRESS-Transfer, a shareholder can initiate a transaction by calling Kemper
Shareholder Services toll free at 1-800-621-1048, Monday through Friday, 8:00
a.m. to 3:00 p.m. Chicago time. Shareholders may terminate this privilege by
sending written notice to Kemper Service Company, P.O. Box 419415, Kansas City,
Missouri 64141-6415. Termination will become effective as soon as the
Shareholder Service Agent has had a reasonable amount of time to act upon the
request. EXPRESS-Transfer cannot be used with passbook savings accounts or for
tax-deferred plans such as Individual Retirement Accounts ("IRAs").
BANK DIRECT DEPOSIT. A shareholder may purchase additional shares of the Fund
through an automatic investment program. With the Bank Direct Deposit Purchase
Plan ("Bank Direct Deposit"), investments are made automatically (maximum
$50,000) from the shareholder's account at a bank, savings and loan or credit
union into the shareholder's Fund account. By enrolling in Bank Direct Deposit,
the shareholder authorizes the Fund and its agents to either draw checks or
initiate Automated Clearing House debits against the designated account at a
bank or other financial institution. This privilege may be selected by
completing the appropriate section on the Account Application or by contacting
the Shareholder Service Agent for appropriate forms. A shareholder may terminate
his or her Plan by sending written notice to Kemper Service Company, P.O. Box
419415, Kansas City, Missouri 64141-6415. Termination by a shareholder will
become effective within thirty days after the Shareholder Service Agent has
received the request. A Fund may immediately terminate a shareholder's Plan in
the event that any item is unpaid by the shareholder's financial institution.
The Fund may terminate or modify this privilege at any time.
PAYROLL DIRECT DEPOSIT AND GOVERNMENT DIRECT DEPOSIT. A shareholder may invest
in the Fund through Payroll Direct Deposit or Government Direct Deposit. Under
these programs, all or a portion of a shareholder's net pay or government check
is automatically invested in the Fund account each payment period. A shareholder
may
44
<PAGE>
terminate participation in these programs by giving written notice to the
shareholder's employer or government agency, as appropriate. (A reasonable time
to act is required.) The Fund is not responsible for the efficiency of the
employer or government agency making the payment or any financial institutions
transmitting payments.
SYSTEMATIC WITHDRAWAL PLAN. The owner of $5,000 or more of a class of the Fund's
shares at the offering price (net asset value per such Share plus, in the case
of Class A shares, the initial sales charge) may provide for the payment from
the owner's account of any requested dollar amount to be paid to the owner or a
designated payee monthly, quarterly, semiannually or annually. The $5,000
minimum account size is not applicable to Individual Retirement Accounts. The
minimum periodic payment is $100. The maximum annual rate at which Class B
shares may be redeemed (and Class A shares purchased under the Large Order NAV
Purchase Privilege and Class C shares in their first year following the
purchase) under a systematic withdrawal plan is 10% of the net asset value of
the account. Shares are redeemed so that the payee will receive payment
approximately the first of the month. Any income and capital gain dividends will
be automatically reinvested at net asset value. A sufficient number of full and
fractional Shares will be redeemed to make the designated payment. Depending
upon the size of the payments requested and fluctuations in the net asset value
of the Shares redeemed, redemptions for the purpose of making such payments may
reduce or even exhaust the account.
The purchase of Class A shares while participating in a systematic withdrawal
plan will ordinarily be disadvantageous to the investor because the investor
will be paying a sales charge on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge may have already been
paid. Therefore, the Fund will not knowingly permit additional investments of
less than $2,000 if the investor is at the same time making systematic
withdrawals. KDI will waive the contingent deferred sales charge on redemptions
of Class A shares purchased under the Large Order NAV Purchase Privilege, Class
B shares and Class C shares made pursuant to a systematic withdrawal plan. The
right is reserved to amend the systematic withdrawal plan on 30 days' notice.
The plan may be terminated at any time by the investor or the Fund.
TAX-SHELTERED RETIREMENT PLANS. The Shareholder Service Agent provides
retirement plan services and documents and KDI can establish investor accounts
in any of the following types of retirement plans:
o Traditional, Roth and Education Individual Retirement Accounts ("IRAs").
This includes Savings Incentive Match Plan for Employees of Small
Employers ("SIMPLE"), Simplified Employee Pension Plan ("SEP") IRA
accounts and prototype documents.
o 403(b)(7) Custodial Accounts. This type of plan is available to employees
of most non-profit organizations.
o Prototype money purchase pension and profit-sharing plans may be adopted
by employers. The maximum annual contribution per participant is the
lesser of 25% of compensation or $30,000.
Brochures describing the above plans as well as model defined benefit plans,
target benefit plans, 457 plans, 401(k) plans, simple 401(k) plans and materials
for establishing them are available from the Shareholder Service Agent upon
request. Investors should consult with their own tax advisors before
establishing a retirement plan.
[To be Updated]
PERFORMANCE
The Fund may advertise several types of performance information for a
class of shares, including "average annual total return" and "total return."
Performance information will be computed separately for each of Class A, Class B
and Class C shares. Each of these figures is based upon historical results and
is not representative of the future performance of any class of the Fund. A Fund
with fees or expenses being waived or absorbed by the Advisor may also advertise
performance information before and after the effect of the fee waiver or expense
absorption.
The Fund's historical performance or return for a class of shares may be
shown in the form of "average annual total return" and "total return" figures.
These measures of performance are described below. Performance information will
be computed separately for each class.
45
<PAGE>
Average annual total return and total return measure both the net
investment income generated by, and the effect of any realized or unrealized
appreciation or depreciation of, the underlying investments in the Fund's
portfolio. The Fund's average annual total return quotation is computed in
accordance with a standardized method prescribed by rules of the SEC. The
average annual total return for each class of the Fund for a specific period is
found by first taking a hypothetical $1,000 investment ("initial investment") in
the class' shares on the first day of the period, adjusting to deduct the
maximum sales charge (in the case of Class A shares), and computing the
"redeemable value" of that investment at the end of the period. Average annual
return quotations will be determined to the nearest 1/100th of 1%. The
redeemable value in the case of Class B shares or Class C shares include the
effect of the applicable contingent deferred sales charge that may be imposed at
the end of the period. The redeemable value is then divided by the initial
investment, and this quotient is taken to the Nth root (N representing the
number of years in the period) and 1 is subtracted from the result, which is
then expressed as a percentage. Average annual return calculated in accordance
with this formula does not take into account any required payments for federal
of state income taxes. Such quotations for Class B shares for periods over six
years will reflect conversion of such shares to Class A shares at the end of the
sixth year. The calculation assumes that all income and capital gains dividends
paid by the Fund have been reinvested at net asset value on the reinvestment
dates during the period. Average annual total return may also be calculated in a
manner not consistent with the standard formula described above, without
deducting the maximum sales charge or contingent deferred sales charge.
Calculation of the Fund's total return is not subject to a standardized
formula, except when calculated for the Fund's "Financial Highlights" table in
the Fund's financial statements and prospectus. Total return performance for a
specific period is calculated by first taking a hypothetical investment
("initial investment") in the Fund's shares on the first day of the period,
either adjusting or not adjusting to deduct the maximum sales charge (in the
case of Class A shares), and computing the "ending value" of that investment at
the end of the period. The total return percentage is then determined by
subtracting the initial investment from the ending value and dividing the
remainder by the initial investment and expressing the result as a percentage.
The ending value in the case of Class B shares or Class C shares may or may not
include the effect of the applicable contingent deferred sales charge that may
be imposed at the end of the period. The calculation assumes that all income and
capital gains dividends paid by the Fund have been reinvested at net asset value
on the reinvestment dates during the period. Total return may also be shown as
the increased dollar value of the hypothetical investment over the period. Total
return calculations that do not include the effect of the sales charge for Class
A shares or the contingent deferred sales charge for Class B and Class C shares
would be reduced if such charges were included.
The Fund's performance figures are based upon historical results and are
not necessarily representative of future performance. The Fund's Class A shares
are sold at net asset value plus a maximum sales charge of 5.75% of the offering
price. Class B and Class C shares are sold at net asset value. Redemption of
Class B shares may be subject to a contingent deferred sales charge that is 4%
in the first year following the purchase, declines by a specified percentage
each year thereafter and becomes zero after six years. Redemption of Class C
shares may be subject to a 1% contingent deferred sales charge in the first year
following the purchase. Average annual total return figures do, and total return
figures may, include the effect of the contingent deferred sales charge for the
Class B shares and Class C shares that may be imposed at the end of the period
in question. Performance figures for the Class B shares and Class C shares not
including the effect of the applicable contingent deferred sales charge would be
reduced if it were included. Returns and net asset value will fluctuate. Factors
affecting the Fund's performance include general market conditions, operating
expenses and investment management. Any additional fees charged by a dealer or
other financial services firm would reduce returns described in this section.
Shares of the Fund are redeemable at the then current net asset value, which may
be more or less than original cost.
The Fund's performance may be compared to that of the Consumer Price Index
or various unmanaged indices including, but not limited to, the Dow Jones
Industrial Average, the Standard & Poor's Financial Services Index, the Standard
& Poor's 500 Composite Stock Price Index, the Russell 1000(R) Index, the Russell
1000(R) Growth Index, the Wilshire Large Company Growth Index, the Wilshire 750
Mid Cap Company Growth Index, the Standard & Poor's/Barra Value Index, the
Standard & Poor's/Barra Growth Index, the Russell 1000(R) Value Index, the
Europe/Australia/Far East Index, International Finance Corporation's Latin
America Investable Return Index, the Morgan Stanley Capital International World
Index, the J.P. Morgan Global Traded Bond Index, and the Salomon Brothers World
Government Bond Index. The performance of the Fund may also be compared to the
performance of
46
<PAGE>
other mutual funds or mutual fund indices with similar objectives and policies
as reported by independent mutual fund reporting services such as Lipper
Analytical Services, Inc. ("Lipper"). Lipper performance calculations are based
upon changes in net asset value with all dividends reinvested and do not include
the effect of any sales charges.
There are differences and similarities between the investments which the
Fund may purchase and the investments measured by the indices which are
described herein. The Consumer Price Index is generally considered to be a
measure of inflation. The Dow Jones Industrial Average and the Standard & Poor's
Corporation 500 Stock Index are indices of common stocks which are considered to
be generally representative of the U.S. stock market. The Financial
Times/Standard & Poor's Actuaries World Index-Europe(TM) is a managed index that
is generally representative of the equity securities of European markets. The
foregoing indices are unmanaged. The net asset value and returns of the Fund
will fluctuate.
Investors may want to compare the performance of the Fund to certificates
of deposit issued by banks and other depository institutions. Certificates of
deposit may offer fixed or variable interest rates and principal is guaranteed
and may be insured. Withdrawal of deposits prior to maturity will normally be
subject to a penalty. Rates offered by banks and other depository institutions
are subject to change at any time specified by the issuing institution.
Information regarding bank products may be based upon, among other things, the
BANK RATE MONITOR National Index(TM) for certificates of deposit, which is an
unmanaged index and is based on stated rates and the annual effective yields of
certificates of deposit in the ten largest banking markets in the United States,
or the CDA Investment Technologies, Inc. Certificate of Deposit Index, which is
an unmanaged index based on the average monthly yields of certificates of
deposit.
Investors also may want to compare the performance of the Fund to that of
U.S. Treasury bills, notes or bonds. Treasury obligations are issued in selected
denominations. Rates of Treasury obligations are fixed at the time of issuance
and payment of principal and interest is backed by the full faith and credit of
the U.S. Treasury. The market value of such instruments will generally fluctuate
inversely with interest rates prior to maturity and will equal par value at
maturity. Information regarding the performance of Treasury obligations may be
based upon, among other things, the Towers Data Systems U.S. Treasury Bill
index, which is an unmanaged index based on the average monthly yield of
treasury bills maturing in six months. Due to their short maturities, Treasury
bills generally experience very low market value volatility.
Investors may want to compare the performance of the Fund to that of money
market funds. Money market funds seek to maintain a stable net asset value and
yield fluctuates. Information regarding the performance of money market funds
may be based upon, among other things, Financial Data Inc.'s Money Fund
Averages(R) (All Taxable). As reported by Financial Data Inc., all investment
results represent total return (annualized results for the period net of
management fees and expenses) and one year investment results are effective
annual yields assuming reinvestment of dividends.
Information may be quoted from publications such as Morningstar, Inc., The
Wall Street Journal, Money Magazine, Forbes, Barron's, Fortune, The Chicago
Tribune, USA Today, Institutional Investor and Registered Representative. Also,
investors may want to compare the historical returns of various investments,
performance indexes of those investments or economic indicators, including but
not limited to stocks, bonds, certificates of deposit, money market fund and
U.S. Treasury obligations. Bank product performance may be based upon, among
other things, the BANK RATE MONITOR National Index(TM) or various certificate of
deposit indexes. Money market fund performance may be based upon, among other
things, the IBC Financial Data Inc.'s Money Fund Report(R) or Money Market
Insight(R), reporting services on money market funds. Performance of U.S.
Treasury obligations may be based upon, among other things, various U.S.
Treasury bill indexes. Certain of these alternative investments may offer fixed
rates of return and guaranteed principal and may be insured.
The Fund may depict the historical performance of the securities in which
the Fund may invest over periods reflecting a variety of market or economic
conditions either alone or in comparison with alternative investments,
performance indexes of those investments or economic indicators. The Fund may
also describe its portfolio holdings and depict its size or relative size
compared to other mutual funds, the number and make-up of its shareholder base
and other descriptive factors concerning the Fund. The relative performance of
growth stocks versus value stocks may also be discussed.
47
<PAGE>
Because some of the Fund's investments are denominated in foreign
currencies, the strength or weakness of the U.S. dollar as against these
currencies may account for part of the Fund's investment performance. Historical
information on the value of the dollar versus foreign currencies may be used
from time to time in advertisements concerning the Fund. Such historical
information is not indicative of future fluctuations in the value of the U.S.
dollar against these currencies. In addition, marketing materials may cite
country and economic statistics and historical stock market performance for any
of the countries in which the Fund invests, including, but not limited to, the
following: population growth, gross domestic product, inflation rate, average
stock market price-earnings ratios and the total value of stock markets. Sources
for such statistics may include official publications of various foreign
governments and exchanges.
The Fund's Class A shares are sold at net asset value plus a maximum sales
charge of 5.75% of the offering price. While the maximum sales charge is
normally reflected in the Fund's Class A performance figures, certain total
return calculations may not include such charge and those results would be
reduced if it were included. Class B shares and Class C shares are sold at net
asset value. Redemptions of Class B shares within the first six years after
purchase may be subject to a contingent deferred sales charge that ranges from
4% during the first year to 0% after six years. Redemption of Class C shares
within the first year after purchase may be subject to a 1% contingent deferred
sales charge. Average annual total return figures do, and total return figures
may, include the effect of the contingent deferred sales charge for the Class B
shares and Class C shares that may be imposed at the end of the period in
question. Performance figures for the Class B shares and Class C shares not
including the effect of the applicable contingent deferred sales charge would be
reduced if it were included.
The Fund's returns and net asset value will fluctuate. Shares of a class
of the Fund are redeemable by an investor at the then current net asset value of
such Shares, which may be more or less than original cost. Redemption of Class B
shares and Class C shares may be subject to a contingent deferred sales charge
as described above. Additional information concerning the Fund's performance
appears in the Statement of Additional Information. Additional information about
the Fund's performance also appears in its Annual Report to Shareholders, which
is available without charge from the Fund.
OFFICERS AND TRUSTEES
The officers and trustees of the Trust, their ages, their principal occupations
and other affiliations, if any, with the Advisor and Kemper Distributors, Inc.
are as follows:
<TABLE>
<CAPTION>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trust Occupation** Services, Inc.
- ---------- ---------- ------------ --------------
To Be Updated
- -------------
<S> <C> <C> <C>
Daniel Pierce (63)*#+ President and Managing Director of --
Trustee Scudder Kemper
Investments, Inc.
Paul Bancroft III (67) Trustee Venture Capitalist and --
1120 Cheston Lane Consultant; Retired
Queenstown, MD President and Chief
Executive Officer of
Bessemer Securities
Corporation
Sheryle J. Bolton (51) Trustee Chief Executive Officer --
5576 Glenbrook Drive and Director, Scientific
Oakland, CA 94618 Learning Corporation
William T. Burgin (54) Trustee General Partner, Bessemer
P.O. Box 580 Venture Partners
Dover, MA 02030-0580
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trust Occupation** Services, Inc.
- ---------- ---------- ------------ --------------
<S> <C> <C> <C>
Thomas J. Devine (71) Trustee Consultant --
450 Park Avenue
New York, NY 10022
Keith R. Fox (43) Trustee Private Equity Investor --
10 East 53rd Street
New York, NY 10022
William H. Luers (68) Trustee President, The
993 Fifth Avenue Metropolitan Museum of Art
New York, NY 10028
Wilson Nolen (71) Trustee Consultant, June 1989 to --
1120 Fifth Avenue present, Corporate Vice
New York, NY 10128-0144 President of Becton,
Dickinson & Company
(manufacturer of medical
and scientific products),
from 1973 to June 1989
Kathryn L. Quirk(45)*++ Trustee, Vice Managing Director of --
President and Scudder Kemper
Assistant Investments, Inc.
Secretary
Robert W. Lear (80) Honorary Trustee Executive-in-Residence --
429 Silvermine Road Columbia University
New Canaan, CT Graduate School of Business
Robert G. Stone, Jr. (74) Honorary Trustee Chairman of the Board and --
405 Lexington Avenue Director, Kirby
39th Floor Corporation (marine
New York, NY 10174 transportation, diesel
repair and property and
casualty insurance in
Puerto Rico)
Donald E. Hall (45)@ Vice President Managing Director of --
Scudder Kemper
Investments, Inc.
Jerard K. Hartman (64)++ Vice President Managing Director of --
Scudder Kemper
Investments, Inc.
Thomas W. Joseph (58)+ Vice President Senior Vice President of --
Scudder Kemper
Investments, Inc.
Kathleen T. Millard (37)++ Vice President Senior Vice President of --
Scudder Kemper
Investments, Inc.
Caroline Pearson (36)+ Assistant Director of Mutual Fund
Secretary Administration, Scudder
Kemper Investments, Inc.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trust Occupation** Services, Inc.
- ---------- ---------- ------------ --------------
<S> <C> <C> <C>
John R. Hebble (39)+ Treasurer Senior Vice President --
</TABLE>
* Mr. Pierce and Ms. Quirk are considered by the Trust and its counsel to be
persons who are "interested persons" of the Advisor 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.
# Mr. Pierce and Ms. Quirk 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
As of February __, 1999, 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) __ shares, or __% of the Scudder Shares of
Value Fund.
As of February __, 1999, __ shares in the aggregate, __% of the
outstanding shares of Scudder Value Fund were held in the name of Charles,
Schwab & Co., 101 Montgomery Street, San Francisco, CA 94104, who may be deemed
to be the beneficial owner of certain of these shares, but disclaims any
beneficial ownership therein.
To the best of the Trust's knowledge, as of February __, 1999 __ [to be
updated]n owned beneficially more than 5% of a Fund's outstanding shares, except
as stated above.
The Trustees and officers of the Trust also serve in similar capacities
with respect to other Scudder funds.
REMUNERATION
Responsibilities of the Board--Board and Committee Meetings
The Board of Trustees is responsible for the general oversight of each
Fund's business. A majority of the Board's members are not affiliated with the
Advisor. These "Independent Trustees" have primary responsibility for assuring
that each Fund is managed in the best interests of its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of each Fund and other operational matters, including policies and
procedures designated to assure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Advisor
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, each
Fund's investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Advisor and its affiliates, and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by the Funds' independent public accountants and by
independent legal counsel selected by the Independent Trustees.
All of the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects each Fund's independent public
accountants and reviews accounting policies and controls.
50
<PAGE>
Compensation of Officers and Trustees
The Independent Trustees receive the following compensation from each
Fund: an annual trustee's fee of $4,000; a fee of $400 for attendance at each
Board meeting, audit committee meeting, or other meeting held for the purposes
of considering arrangements between each Fund and the Advisor or any affiliate
of the Advisor; $150 for any other committee meeting (although in some cases the
Independent Trustees have waived committee meeting fees); and reimbursement of
expenses incurred for travel to and from Board Meetings. No additional
compensation is paid to any Independent Trustee for travel time to meetings or
other activities.
The Independent Trustees may also serve in the same capacity for other
funds managed by the Advisor. These funds differ broadly in type and complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1997 from the Trust and from all of Scudder funds as a group.
Name Scudder Equity Trust* All Scudder Funds
---- --------------------- -----------------
Paul Bancroft III, To be updated (20 funds)
Trustee
Sheryle J. Bolton, (20 funds)
Trustee
William T. Burgin, (20 funds)
Trustee
Thomas J. Devine, (21 funds)
Trustee
Keith R. Fox, (18 funds)
Trustee
William H. Luers, (20 funds)
Trustee
Wilson Nolen, (21 funds)
Trustee
* Scudder Equity Trust consists of two funds: Scudder Large Company Value
Fund and Scudder Value Fund.
SHAREHOLDER RIGHTS
The Fund is a diversified series of Value Equity Trust (the "Trust"), an
open-end management investment company registered under 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. As
used herein, the name Kemper Value Fund also means Value Fund.
The Trust may issue an unlimited number of shares of beneficial interest in one
or more series or "Portfolios," all having a par value of $.01, which may be
divided by the Board of Trustees into classes of shares. The Board of Trustees
of the Fund may authorize the issuance of additional classes and additional
Portfolios if deemed desirable, each with its own investment objective, policies
and restrictions. Since the Trust may offer multiple Portfolios, it is known as
a "series company." Currently, the Trust offers four classes of shares of the
Fund. These are Class A, Class B, Class C and Scudder Shares. Shares of a
Portfolio have equal noncumulative voting rights except that Class B and Class C
shares have separate and exclusive voting rights with respect to each such
class' Rule 12b-1 Plan. Shares of each class also have equal rights with respect
to dividends, assets and liquidation of the Fund subject to any preferences
(such as resulting from different Rule 12b-1 distribution fees), rights or
privileges of any classes of shares of the Fund. Shares are fully paid and
nonassessable when issued, are transferable without restriction and have no
preemptive or conversion rights. If shares of more than one Portfolio are
outstanding, shareholders will vote by Portfolio and not in the aggregate or by
class except when voting in the aggregate is required under the 1940 Act, such
as for the election of trustees, or when voting by class is appropriate.
51
<PAGE>
The Fund's activities are supervised by the Trust's Board of Trustees. The Trust
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. Subject to the Declaration of Trust
and By Laws of the Trust, shareholders may remove Trustees. 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.
Under the Agreement and Declaration of Trust of the Fund ("Declaration of
Trust"), shareholder meetings will be held in connection with the following
matters: (a) the election or removal of trustees if a meeting is called for such
purpose; (b) the adoption of any contract for which approval by shareholders is
required by the 1940 Act; (c) any termination of the Fund or a class to the
extent and as provided in the Declaration of Trust; (d) any amendment of the
Declaration of Trust (other than amendments changing the name of the Fund,
supplying any omission, curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision thereof); and (e) such
additional matters as may be required by law, the Declaration of Trust, the
By-laws of the Trust, or any registration of the Fund with the Securities and
Exchange Commission or any state, or as the trustees may consider necessary or
desirable. The shareholders also would vote upon changes in fundamental policies
or restrictions.
Any matter shall be deemed to have been effectively acted upon with
respect to a Fund if acted upon as provided in Rule 18f-2 under the 1940 Act, or
any successor rule, and in the Trust's Declaration of Trust. As used in the
Shares' Prospectus and in this Statement of Additional Information, the term
"majority", when referring to the approvals to be obtained from shareholders in
connection with general matters affecting the Funds and all additional
portfolios (e.g., election of directors), means the vote of the lesser of (i)
67% of the Trust's Shares represented at a meeting if the holders of more than
50% of the outstanding Shares are present in person or by proxy, or (ii) more
than 50% of the Trust's outstanding Shares. The term "majority", when referring
to the approvals to be obtained from shareholders in connection with matters
affecting a single Fund or any other single portfolio (e.g., annual approval of
investment management contracts), means the vote of the lesser of (i) 67% of the
Shares of the portfolio represented at a meeting if the holders of more than 50%
of the outstanding Shares of the portfolio are present in person or by proxy, or
(ii) more than 50% of the outstanding Shares of the portfolio.
Each trustee serves until the next meeting of shareholders, if any, called
for the purpose of electing trustees and until the election and qualification of
a successor or until such trustee sooner dies, resigns, retires or is removed by
a majority vote of the Shares entitled to vote (as described below) or a
majority of the trustees. In accordance with the 1940 Act (a) the Fund will hold
a shareholder meeting for the election of trustees at such time as less than a
majority of the trustees have been elected by shareholders, and (b) if, as a
result of a vacancy in the Board of Trustees, less than two-thirds of the
trustees have been elected by the shareholders, that vacancy will be filled only
by a vote of the shareholders.
Any of the Trustees may be removed (provided the aggregate number of
Trustees after such removal shall not be less than one) with cause, by the
action of two-thirds of the remaining Trustees. Any Trustee may be removed at
any meeting of shareholders by vote of two-thirds of the Outstanding Shares. The
Trustees shall promptly call a meeting of the shareholders for the purpose of
voting upon the question of removal of any such Trustee or Trustees when
requested in writing to do so by the holders of not less than ten percent of the
Outstanding Shares, and in that connection, the Trustees will assist shareholder
communications to the extent provided for in Section 16(c) under the 1940 Act.
The Trust's Declaration of Trust specifically authorizes the Board of
Trustees to terminate the Fund or any Portfolio or class by notice to the
shareholders without shareholder approval.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for obligations of
the Fund. The Declaration of Trust, however, disclaims shareholder liability for
acts or obligations of the Fund and requires that notice of such disclaimer be
given in each agreement, obligation, or instrument entered into or executed by
the Fund or the Fund's trustees. Moreover, the Declaration of Trust provides for
indemnification out of Fund property for all losses and expenses of any
shareholder held personally liable for the obligations of the Fund and the Fund
will be covered by insurance which the trustees consider adequate to cover
foreseeable tort claims. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is
52
<PAGE>
considered by the Advisor remote and not material, since it is limited to
circumstances in which a disclaimer is inoperative and the Fund itself is unable
to meet its obligations.
The assets of the Trust received for the issue or sale of the Shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general liabilities of the Trust. If a series were unable to meet its
obligations, the assets of all other series may in some circumstances be
available to creditors for that purpose, in which case the assets of such other
series could be used to meet liabilities which are not otherwise properly
chargeable to them. Expenses with respect to any two or more series are to be
allocated in proportion to the asset value of the respective series except where
allocations of direct expenses can otherwise be fairly made. The officers of the
Trust, subject to the general supervision of the Trustees, have the power to
determine which liabilities are allocable to a given series, or which are
general or allocable to two or more series. In the event of the dissolution or
liquidation of the Trust or any series, the holders of the Shares of any series
are entitled to receive as a class the underlying assets of such Shares
available for distribution to shareholders.
Further, the Trust's Board of Trustees may determine, without prior
shareholder approval, in the future that the objectives of the Fund would be
achieved more effectively by investing in a master fund in a master/feeder fund
structure.
ADDITIONAL INFORMATION
Other Information
The CUSIP number of each class of the Fund is Class A, 8114T-30-7; Class
B, 81114T-40-6; and Class C, 8114T-50-5.
The Fund has a fiscal year ending September 30.
Many of the investment changes in the Fund will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Advisor in light of the Fund's investment objectives and
policies, its other portfolio holdings and tax considerations, and should not be
construed as recommendations for similar action by other investors.
Portfolio securities of the Fund are held separately pursuant to a
custodian agreement, by the Fund's custodian, State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110.
The law firm of Dechert Price & Rhoads is counsel to the Fund.
The name "Value Equity Trust" is the designation of the Trust for the time being
under a Declaration of Trust dated October 16, 1985, as amended from time to
time, and all persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Trustees, officers, agents, shareholders nor other series of the Trust assume
any personal liability for obligations entered into on behalf of the Fund. No
other series of the Trust assumes any liabilities for obligations entered into
on behalf of the Fund. Upon the initial purchase of shares, the shareholder
agrees to be bound by the Trust's Declaration of Trust, as amended from time to
time. The Declaration of Trust is on file at the Massachusetts Secretary of
State's Office in Boston, Massachusetts.
The Fund's Kemper Shares prospectus and this Statement of Additional
Information omit certain information contained in the Registration Statement and
its amendments which the Fund has filed with the SEC under the Securities Act of
1933 and reference is hereby made to the Registration Statement for further
information with respect to the Fund and the securities offered hereby. The
Registration Statement and its amendments, are available for inspection by the
public at the SEC in Washington, D.C.
53
<PAGE>
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio of the Fund,
together with the Report of Independent Accountants, Financial Highlights and
notes to financial statements in the Annual Report to the Shareholders of the
Trust dated September 30, 1998, are incorporated herein by reference and are
hereby deemed to be a part of this Statement of Additional Information.
Effective April 16, 1998, the Trust's Board of Trustees approved a name
change of the Fund from Scudder Value Fund to Value Fund. In addition, the Board
of Trustees has subdivided the Fund into classes. Shares of the Fund outstanding
on such date were redesignated as Scudder Shares of the Fund. The financial
statements incorporated herein reflect the investment performance of the Fund
prior to the aforementioned redesignation of shares.
54
<PAGE>
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
<PAGE>
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>
VALUE EQUITY TRUST
PART C. OTHER INFORMATION
Item 23. Exhibits.
-------- ---------
<TABLE>
<S> <C> <C>
(a) (1) Amended and Restated Declaration of Trust dated March 17, 1988.
(Incorporated by reference to Exhibit 1(a) to Post-Effective Amendment No.
25 to the Registration Statement.)
(2) Establishment and Designation of Series dated December 15, 1986.
(Incorporated by reference to Exhibit 1(b) to Post-Effective Amendment No.
25 to the Registration statement.)
(3) Amended Establishment and Designation of Series dated May 4, 1987.
(Incorporated by reference to Exhibit 1(c) to Post-Effective Amendment No.
25 to the Registration Statement.)
(4) Certificate of Amendment dated December 13, 1990.
(Incorporated by reference to Exhibit 1(d) to Post-Effective Amendment No.
25 to the Registration Statement.)
(5) Establishment and Designation of Series dated October 6, 1992.
(Incorporated by reference to Exhibit 1(e) to Post-Effective Amendment No.
25 to the Registration Statement.)
(6) Redesignation of Series by the Registrant on behalf of Scudder Capital
Growth Fund, dated December 2, 1996.
(Incorporated by reference to Exhibit 1(f) to Post-Effective Amendment No.
25 to the Registration Statement.)
(7) Establishment and Designation of Classes of Shares of Beneficial Interest,
$0.01 Par Value - Kemper A, B & C Shares, and Scudder Shares is filed herein.
(8) Redesignation of Series, Scudder Value Fund to Value Fund is filed herein.
(b) (1) By-Laws as of October 16, 1985.
(Incorporated by reference to Exhibit 2(a) to Post-Effective Amendment No.
25 to the Registration Statement.)
(2) Amendment to the By-Laws of Registrant as amended through December 9, 1985.
(Incorporated by reference to Exhibit 2(b) to Post-Effective Amendment No.
25 to the Registration Statement.)
(3) Amendment to the Registrant's By-Laws dated December 12, 1991.
(Incorporated by reference to Exhibit 2(c) to Post-Effective Amendment No.
25 to the Registration Statement.)
(4) Amendment to the Registrant's By-Laws dated September 17, 1992.
(Incorporated by reference to the Exhibit 2(d) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(c) Inapplicable.
Part C - Page 1
<PAGE>
(d) (1) Investment Advisory Agreement between the Registrant,on behalf of Scudder
Capital Growth Fund, and Scudder, Stevens & Clark Ltd. dated March 31, 1986.
(Incorporated by reference to Exhibit 5(a) to Post-Effective Amendment No.
25 to the Registration Statement.)
(2) Investment Advisory Agreement between the Registrant, on behalf of Scudder
Equity Income Fund, and Scudder, Stevens & Clark Ltd. dated May 1, 1987.
(Incorporated by reference to Exhibit 5(b) to Post-Effective Amendment No.
25 to the Registration Statement.)
(3) Investment Management Agreement between Scudder Capital Growth Fund and
Scudder, Stevens & Clark, Inc. dated December 14, 1990.
(Incorporated by reference to Exhibit 5(c)to Post-Effective Amendment No. 25
to the Registration Statement.)
(4) Investment Management Agreement between the Registrant, on behalf of Scudder
Value Fund, and Scudder, Stevens & Clark, Inc. dated December 28, 1992.
(Incorporated by reference to Exhibit 5(d) to Post-Effective Amendment No.
25 to the Registration Statement.)
(5) Investment Management Agreement between the Registrant, on behalf of Scudder
Capital Growth Fund, and Scudder, Stevens & Clark, Inc. dated September 5,
1996 is filed herein.
(6) Investment Management Agreement between the Registrant, on behalf of Scudder
Large Company Value Fund, and Scudder Kemper Investment, Inc. dated December
31, 1997 is filed herein.
(7) Investment Management Agreement between the Registrant, on behalf of Scudder
Value Fund, and Scudder Kemper Investment, Inc. dated December 31, 1997 is
filed herein.
(8) Investment Management Agreement between the Registrant, on behalf of Scudder
Large Company Value Fund, and Scudder Kemper Investments, Inc. dated
September 7, 1998 is filed herein.
(9) Investment Management Agreement between the Registrant, on behalf of Value
Fund, and Scudder Kemper Investment, Inc. dated September 7, 1998 is filed
herein.
Part C - Page 2
<PAGE>
(e) (1) Underwriting Agreement between the Registrant and Scudder Fund Distributors,
Inc. dated May 1, 1987.
(Incorporated by reference to Exhibit 6(a) to Post-Effective Amendment No.
25 to the Registration Statement.)
(2) Underwriting and Distribution Services Agreement between the Registrant, on
behalf of Value Fund, and Kemper Distributors, Inc. dated April 16, 1998 is
filed herein.
(3) Underwriting and Distribution Services Agreement between the Registrant, on
behalf of Value Fund, and Kemper Distributors, Inc. dated August 6, 1998 is
filed herein.
(4) Underwriting and Distribution Services Agreement between the Registrant, on
behalf of Value Fund, and Kemper Distributors, Inc. dated September 7, 1998
is filed herein.
(5) Underwriting Agreement between the Registrant and Scudder Investor Services,
Inc. dated September 7, 1998 is filed herein.
(f) Inapplicable.
(g) (1) Custodian Agreement between the Registrant and State Street Bank and Trust
Company ("State Street Bank") dated October 1, 1982.
(Incorporated by reference to Exhibit 8(a)(1) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(1)(a) Fee schedule for Exhibit (g)(1).
(Incorporated by reference to Exhibit 8(a)(2) to Post-Effective Amendment
No. 25 to the Registration Statement.
(2) Amendment to Custodian Contract dated March 31, 1986.
(Incorporated by reference to Exhibit 8(a)(3) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(3) Amendment to Custodian Contract dated October 1, 1982.
(Incorporated by reference to Exhibit 8(a)(4)to Post-Effective Amendment No.
25 to the Registration Statement.)
(4) Amendment to Custodian Contract dated September 16, 1988.
(Incorporated by reference to Exhibit 8(a)(5) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(5) Amendment to Custodian Contract dated December 13, 1990.
(Incorporated by reference to Exhibit 8(a)(6) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(5)(a) Fee schedule for Exhibit (g)(5) dated August 1, 1994.
(Incorporated by reference to Exhibit 8(a)(7) to Post-Effective Amendment
No. 25 to the Registration Statement.)
Part C - Page 3
<PAGE>
(6) Agency Agreement between State Street Bank and trust Company and The Bank of
New York, London office dated January 1, 1979.
(Incorporated by reference to Exhibit (b)(1) to Post-Effective Amendment No.
25 to the Registration Statement.)
(7) Subcustody Agreement between State Street Bank and the Chase Manhattan Bank,
N.A. dated September 1, 1986.
(Incorporated by reference to Exhibit 8(c)(1) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(h) (1) Transfer Agency and Service Agreement between the Registrant and Scudder
Service Corporation dated October 2, 1989.
(Incorporated by reference to Exhibit 9(a)(1) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(1)(a) Fee schedule for Exhibit (h)(1).
(Incorporated by reference to Exhibit 9(a)(2) to Post Effective Amendment
No. 25 to the Registration Statement.)
(1)(b) Form of revised fee schedule for Exhibit (h)(1).
(Incorporated by reference to Exhibit 9(a)(3) to Post-Effective Amendment
No. 23 to the Registration Statement.)
(2) Agency Agreement between the Registrant on behalf of Value Fund and Kemper
Service Company dated April 1998 is filed herein.
(3) Compass Service Agreement between the Registrant and Scudder Trust Company
dated January 1, 1990.
(Incorporated by reference to Exhibit (b)(1) to Post-Effective Amendment No.
25 to the Registration Statement.)
(3)(a) Fee Schedule for Exhibit (h)(3).
(Incorporated by reference to Exhibit (9)(b)(2) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(4) COMPASS Service Agreement between Scudder Trust Company and the Registrant
dated October 1, 1995.
(Incorporated by reference to Exhibit 9(b)(3)to Post-Effective Amendment No.
24 to this Registration Statement.)
(5) Shareholder Services Agreement between the Registrant and Charles Schwab &
Co., Inc. dated June 1, 1990.
(Incorporated by reference to Exhibit 9(c) to Post-Effective Amendment No.
25 to the Registration Statement.)
(6) Service Agreement between Copeland Associates, Inc. and Scudder Service
Corporation, on behalf of Scudder Equity Trust, dated June 8, 1995.
(Incorporated by reference to Exhibit 9(c)(1) to Post-Effective Amendment
No. 23 to this Registration Statement.)
(7) Fund Accounting Services Agreement between the Registrant, on behalf of
Scudder Capital Growth Fund, and Scudder Fund Accounting Corporation dated
October 19, 1994.
(Incorporated by reference to Exhibit 9(e)(1) to Post-Effective Amendment
No. 25 to the Registration Statement.)
Part C - Page 4
<PAGE>
(8) Fund Accounting Services Agreement between the Registrant, on behalf of
Scudder Value Fund, and Scudder Fund Accounting Corporation dated October
24, 1994.
(Incorporated by reference to Exhibit 9(e)(2) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(9) Special Servicing Agreement dated November 15, 1996 between Scudder Pathway
Series and the Registrant, on behalf of Scudder Capital Growth Fund and
Scudder Value Fund.
(Incorporated by reference to Exhibit 9(f) to Post-Effective Amendment No.
25 to the Registration Statement.)
(10) Administrative Services Agreement between the Registrant and Kemper
Distributors, Inc. dated April, 1998 is filed herein.
(i) Inapplicable.
(j) Consent of Independent Accountants.
(To be filed by Amendment.)
(k) Inapplicable.
(l) Inapplicable.
(m) Inapplicable.
(n) Article 6 Financial Data Schedules.
(To be filed by Amendment.)
(o) Mutual Funds Multi-Distribution System Plan - Rule 18f-3Plan.
(Incorporated by reference to Exhibit 18 of Post-Effective Amendment No. 29
to the Registration Statement.)
</TABLE>
Item 24. Persons Controlled by or under Common Control with Fund.
- -------- --------------------------------------------------------
None
Item 25. Indemnification.
- -------- ----------------
A policy of insurance covering Scudder Kemper Investments,
Inc., its subsidiaries including Scudder Investor Services,
Inc., and all of the registered investment companies advised
by Scudder Kemper Investments, Inc. insures the Registrant's
trustees and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent
act, error or accidental omission in the scope of their
duties.
Article IV, Sections 4.1 - 4.3 of the Registrant's Declaration
of Trust provide as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees,
Etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or
the acts, obligations or affairs of the Trust. No Trustee,
officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to
the Trust or its Shareholders, in connection with Trust
Property or the affairs of the Trust, save only that arising
from bad faith, willful
Part C - Page 5
<PAGE>
misfeasance, gross negligence or reckless disregard of his
duties with respect to such Person; and all such Persons shall
look solely to the Trust Property for satisfaction of claims
of any nature arising in connection with the affairs of the
Trust. If any Shareholder, Trustee, officer, employee, or
agent, as such, of the Trust, is made a party to any suit or
proceeding to enforce any such liability of the Trust, he
shall not, on account thereof, be held to any personal
liability. The Trust shall indemnify and hold each Shareholder
harmless from and against all claims and liabilities, to which
such Shareholder may become subject by reason of his being or
having been a Shareholder, and shall reimburse such
Shareholder for all legal and other expenses reasonably
incurred by him in connection with any such claim or
liability. The indemnification and reimbursement required by
the preceding sentence shall be made only out of the assets of
the one or more Series of which the Shareholder who is
entitled to indemnification or reimbursement was a Shareholder
at the time the act or event occurred which gave rise to the
claim against or liability of said Shareholder. The rights
accruing to a Shareholder under this Section 4.1 shall not
impair any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not
specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee,
officer, employee, or agent thereof for any action or failure
to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of the duties involved
in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the
exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the Trust to the
fullest extent permitted by law against all liability and
against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which
he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal, administrative or other,
including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust, a Series
thereof, or the Shareholders by reason of a final adjudication
by a court or other body before which a proceeding was brought
that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in good faith
in the reasonable belief that his action was in the best
interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as provided in
paragraph (b)(i) or (b)(ii) resulting in a payment by a
Trustee or officer, unless there has been a determination that
such Trustee or officer did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office:
(A) by the court or other body approving the
settlement or other disposition; or
Part C - Page 6
<PAGE>
(B) based upon a review of readily available facts
(as opposed to a full trial-type inquiry) by (x) vote of a
majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then
in office act on the matter) or (y) written opinion of
independent legal counsel.
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust,
shall be severable, shall not affect any other rights
to which any Trustee or officer may now or hereafter
be entitled, shall continue as to a person who has
ceased to be such Trustee or officer and shall insure
to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing
contained herein shall affect any rights to
indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense
to any claim, action, suit or proceeding of the
character described in paragraph (a) of this Section
4.3 may be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by
or on behalf of the recipient to repay such amount if
it is ultimately determined that he is not entitled
to indemnification under this Section 4.3, provided
that either:
(i) such undertaking is secured by a surety bond or
some other appropriate security provided by the recipient, or
the Trust shall be insured against losses arising out of any
such advances; or
(ii) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the Disinterested
Trustees act on the matter) or an independent legal counsel in
a written opinion shall determine, based upon a review of
readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested
Trustee" is one who is not (i) an "Interested Person" of the
Trust (including anyone who has been exempted from being an
"Interested Person" by any rule, regulation or order of the
Commission), or (ii) involved in the claim, action, suit or
proceeding.
Item 26. Business or Other Connections of Investment Adviser
- -------- ---------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments, Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Part C - Page 7
<PAGE>
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member, Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO and Member, Group Executive Board, Zurich Financial Services, Inc. ##
CEO/Branch Offices, Zurich Life Insurance Company ##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland##
Director, Chairman of the Board, Zurich Holding Company of America o
Director, ZKI Holding Corporation xx
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Senior Vice President & Assistant Clerk, Scudder Investor Services, Inc.*
Director, Vice President & Secretary, Scudder Fund Accounting Corporation*
Director, Vice President & Secretary, Scudder Realty Holdings Corporation*
Director & Assistant Clerk, Scudder Service Corporation*
Director, SFA, Inc.*
Vice President, Director & Assistant Secretary, Scudder Precious Metals, Inc.***
Director, Scudder, Stevens & Clark Japan, Inc.***
Director, Vice President and Secretary, Scudder, Stevens & Clark of Canada, Ltd.***
Director, Vice President and Secretary, Scudder Canada Investor Services Limited***
Director, Vice President and Secretary, Scudder Realty Advisers, Inc. x
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation oo
Director and Secretary, SFA, Inc.*
Director, Vice President and Secretary, Scudder Defined Contribution Services, Inc.**
Director, Vice President and Secretary, Scudder Capital Asset Corporation**
Director, Vice President and Secretary, Scudder Capital Stock Corporation**
Director, Vice President and Secretary, Scudder Capital Planning Corporation**
Director, Vice President and Secretary, SS&C Investment Corporation**
Director, Vice President and Secretary, SIS Investment Corporation**
Director, Vice President and Secretary, SRV Investment Corporation**
Director, Vice President and Secretary, Scudder Brokerage Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd.+
Cornelia M. Small Director and Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation oo
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
Part C - Page 8
<PAGE>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C. Luxembourg B 34.564
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman, British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
</TABLE>
Item 27. Principal Underwriters.
- -------- -----------------------
(a)
Scudder Investor Services, Inc. acts as principal underwriter of the
Registrant's shares and also acts as principal underwriter for other
funds managed by Scudder Kemper Investments, Inc.
(b)
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 27.
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Positions and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C> <C>
William S. Baughman Vice President None
Two International Place
Boston, MA 02110
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154
Mary Elizabeth Beams Vice President None
Two International Place
Boston, MA 02110
Mark S. Casady Director, President and Assistant None
Two International Place Treasurer
Boston, MA 02110
Linda Coughlin Director and Senior Vice President None
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Part C - Page 9
<PAGE>
Name and Principal Positions and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154
Philip S. Fortuna Vice President None
101 California Street
San Francisco, CA 94111
William F. Glavin Vice President None
Two International Place
Boston, MA 02110
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
Thomas W. Joseph Director, Vice President, Treasurer Vice President
Two International Place and Assistant Clerk
Boston, MA 02110
Thomas F. McDonough Clerk Vice President and
Two International Place Secretary
Boston, MA 02110
James J. McGovern Chief Financial Officer None
345 Park Avenue
New York, NY 10154
Lorie C. O'Malley Vice President None
Two International Place
Boston, MA 02110
Daniel Pierce Director, Vice President President and Trustee
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President, Chief Trustee, Vice President
345 Park Avenue Legal Officer and Assistant Clerk and Assistant Secretary
New York, NY 10154
Robert A. Rudell Director and Vice President None
Two International Place
Boston, MA 02110
William M. Thomas Vice President None
Two International Place
Boston, MA 02110
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Part C - Page 10
<PAGE>
Name and Principal Positions and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
Sydney S. Tucker Vice President None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President and Chief Compliance None
Two International Place Officer
Boston, MA 02110
David B. Watts Assistant Treasurer None
Two International Place
Boston, MA 02110
</TABLE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
</TABLE>
Item 28. Location of Accounts and Records.
- -------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder Kemper
Investments Inc.., Two International Place, Boston, MA
02110-4103. Records relating to the duties of the Registrant's
custodian are maintained by State Street Bank and Trust
Company, Heritage Drive, North Quincy, Massachusetts. Records
relating to the duties of the Registrant's transfer agent are
maintained by Scudder Service Corporation, Two International
Place, Boston, Massachusetts.
Item 29. Management Services.
- -------- --------------------
Inapplicable.
Item 30. Undertakings.
- -------- -------------
Inapplicable.
Part C - Page 11
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(a) under the Securities Act of 1933 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Boston and the Commonwealth of Massachusetts on
the 23rd day of November, 1998.
VALUE EQUITY TRUST
By: /s/Thomas F. McDonough
--------------------------
Thomas F. McDonough,
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Daniel Pierce
- ---------------------------------------
Daniel Pierce* President (Principal Executive November 23, 1998
Officer) and Trustee
/s/Paul Bancroft III
- ---------------------------------------
Paul Bancroft III* Trustee November 23, 1998
/s/Sheryle J. Bolton
- ---------------------------------------
Sheryle J. Bolton* Trustee November 23, 1998
/s/William T. Burgin
- ---------------------------------------
William T. Burgin* Trustee November 23, 1998
/s/Thomas J. Devine
- ---------------------------------------
Thomas J. Devine* Trustee November 23, 1998
/s/Keith R. Fox
- ---------------------------------------
Keith R. Fox* Trustee November 23, 1998
/s/William H. Luers
- ---------------------------------------
William H. Luers* Trustee November 23, 1998
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Wilson Nolen
- ---------------------------------------
Wilson Nolen* Trustee November 23, 1998
/s/Kathryn L. Quirk
- ---------------------------------------
Kathryn L. Quirk* Trustee, Vice President and Assistant November 23, 1998
Secretary
/s/Joan E. Spero
- ---------------------------------------
Joan E. Spero* Trustee November 23, 1998
/s/John R. Hebble
- ---------------------------------------
John R. Hebble* Treasurer (Chief Financial and November 23, 1998
Accounting Officer)
</TABLE>
*By: /s/Thomas F. McDonough
----------------------
Thomas F. McDonough
Attorney-in-fact pursuant to powers of
attorney for Daniel Pierce, Paul Bancroft III,
Thomas J. Devine, Wilson Nolen and
Robert Stone contained in the signature
page of Post-Effective Amendment No. 16 to the
Registration Statement filed November 2,
1992, for Sheryle J. Bolton and Keith R.
Fox contained in the signature page of Post-
Effective Amendment No. 23 to the
Registration Statement filed January 30,
1996, for William T. Burgin, William H.
Luers and Kathryn L. Quirk contained in the
signature page of Post-Effective
Amendment No. 26 filed on December 2,
1997 and for Joan E. Spero and John R.
Hebble included in this Post-Effective
Amendment.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston, and Commonwealth of
Massachusetts on the 23rd day of November, 1998.
Value Equity Trust
By: /s/Thomas F. McDonough
--------------------------
Thomas F. McDonough,
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in her capacity as trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint Caroline Pearson, Kathryn L. Quirk,
Thomas F. McDonough and Sheldon A. Jones and each of them, severally, or if more
than one acts, a majority of them, her true and lawful attorney and agent to
execute in her name, place and stead (in such capacity) any and all amendments
to the Registration Statement and any post-effective amendments thereto and all
instruments necessary or desirable in connection therewith, to attest the seal
of the Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Joan E. Spero
- --------------------------------------
Joan E. Spero Trustee November 23, 1998
</TABLE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Boston, and Commonwealth of
Massachusetts on the 23rd of November, 1998
VALUE EQUITY TRUST
By: /s/Thomas F. McDonough
--------------------------
Thomas F. McDonough,
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. By so signing, the
undersigned in his capacity as Trustee or officer, or both, as the case may be
of the Registrant, does hereby appoint Caroline Pearson, Thomas F. McDonough and
Sheldon A. Jones and each of them, severally, or if more than one acts, a
majority of them, his true and lawful attorney and agent to execute in his name,
place and stead (in such capacity) any and all amendments to the Registration
Statement and any post-effective amendments thereto and all instruments
necessary or desirable in connection therewith, to attest the seal of the
Registrant thereon and to file the same with the Securities and Exchange
Commission. Each of said attorneys and agents shall have power to act with or
without the other and have full power and authority to do and perform in the
name and on behalf of the undersigned, in any and all capacities, every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person, hereby
ratifying and approving the act of said attorneys and agents and each of them.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/John R. Hebble
- --------------------------------------
John R. Hebble Treasurer November 23, 1998
</TABLE>
<PAGE>
File No. 2-78724
File No. 811-1444
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM N-1A
POST-EFFECTIVE AMENDMENT NO. 30
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 30
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
VALUE EQUITY TRUST
<PAGE>
VALUE EQUITY TRUST
Exhibit Index
(a)(1)(7)
(a)(1)(8)
(d)(5)
(d)(6)
(d)(7)
(d)(8)
(d)(9)
(e)(2)
(e)(3)
(e)(4)
(e)(5)
(h)(2)
(h)(10)
2
Scudder Equity Trust
Establishment and Designation of Classes
of Shares of Beneficial Interest, $.01 Par Value
(The "Instrument")
The undersigned, being a majority of the duly elected and qualified
Trustees of Scudder Equity Trust, a Massachusetts business trust (the "Trust"),
acting pursuant to Section 5.11 of the Declaration of Trust dated March 17,
1988, as amended (the "Declaration of Trust"), hereby further divide the
authorized and unissued shares of beneficial interest (the "Shares") of the
series of the Trust heretofore designated as Scudder Value Fund (the "Fund")
into the four classes designated below in paragraph 1 (each a "Class" and
collectively the "Classes"), each Class to have the special and relative rights
specified in this Instrument:
1. The Classes shall be designated as follows:
Kemper Value Fund Class A Shares
Kemper Value Fund Class B Shares
Kemper Value Fund Class C Shares
Scudder Value Fund Class S Shares
2. The Shares of the Fund outstanding as of the close of business on
the date of the filing of this Instrument with the Secretary of the Commonwealth
of Massachusetts are hereby redesignated as Scudder Value Fund Class S Shares.
3. Each Share shall be redeemable, and, except as provided below, shall
represent a pro rata beneficial interest in the assets attributable to such
Class of shares of the Fund, and shall be entitled to receive its pro rata share
of net assets attributable to such Class of Shares of the Fund upon liquidation
of the Fund, all as provided in or not inconsistent with the Declaration of
Trust. Each Share shall have the voting, dividend, liquidation and other rights,
preferences, powers, restrictions, limitations, qualifications, terms and
conditions, as set forth in the Declaration of Trust.
4. Upon the effective date of this Instrument:
a. Each Share of each Class of the Fund shall be entitled to
one vote (or fraction thereof in respect of a fractional share) on matters which
such Shares (or Class of Shares) shall be entitled to vote. Shareholders of the
Fund shall vote together on any matter, except to the extent otherwise required
by the Investment Company Act of 1940, as amended (the "1940 Act"), or when the
Trustees have determined that the matter affects only the interest of
Shareholders of one or more Classes, in which case only the Shareholders of such
Class or Classes shall be entitled to vote thereon. Any matter shall be deemed
to have been effectively acted upon with respect to the Fund if acted upon as
provided in Rule 18f-2 under the 1940 Act or any successor rule and in the
Declaration of Trust.
<PAGE>
b. Liabilities, expenses, costs, charges or reserves that
should be properly allocated to the Shares of a particular Class of the Fund
may, pursuant to a Plan adopted by the Trustees under Rule 18f-3 under the 1940
Act, or such similar rule under or provision or interpretation of the 1940 Act,
be charged to and borne solely by such Class and the bearing of expenses solely
by a Class of Shares may be appropriately reflected and cause differences in net
asset value attributable to, and the dividend, redemption and liquidation rights
of, the Shares of different Classes.
5. The Trustees (including any successor Trustees) shall have the
right at any time and from time to time to reallocate assets, liabilities and
expenses or to change the designation of any Class now or hereafter created, or
to otherwise change the special and relative rights of any such Class, provided
that such change shall not adversely affect the rights of Shareholders of such
Class.
Except as otherwise provided in this Instrument, the foregoing shall
be effective upon the filing of this Instrument with the Secretary of the
Commonwealth of Massachusetts.
/s/Paul Bancroft III
- -----------------------------
Paul Bancroft III, as Trustee
/s/Sheryle J. Bolton
- -----------------------------
Sheryle J. Bolton, as Trustee
/s/William T. Burgin
- -----------------------------
William T. Burgin, as Trustee
/s/Thomas J. Devine
- -----------------------------
Thomas J. Devine, as Trustee
/s/Keith R. Fox
- -----------------------------
Keith R. Fox, as Trustee
/s/William H. Luers
- -----------------------------
William H. Luers, as Trustee
<PAGE>
/s/Wilson Nolen
- -----------------------------
Wilson Nolen, as Trustee
/s/Daniel Pierce
- -----------------------------
Daniel Pierce, as Trustee
/s/Kathryn L. Quirk
- -----------------------------
Kathryn L. Quirk, as Trustee
Dated: April 16, 1998
SCUDDER EQUITY TRUST
Redesignation of Series
The undersigned, being at least a majority of the duly elected and qualified
Trustees of Scudder Equity Trust, a Massachusetts business trust (the "Trust"),
acting pursuant to Section 5.11 of the Amended and Restated Declaration of Trust
of the Trust dated March 17, 1988, as amended (the "Declaration of Trust"), do
hereby amend the Amended and Restated Establishment and Designation of
Additional Series of Shares of Beneficial Interest filed with the Secretary of
the Commonwealth of Massachusetts on October 26, 1992, as follows:
1. The Fund presently designated as Scudder Value Fund is hereby
redesignated as Value Fund, and all other terms and conditions of the Amended
and Restated Establishment and Designation of Series dated October 26, 1992
remain in effect.
The foregoing Redesignation of Series shall be effective upon
appropriate disclosure in the Trust's effective registration statement under the
Securities Act of 1933, or a supplement thereto.
/s/Paul Bancroft III
- ---------------------------------
Paul Bancroft III, as Trustee
/s/Sheryle J. Bolton
- ---------------------------------
Sheryle J. Bolton, as Trustee
/s/William T. Burgin
- ---------------------------------
William T. Burgin, as Trustee
/s/Thomas J. Devine
- ---------------------------------
Thomas J. Devine, as Trustee
/s/Keith R. Fox
- ---------------------------------
Keith R. Fox, as Trustee
/s/William H. Luers
- ---------------------------------
William H. Luers, as Trustee
<PAGE>
/s/Wilson Nolen
- ---------------------------------
Wilson Nolen, as Trustee
/s/Daniel Pierce
- ---------------------------------
Daniel Pierce, as Trustee
/s/Kathryn L. Quirk
- ---------------------------------
Kathryn L. Quirk, as Trustee
Dated: April 16, 1998
--
2
Scudder Equity Trust
Two International Place
Boston, Massachusetts 02110
Dated: September 5, 1996
Scudder, Stevens & Clark, Inc.
345 Park Avenue
New York, NY 10154
Investment Management Agreement
Scudder Capital Growth Fund
Dear Sirs:
Scudder Equity Trust (the "Trust") has been established as a Massachusetts
business trust to engage in the business of an investment company. Pursuant to
the Trust's Declaration of Trust, the Board of Trustees has divided the Trust's
shares of beneficial interest, par value $.01 per share, (the "Shares") into
separate series, or funds, including Scudder Capital Growth Fund (the "Fund").
Series may be abolished and dissolved, and additional series established, from
time to time by action of the Trustees.
That Trust, on behalf of the Fund, has selected you to act as the sole
investment manager of the Fund and to provide certain other services, as more
fully set forth below, and you have indicated that you are willing to act as
such investment manager and to perform such services under the terms and
conditions hereinafter set forth.
Accordingly, the Trust, on behalf of the Fund, agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of investing
and reinvesting the assets of the Fund in the manner and in accordance with the
investment objectives, policies and restrictions specified in the currently
effective Prospectus (the "Prospectus") and Statement of Additional Information
(the "SAI") relating to the Fund included in the Trust's Registration Statement
on Form N-1A, as amended from time to time, (the "Registration Statement") filed
by the Trust under the Investment Company Act of 1940, as amended, (the "1940
Act") and the Securities Act of 1933, as amended. Copies of the documents
referred to in the preceding sentence have been furnished to you by the Trust.
The Trust has also furnished you with copies properly certified or authenticated
of each of the following additional documents related to the Trust and the Fund:
(a) Declaration of Trust of the Trust dated March 17, 1988, as amended to
date (the "Declaration").
(b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Trustees of the Fund and the shareholders of the
Fund selecting you as investment manager and approving the form of
this Agreement.
(d) Establishment and Designation of Additional Shares of Beneficial
Interest dated December 15, 1986.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Name of Trust and Fund. The Trust and the Fund may use any name derived
from the name "Scudder, Stevens & Clark", if the Trust elects to do so, only for
so long as this Agreement, any other investment management agreement between you
and the Trust with respect to the Fund or any extension, renewal or amendment
hereof or thereof remains in effect, including any similar agreement with any
organization which shall have succeeded to your business as investment manager.
At such time as such an agreement shall no longer be in effect, the Trust and
the Fund shall each (to the extent the Trust has the legal power to cause it to
be done) cease to use such a name or any other name indicating
<PAGE>
that it is managed by or otherwise connected with you or any organization which
shall have so succeeded to your business.
3. Portfolio Management Services. As manager of the assets of the Fund, you
shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 3, you shall
be entitled to receive and act upon advice of counsel to the Trust or counsel to
you. You shall also make available to the Trust promptly upon request all the
Fund's investment records and ledgers as are necessary to assist the Trust to
comply with the requirements of the 1940 Act and other applicable laws. To the
extent required by law, you shall furnish to regulatory authorities having the
requisite authority any information or reports in connection with the services
provided pursuant to this Agreement which may be requested in order to ascertain
whether the operations of the Trust are being conducted in a manner consistent
with applicable laws and regulations.
You shall determine the securities, instruments, investments, currencies,
repurchase agreements, futures, options and other contracts relating to
investments to be purchased, sold or entered into by the Fund and place orders
with broker-dealers, foreign currency dealers, futures commission merchants or
others pursuant to your determinations and all in accordance with Fund policies
as expressed in the Registration Statement. You shall determine what portion of
the Fund's portfolio shall be invested in securities and other assets and what
portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on the
investment performance of the Fund and on the performance of your obligations
pursuant to this Agreement, and you shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
4. Administrative Services. In addition to the portfolio management
services specified above in section 3, you shall furnish at your expense for the
use of the Fund such office space and facilities in the United States as the
Fund may require for its reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Trust administrative services
on behalf of the Fund necessary for operating as an open-end investment company
and not provided by persons not parties to this Agreement including, but not
limited to, preparing reports to and meeting materials for the Trust's Board of
Trustees and reports and notices to Fund shareholders; supervising, negotiating
contractual arrangements with, to the extent appropriate, and monitoring the
performance of, custodians, depositories, transfer and pricing agents,
accountants, attorneys, printers, underwriters, brokers and dealers, insurers
and other persons in any capacity deemed to be necessary or desirable to Fund
operations; preparing and making filings with the Securities and Exchange
Commission (the "SEC") and other regulatory and self-regulatory organizations,
including, but not limited to, preliminary and definitive proxy materials,
post-effective amendments to the Registration Statement, semi-annual reports on
Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the
tabulation of proxies by the Fund's transfer agent; assisting in the preparation
and filing of the Fund's federal, state and local tax returns; preparing and
filing the Fund's federal excise tax return pursuant to Section 4982 of the
Code; providing assistance with investor and public relations matters;
monitoring the valuation of portfolio securities, the calculation of net asset
value and the calculation and payment of distributions to Fund shareholders;
monitoring the registration of shares of the Fund under applicable federal and
state securities laws; maintaining or causing to be maintained for the Fund all
books, records and reports and any other information required under the 1940
Act, to the extent that such books, records and reports and other information
are not maintained by the Fund's custodian or other agents of the Trust;
assisting in establishing the accounting policies of the Fund; assisting in the
resolution of accounting issues that may arise with respect to the Fund's
operations and consulting with the Trust's independent accountants, legal
counsel and the Fund's other agents as necessary in connection therewith;
establishing and monitoring
2
<PAGE>
the Fund's operating expense budgets; reviewing the Fund's bills; processing the
payment of bills that have been approved by an authorized person; assisting the
Fund in determining the amount of dividends and distributions available to be
paid by the Fund to its shareholders, preparing and arranging for the printing
of dividend notices to shareholders, and providing the transfer and dividend
paying agent and the custodian with such information as is required for such
parties to effect the payment of dividends and distributions; and otherwise
assisting the Trust as it may reasonably request in the conduct of the Fund's
business, subject to the direction and control of the Trust's Board of Trustees.
Nothing in this Agreement shall be deemed to shift to you or to diminish the
obligations of any agent of the Fund or any other person not a party to this
Agreement which is obligated to provide services to the Fund.
5. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 5, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including the Fund's
share of payroll taxes) who are affiliated persons of you, and you shall make
available, without expense to the Fund, the services of such of your directors,
officers and employees as may duly be elected officers of the Trust, subject to
their individual consent to serve and to any limitations imposed by law. You
shall provide at your expense the portfolio management services described in
section 3 hereof and the administrative services described in section 4 hereof.
You shall not be required to pay any expenses of the Fund other than those
specifically allocated to you in this section 5. In particular, but without
limiting the generality of the foregoing, you shall not be responsible, except
to the extent of the reasonable compensation of such of the Fund's Trustees and
officers as are directors, officers or employees of you whose services may be
involved, for the following expenses of the Fund: organization expenses of the
Fund (including out-of-pocket expenses, but not including your overhead or
employee costs); fees payable to you and to any other Fund advisors or
consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Trust in connection with membership in investment company trade
organizations; fees and expenses of the Fund's custodians, subcustodians,
transfer agents, dividend disbursing agents and registrars; payment for
portfolio pricing or valuation services to pricing agents, accountants, bankers
and other specialists, if any; expenses of preparing share certificates and,
except as provided below in this section 5, other expenses in connection with
the issuance, offering, distribution, sale, redemption or repurchase of
securities issued by the Fund; expenses relating to investor and public
relations; expenses and fees of registering or qualifying Shares of the Fund for
sale; interest charges, bond premiums and other insurance expense; freight,
insurance and other charges in connection with the shipment of the Fund's
portfolio securities; the compensation and all expenses (specifically including
travel expenses relating to Trust business) of Trustees, officers and employees
of the Trust who are not affiliated persons of you; brokerage commissions or
other costs of acquiring or disposing of any portfolio securities of the Fund;
expenses of printing and distributing reports, notices and dividends to
shareholders; expenses of printing and mailing Prospectuses and SAls of the Fund
and supplements thereto; costs of stationery; any litigation expenses;
indemnification of Trustees and officers of the Trust; costs of shareholders'
and other meetings; and travel expenses (or an appropriate portion thereof) of
Trustees and officers of the Trust who are directors, officers or employees of
you to the extent that such expenses relate to attendance at meetings of the
Board of Trustees of the Trust or any committees thereof or advisors thereto
held outside of Boston, Massachusetts or New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of the Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan in
conformity with Rule 12b-1 under the 1940 Act providing that the Fund (or some
other party) shall assume some or all of such expenses. You shall be required to
pay such of the foregoing sales expenses as are not required to be paid by the
principal underwriter pursuant to the underwriting agreement or are not
permitted to be paid by the Fund (or some other party) pursuant to such a plan.
6. Management Fee. For all services to be rendered, payments to be made and
costs to be assumed by you as provided in sections 3, 4 and 5 hereof, the Trust
on behalf of the Fund shall pay you on the last day of each month the unpaid
balance of a fee equal to the excess of (a) 1/12 of .75 of 1% of
3
<PAGE>
the average daily net assets as defined below of the Fund for such month;
provided that, for any calendar month during which the average of such values
exceeds $500 million, the fee payable for that month based on the portion of the
average of such values in excess of $500 million shall be 1/12 of .65 of 1% of
such portion; provided that, for any calendar month during which the average of
such values exceeds $1 billion, the fee payable for that month based on the
portion of the average of such values in excess of $1 billion shall be 1/12 of
1% of .60 of 1% of such portion; and provided that, for any calendar month
during which the average of such values exceeds $1.5 billion, the fee payable
for that month based on the portion of the average of such values in excess of
$1.5 billion shall be 1/12 of 0.55 of 1% of such portion over (b) the greater of
(i) the amount by which the Fund's expenses exceed the lowest applicable expense
limitation (as more fully described below) or (ii) any compensation waived by
you from time to time (as more fully described below). You shall be entitled to
receive during any month such interim payments of your fee hereunder as you
shall request, provided that no such payment shall exceed 75% of the amount of
your fee then accrued on the books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of the
values placed on the Fund's net assets as of 4:00 p.m. (New York time) on each
day on which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such time. The value of the net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Declaration and the Registration
Statement. If the determination of net asset value does not take place for any
particular day, then for the purposes of this section 6, the value of the net
assets of the Fund as last determined shall be deemed to be the value of its net
assets as of 4:00 p.m. (New York time), or as of such other time as the value of
the net assets of the Fund's portfolio may be lawfully determined on that day.
If the Fund determines the value of the net assets of its portfolio more than
once on any day, then the last such determination thereof on that day shall be
deemed to be the sole determination thereof on that day for the purposes of this
section 6.
You agree that your gross compensation for any fiscal year shall not be
greater than an amount which, when added to the other expenses of the Fund,
shall cause the aggregate expenses of the Fund to equal the maximum expenses
under the lowest applicable expense limitation established pursuant to the
statutes or regulations of any jurisdiction in which the Shares of the Fund may
be qualified for offer and sale. Except to the extent that such amount has been
reflected in reduced payments to you, you shall refund to the Fund the amount of
any payment received in excess of the limitation pursuant to this section 6 as
promptly as practicable after the end of such fiscal year, provided that you
shall not be required to pay the Fund an amount greater than the fee paid to you
in respect of such year pursuant to this Agreement. As used in this section 6,
"expenses" shall mean those expenses included in the applicable expense
limitation having the broadest specifications thereof, and "expense limitation"
means a limit on the maximum annual expenses which may be incurred by an
investment company determined (i) by multiplying a fixed percentage by the
average, or by multiplying more than one such percentage by different specified
amounts of the average, of the values of an investment company's net assets for
a fiscal year or (ii) by multiplying a fixed percentage by an investment
company's net investment income for a fiscal year. The words "lowest applicable
expense limitation" shall be construed to result in the largest reduction of
your compensation for any fiscal year of the Fund; provided, however, that
nothing in this Agreement shall limit your fees if not required by an applicable
statute or regulation referred to above in this section 6.
You may waive all or a portion of your fees provided for hereunder and such
waiver shall be treated as a reduction in purchase price of your services. You
shall be contractually bound hereunder by the terms of any publicly announced
waiver of your fee, or any limitation of the Fund's expenses, as if such waiver
or limitation were fully set forth herein.
7. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
4
<PAGE>
Your services to the Fund pursuant to this Agreement are not to be deemed
to be exclusive and it is understood that you may render investment advice,
management and services to others. In acting under this Agreement, you shall be
an independent contractor and not an agent of the Trust.
8. Limitation of Liability of Manager As an inducement to your undertaking
to render services pursuant to this Agreement, the Trust agrees that you shall
not be liable under this Agreement for any error of judgment or mistake of law
or for any loss suffered by the Fund in connection with the matters to which
this Agreement relates, provided that nothing in this Agreement shall be deemed
to protect or purport to protect you against any liability to the Trust, the
Fund or its shareholders to which you would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of your
duties, or by reason of your reckless disregard of your obligations and duties
hereunder. Any person, even though also employed by you, who may be or become an
employee of and paid by the Fund shall be deemed, when acting within the scope
of his or her employment by the Fund, to be acting in such employment solely for
the Trust and not as your employee or agent.
9. Duration and Termination of This Agreement This Agreement shall remain
in force until September 30,1997, and continue in force from year to year
thereafter, but only so long as such continuance is specifically approved at
least annually (a) by the vote of a majority of the Trustees who are not parties
to this Agreement or interested persons of any party to this Agreement, cast in
person at a meeting called for the purpose of voting on such approval and (b) by
the Trustees of the Trust, or by the vote of a majority of the outstanding
voting securities of the Fund. The aforesaid requirement that continuance of
this Agreement be "specifically approved at least annually" shall be construed
in a manner consistent with the 1940 Act and the rules and regulations
thereunder.
This Agreement may be terminated with respect to the Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Trust's Board of Trustees on 60 days'
written notice to you, or by you on 60 days' written notice to the Trust. This
Agreement shall terminate automatically in the event of its assignment.
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved by the vote of a majority of the outstanding voting
securities of the Fund and by the Trust's Board of Trustees, including a
majority of the Trustees who are not parties to this Agreement or interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval.
11. Limitation of Liability for Claims. The Declaration, a copy of which,
together with all amendments thereto, is on file in the Office of the Secretary
of the Commonwealth of Massachusetts, provides that the name "Scudder Equity
Trust" refers to the Trustees under the Declaration collectively as trustees and
not as individuals or personally, and that no shareholder of the Fund, or
Trustee, officer, employee or agent of the Trust, shall be subject to claims
against or obligations of the Trust or of the Fund to any extent whatsoever, but
that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability as
set forth in the Declaration and you agree that the obligations assumed by the
Trust on behalf of the Fund pursuant to this Agreement shall be limited in all
cases to the Fund and its assets, and you shall not seek satisfaction of any
such obligation from the shareholders or any shareholder of the Fund or any
other series of the Trust, or from any Trustee, officer, employee or agent of
the Trust. You understand that the rights and obligations of the Fund, or
series, under the Declaration are separate and distinct from those of any and
all other series.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
5
<PAGE>
In interpreting the provisions of this Agreement, the definitions contained
in Section 2(a) of the 1940 Act (particularly the definitions of "affiliated
person," "assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the SEC by any rule, regulation or order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or management
agreements entered into between you and the Trust on behalf of the Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
SCUDDER EQUITY TRUST
(on behalf of Scudder Capital Growth Fund)
By /s/Daniel Pierce
----------------------------
President
The foregoing Agreement is hereby accepted as of the date thereof.
SCUDDER, STEVENS & CLARK, INC.
By /s/David S. Lee
----------------------------
Managing Director
6
Scudder Equity Trust
345 Park Avenue
New York, New York 10154
December 31, 1997
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Scudder Large Company Value Fund
Ladies and Gentlemen:
Scudder Equity Trust (the "Trust") has been established as a
Massachusetts business trust to engage in the business of an investment company.
Pursuant to the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees has divided the Trust's shares of
beneficial interest, par value $0.01 per share, (the "Shares") into separate
series, or funds, including Scudder Large Company Value Fund (the "Fund").
Series may be abolished and dissolved, and additional series established, from
time to time by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the sole
investment manager of the Fund and to provide certain other services, as more
fully set forth below, and you have indicated that you are willing to act as
such investment manager and to perform such services under the terms and
conditions hereinafter set forth. Accordingly, the Trust on behalf of the Fund
agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of
investing and reinvesting the assets of the Fund in the manner and in accordance
with the investment objectives, policies and restrictions specified in the
currently effective Prospectus (the "Prospectus") and Statement of Additional
Information (the "SAI") relating to the Fund included in the Trust's
Registration Statement on Form N-1A, as amended from time to time, (the
"Registration Statement") filed by the Trust under the Investment Company Act of
1940, as amended, (the "1940 Act") and the Securities Act of 1933, as amended.
Copies of the documents referred to in the preceding sentence have been
furnished to you by the Trust. The Trust has also furnished you with copies
properly certified or authenticated of each of the following additional
documents related to the Trust and the Fund:
(a) The Declaration dated March 17, 1988, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders of the Fund
selecting you as investment manager and approving the form of this
Agreement.
<PAGE>
(d) Establishment and Designation of Series of Shares of Beneficial Interest
dated December 15, 1986 relating to the Fund.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Sublicense to Use the Scudder Trademarks. As exclusive licensee of
the rights to use and sublicense the use of the "Scudder," "Scudder Kemper
Investments, Inc." and "Scudder, Stevens & Clark, Inc." trademarks (together,
the "Scudder Marks"), you hereby grant the Trust a nonexclusive right and
sublicense to use (i) the "Scudder" name and mark as part of the Trust's name
(the "Fund Name"), and (ii) the Scudder Marks in connection with the Trust's
investment products and services, in each case only for so long as this
Agreement, any other investment management agreement between you and the Trust,
or any extension, renewal or amendment hereof or thereof remains in effect, and
only for so long as you are a licensee of the Scudder Marks, provided however,
that you agree to use your best efforts to maintain your license to use and
sublicense the Scudder Marks. The Trust agrees that it shall have no right to
sublicense or assign rights to use the Scudder Marks, shall acquire no interest
in the Scudder Marks other than the rights granted herein, that all of the
Trust's uses of the Scudder Marks shall inure to the benefit of Scudder Trust
Company as owner and licensor of the Scudder Marks (the "Trademark Owner"), and
that the Trust shall not challenge the validity of the Scudder Marks or the
Trademark Owner's ownership thereof. The Trust further agrees that all services
and products it offers in connection with the Scudder Marks shall meet
commercially reasonable standards of quality, as may be determined by you or the
Trademark Owner from time to time, provided that you acknowledge that the
services and products the Trust rendered during the one-year period preceding
the date of this Agreement are acceptable. At your reasonable request, the Trust
shall cooperate with you and the Trademark Owner and shall execute and deliver
any and all documents necessary to maintain and protect (including but not
limited to in connection with any trademark infringement action) the Scudder
Marks and/or enter the Trust as a registered user thereof. At such time as this
Agreement or any other investment management agreement shall no longer be in
effect between you (or your successor) and the Trust, or you no longer are a
licensee of the Scudder Marks, the Trust shall (to the extent that, and as soon
as, it lawfully can) cease to use the Fund Name or any other name indicating
that it is advised by, managed by or otherwise connected with you (or any
organization which shall have succeeded to your business as investment manager)
or the Trademark Owner. In no event shall the Trust use the Scudder Marks or any
other name or mark confusingly similar thereto (including, but not limited to,
any name or mark that includes the name "Scudder") if this Agreement or any
other investment advisory agreement between you (or your successor) and the Fund
is terminated.
3. Portfolio Management Services. As manager of the assets of the Fund,
you shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 3, you shall
be entitled to receive and act upon advice of counsel to the Trust or counsel to
you. You shall also make available to the Trust promptly upon request all of the
Fund's investment records and
2
<PAGE>
ledgers as are necessary to assist the Trust in complying with the requirements
of the 1940 Act and other applicable laws. To the extent required by law, you
shall furnish to regulatory authorities having the requisite authority any
information or reports in connection with the services provided pursuant to this
Agreement which may be requested in order to ascertain whether the operations of
the Trust are being conducted in a manner consistent with applicable laws and
regulations.
You shall determine the securities, instruments, investments,
currencies, repurchase agreements, futures, options and other contracts relating
to investments to be purchased, sold or entered into by the Fund and place
orders with broker-dealers, foreign currency dealers, futures commission
merchants or others pursuant to your determinations and all in accordance with
Fund policies as expressed in the Registration Statement. You shall determine
what portion of the Fund's portfolio shall be invested in securities and other
assets and what portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on
the investment performance of the Fund and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Trust's officers or Board of Trustees shall
reasonably request.
4. Administrative Services. In addition to the portfolio management
services specified above in section 3, you shall furnish at your expense for the
use of the Fund such office space and facilities in the United States as the
Fund may require for its reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Trust administrative services
on behalf of the Fund necessary for operating as an open-end investment company
and not provided by persons not parties to this Agreement including, but not
limited to, preparing reports to and meeting materials for the Trust's Board of
Trustees and reports and notices to Fund shareholders; supervising, negotiating
contractual arrangements with, to the extent appropriate, and monitoring the
performance of, accounting agents, custodians, depositories, transfer agents and
pricing agents, accountants, attorneys, printers, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be necessary or
desirable to Fund operations; preparing and making filings with the Securities
and Exchange Commission (the "SEC") and other regulatory and self-regulatory
organizations, including, but not limited to, preliminary and definitive proxy
materials, post-effective amendments to the Registration Statement, semi-annual
reports on Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act;
overseeing the tabulation of proxies by the Fund's transfer agent; assisting in
the preparation and filing of the Fund's federal, state and local tax returns;
preparing and filing the Fund's federal excise tax return pursuant to Section
4982 of the Code; providing assistance with investor and public relations
matters; monitoring the valuation of portfolio securities and the calculation of
net asset value; monitoring the registration of Shares of the Fund under
applicable federal and state securities laws; maintaining or causing to be
maintained for the Fund all books, records and reports and any other information
required under the 1940 Act, to the extent that such books, records and reports
and other information are not maintained by the Fund's custodian or other agents
of the Fund; assisting in establishing the accounting policies of the Fund;
assisting in the resolution of accounting issues that may arise with respect to
the Fund's operations and consulting with the Fund's independent accountants,
legal counsel and the Fund's other agents as necessary in connection therewith;
establishing and monitoring the Fund's operating expense budgets; reviewing the
Fund's bills; processing the payment of bills that have been approved by an
authorized person; assisting the Fund in determining the amount of dividends and
distributions available to be paid by the Fund to its shareholders, preparing
and arranging for the printing of dividend notices to shareholders, and
providing the transfer and dividend paying agent, the custodian, and the
accounting agent with such information as is required for such parties to effect
the payment of dividends and distributions; and otherwise assisting the Trust as
it may reasonably request in the conduct of the Fund's business, subject to the
direction and control of the Trust's Board of Trustees.
3
<PAGE>
Nothing in this Agreement shall be deemed to shift to you or to diminish the
obligations of any agent of the Fund or any other person not a party to this
Agreement which is obligated to provide services to the Fund.
5. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 5, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including the Fund's
share of payroll taxes) who are affiliated persons of you, and you shall make
available, without expense to the Fund, the services of such of your directors,
officers and employees as may duly be elected officers of the Trust, subject to
their individual consent to serve and to any limitations imposed by law. You
shall provide at your expense the portfolio management services described in
section 3 hereof and the administrative services described in section 4 hereof.
You shall not be required to pay any expenses of the Fund other than
those specifically allocated to you in this section 5. In particular, but
without limiting the generality of the foregoing, you shall not be responsible,
except to the extent of the reasonable compensation of such of the Fund's
Trustees and officers as are directors, officers or employees of you whose
services may be involved, for the following expenses of the Fund: organization
expenses of the Fund (including out-of-pocket expenses, but not including your
overhead or employee costs); fees payable to you and to any other Fund advisors
or consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent, custodians,
subcustodians, transfer agents, dividend disbursing agents and registrars;
payment for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; expenses of preparing share
certificates and, except as provided below in this section 5, other expenses in
connection with the issuance, offering, distribution, sale, redemption or
repurchase of securities issued by the Fund; expenses relating to investor and
public relations; expenses and fees of registering or qualifying Shares of the
Fund for sale; interest charges, bond premiums and other insurance expense;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; costs of
shareholders' and other meetings; and travel expenses (or an appropriate portion
thereof) of Trustees and officers of the Trust who are directors, officers or
employees of you to the extent that such expenses relate to attendance at
meetings of the Board of Trustees of the Trust or any committees thereof or
advisors thereto held outside of Boston, Massachusetts or New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of the Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan in
conformity with Rule 12b-1 under the 1940 Act providing that the Fund (or some
other party) shall assume some or all of such expenses. You shall be required to
pay such of the foregoing sales expenses as are not required to be paid by the
principal underwriter pursuant to the underwriting agreement or are not
permitted to be paid by the Fund (or some other party) pursuant to such a plan.
4
<PAGE>
6. Management Fee. For all services to be rendered, payments to be made
and costs to be assumed by you as provided in sections 3, 4 and 5 hereof, the
Trust on behalf of the Fund shall pay you in United States Dollars on the last
day of each month the unpaid balance of a fee equal to the excess of 1/12 of
0.75 of 1 percent of the average daily net assets as defined below of the Fund
for such month; provided that, for any calendar month during which the average
of such values exceeds $500 million, the fee payable for that month based on the
portion of the average of such values in excess of $500 million shall be 1/12 of
0.65 of 1 percent of such portion; and provided that, for any calendar month
during which the average of such values exceeds $1 billion, the fee payable for
that month based on the portion of the average of such values in excess of $1
billion shall be 1/12 of 0.60 of 1 percent of such portion; and provided that,
for any calendar month during which the average of such values exceeds $1.5
billion, the fee payable for that month based on the portion of the average of
such values in excess of $1.5 billion shall be 1/12 of 0.55 of 1 percent of such
portion over any compensation waived by you from time to time (as more fully
described below). You shall be entitled to receive during any month such interim
payments of your fee hereunder as you shall request, provided that no such
payment shall exceed 75 percent of the amount of your fee then accrued on the
books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of
the values placed on the Fund's net assets as of 4:00 p.m. (New York time) on
each day on which the net asset value of the Fund is determined consistent with
the provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully
determines the value of its net assets as of some other time on each business
day, as of such time. The value of the net assets of the Fund shall always be
determined pursuant to the applicable provisions of the Declaration and the
Registration Statement. If the determination of net asset value does not take
place for any particular day, then for the purposes of this section 6, the value
of the net assets of the Fund as last determined shall be deemed to be the value
of its net assets as of 4:00 p.m. (New York time), or as of such other time as
the value of the net assets of the Fund's portfolio may be lawfully determined
on that day. If the Fund determines the value of the net assets of its portfolio
more than once on any day, then the last such determination thereof on that day
shall be deemed to be the sole determination thereof on that day for the
purposes of this section 6.
You may waive all or a portion of your fees provided for hereunder and
such waiver shall be treated as a reduction in purchase price of your services.
You shall be contractually bound hereunder by the terms of any publicly
announced waiver of your fee, or any limitation of the Fund's expenses, as if
such waiver or limitation were fully set forth herein.
7. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be
deemed to be exclusive and it is understood that you may render investment
advice, management and services to others. In acting under this Agreement, you
shall be an independent contractor and not an agent of the Trust. Whenever the
Fund and
5
<PAGE>
one or more other accounts or investment companies advised by the Manager have
available funds for investment, investments suitable and appropriate for each
shall be allocated in accordance with procedures believed by the Manager to be
equitable to each entity. Similarly, opportunities to sell securities shall be
allocated in a manner believed by the Manager to be equitable. The Fund
recognizes that in some cases this procedure may adversely affect the size of
the position that may be acquired or disposed of for the Fund.
8. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Trust agrees that
you shall not be liable under this Agreement for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, provided that nothing in this Agreement
shall be deemed to protect or purport to protect you against any liability to
the Trust, the Fund or its shareholders to which you would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard of your
obligations and duties hereunder. Any person, even though also employed by you,
who may be or become an employee of and paid by the Fund shall be deemed, when
acting within the scope of his or her employment by the Fund, to be acting in
such employment solely for the Fund and not as your employee or agent.
9. Duration and Termination of This Agreement. This Agreement shall
remain in force until September 30, 1998, and continue in force from year to
year thereafter, but only so long as such continuance is specifically approved
at least annually (a) by the vote of a majority of the Trustees who are not
parties to this Agreement or interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Trustees of the Trust, or by the vote of a majority of the
outstanding voting securities of the Fund. The aforesaid requirement that
continuance of this Agreement be "specifically approved at least annually" shall
be construed in a manner consistent with the 1940 Act and the rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Trust's Board of Trustees on 60 days'
written notice to you, or by you on 60 days' written notice to the Trust. This
Agreement shall terminate automatically in the event of its assignment.
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
11. Limitation of Liability for Claims. The Declaration, a copy of
which, together with all amendments thereto, is on file in the Office of the
Secretary of the Commonwealth of Massachusetts, provides that the name "Scudder
Equity Trust" refers to the Trustees under the Declaration collectively as
Trustees and not as individuals or personally, and that no shareholder of the
Fund, or Trustee, officer, employee or agent of the Trust, shall be subject to
claims against or obligations of the Trust or of the Fund to any extent
whatsoever, but that the Trust estate only shall be liable.
6
<PAGE>
You are hereby expressly put on notice of the limitation of liability
as set forth in the Declaration and you agree that the obligations assumed by
the Trust on behalf of the Fund pursuant to this Agreement shall be limited in
all cases to the Fund and its assets, and you shall not seek satisfaction of any
such obligation from the shareholders or any shareholder of the Fund or any
other series of the Trust, or from any Trustee, officer, employee or agent of
the Trust. You understand that the rights and obligations of each Fund, or
series, under the Declaration are separate and distinct from those of any and
all other series.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"affiliated person," "assignment" and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the SEC by any rule, regulation or
order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or
management agreements entered into between you and the Trust on behalf of the
Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
SCUDDER EQUITY TRUST, on behalf of
Scudder Large Company Value Fund
By: /s/Daniel Pierce
--------------------
President
7
<PAGE>
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Stephen R. Beckwith
---------------------------
Managing Director
8
Scudder Equity Trust
345 Park Avenue
New York, New York 10154
December 31, 1997
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Scudder Value Fund
Ladies and Gentlemen:
Scudder Equity Trust (the "Trust") has been established as a
Massachusetts business trust to engage in the business of an investment company.
Pursuant to the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees has divided the Trust's shares of
beneficial interest, par value $0.01 per share, (the "Shares") into separate
series, or funds, including Scudder Value Fund (the "Fund"). Series may be
abolished and dissolved, and additional series established, from time to time by
action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the sole
investment manager of the Fund and to provide certain other services, as more
fully set forth below, and you have indicated that you are willing to act as
such investment manager and to perform such services under the terms and
conditions hereinafter set forth. Accordingly, the Trust on behalf of the Fund
agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of
investing and reinvesting the assets of the Fund in the manner and in accordance
with the investment objectives, policies and restrictions specified in the
currently effective Prospectus (the "Prospectus") and Statement of Additional
Information (the "SAI") relating to the Fund included in the Trust's
Registration Statement on Form N-1A, as amended from time to time, (the
"Registration Statement") filed by the Trust under the Investment Company Act of
1940, as amended, (the "1940 Act") and the Securities Act of 1933, as amended.
Copies of the documents referred to in the preceding sentence have been
furnished to you by the Trust. The Trust has also furnished you with copies
properly certified or authenticated of each of the following additional
documents related to the Trust and the Fund:
(a) The Declaration dated March 17, 1988, as amended to date.
(b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders of the Fund
selecting you as investment manager and approving the form of this
Agreement.
<PAGE>
(d) Establishment and Designation of Series of Shares of Beneficial Interest
dated October 6, 1992 relating to the Fund.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Sublicense to Use the Scudder Trademarks. As exclusive licensee of
the rights to use and sublicense the use of the "Scudder," "Scudder Kemper
Investments, Inc." and "Scudder, Stevens & Clark, Inc." trademarks (together,
the "Scudder Marks"), you hereby grant the Trust a nonexclusive right and
sublicense to use (i) the "Scudder" name and mark as part of the Trust's name
(the "Fund Name"), and (ii) the Scudder Marks in connection with the Trust's
investment products and services, in each case only for so long as this
Agreement, any other investment management agreement between you and the Trust,
or any extension, renewal or amendment hereof or thereof remains in effect, and
only for so long as you are a licensee of the Scudder Marks, provided however,
that you agree to use your best efforts to maintain your license to use and
sublicense the Scudder Marks. The Trust agrees that it shall have no right to
sublicense or assign rights to use the Scudder Marks, shall acquire no interest
in the Scudder Marks other than the rights granted herein, that all of the
Trust's uses of the Scudder Marks shall inure to the benefit of Scudder Trust
Company as owner and licensor of the Scudder Marks (the "Trademark Owner"), and
that the Trust shall not challenge the validity of the Scudder Marks or the
Trademark Owner's ownership thereof. The Trust further agrees that all services
and products it offers in connection with the Scudder Marks shall meet
commercially reasonable standards of quality, as may be determined by you or the
Trademark Owner from time to time, provided that you acknowledge that the
services and products the Trust rendered during the one-year period preceding
the date of this Agreement are acceptable. At your reasonable request, the Trust
shall cooperate with you and the Trademark Owner and shall execute and deliver
any and all documents necessary to maintain and protect (including but not
limited to in connection with any trademark infringement action) the Scudder
Marks and/or enter the Trust as a registered user thereof. At such time as this
Agreement or any other investment management agreement shall no longer be in
effect between you (or your successor) and the Trust, or you no longer are a
licensee of the Scudder Marks, the Trust shall (to the extent that, and as soon
as, it lawfully can) cease to use the Fund Name or any other name indicating
that it is advised by, managed by or otherwise connected with you (or any
organization which shall have succeeded to your business as investment manager)
or the Trademark Owner. In no event shall the Trust use the Scudder Marks or any
other name or mark confusingly similar thereto (including, but not limited to,
any name or mark that includes the name "Scudder") if this Agreement or any
other investment advisory agreement between you (or your successor) and the Fund
is terminated.
3. Portfolio Management Services. As manager of the assets of the Fund,
you shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 3, you shall
be entitled to receive and act upon advice of counsel to the Trust or counsel to
you. You shall also make available to the Trust promptly upon request all of the
Fund's investment records and
2
<PAGE>
ledgers as are necessary to assist the Trust in complying with the requirements
of the 1940 Act and other applicable laws. To the extent required by law, you
shall furnish to regulatory authorities having the requisite authority any
information or reports in connection with the services provided pursuant to this
Agreement which may be requested in order to ascertain whether the operations of
the Trust are being conducted in a manner consistent with applicable laws and
regulations.
You shall determine the securities, instruments, investments,
currencies, repurchase agreements, futures, options and other contracts relating
to investments to be purchased, sold or entered into by the Fund and place
orders with broker-dealers, foreign currency dealers, futures commission
merchants or others pursuant to your determinations and all in accordance with
Fund policies as expressed in the Registration Statement. You shall determine
what portion of the Fund's portfolio shall be invested in securities and other
assets and what portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on
the investment performance of the Fund and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Trust's officers or Board of Trustees shall
reasonably request.
4. Administrative Services. In addition to the portfolio management
services specified above in section 3, you shall furnish at your expense for the
use of the Fund such office space and facilities in the United States as the
Fund may require for its reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Trust administrative services
on behalf of the Fund necessary for operating as an open-end investment company
and not provided by persons not parties to this Agreement including, but not
limited to, preparing reports to and meeting materials for the Trust's Board of
Trustees and reports and notices to Fund shareholders; supervising, negotiating
contractual arrangements with, to the extent appropriate, and monitoring the
performance of, accounting agents, custodians, depositories, transfer agents and
pricing agents, accountants, attorneys, printers, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be necessary or
desirable to Fund operations; preparing and making filings with the Securities
and Exchange Commission (the "SEC") and other regulatory and self-regulatory
organizations, including, but not limited to, preliminary and definitive proxy
materials, post-effective amendments to the Registration Statement, semi-annual
reports on Form N-SAR and notices pursuant to Rule 24f-2 under the 1940 Act;
overseeing the tabulation of proxies by the Fund's transfer agent; assisting in
the preparation and filing of the Fund's federal, state and local tax returns;
preparing and filing the Fund's federal excise tax return pursuant to Section
4982 of the Code; providing assistance with investor and public relations
matters; monitoring the valuation of portfolio securities and the calculation of
net asset value; monitoring the registration of Shares of the Fund under
applicable federal and state securities laws; maintaining or causing to be
maintained for the Fund all books, records and reports and any other information
required under the 1940 Act, to the extent that such books, records and reports
and other information are not maintained by the Fund's custodian or other agents
of the Fund; assisting in establishing the accounting policies of the Fund;
assisting in the resolution of accounting issues that may arise with respect to
the Fund's operations and consulting with the Fund's independent accountants,
legal counsel and the Fund's other agents as necessary in connection therewith;
establishing and monitoring the Fund's operating expense budgets; reviewing the
Fund's bills; processing the payment of bills that have been approved by an
authorized person; assisting the Fund in determining the amount of dividends and
distributions available to be paid by the Fund to its shareholders, preparing
and arranging for the printing of dividend notices to shareholders, and
providing the transfer and dividend paying agent, the custodian, and the
accounting agent with such information as is required for such parties to effect
the payment of dividends and distributions; and otherwise assisting the Trust as
it may reasonably request in the conduct of the Fund's business, subject to the
direction and control of the Trust's Board of Trustees.
3
<PAGE>
Nothing in this Agreement shall be deemed to shift to you or to diminish the
obligations of any agent of the Fund or any other person not a party to this
Agreement which is obligated to provide services to the Fund.
5. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 5, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including the Fund's
share of payroll taxes) who are affiliated persons of you, and you shall make
available, without expense to the Fund, the services of such of your directors,
officers and employees as may duly be elected officers of the Trust, subject to
their individual consent to serve and to any limitations imposed by law. You
shall provide at your expense the portfolio management services described in
section 3 hereof and the administrative services described in section 4 hereof.
You shall not be required to pay any expenses of the Fund other than
those specifically allocated to you in this section 5. In particular, but
without limiting the generality of the foregoing, you shall not be responsible,
except to the extent of the reasonable compensation of such of the Fund's
Trustees and officers as are directors, officers or employees of you whose
services may be involved, for the following expenses of the Fund: organization
expenses of the Fund (including out-of-pocket expenses, but not including your
overhead or employee costs); fees payable to you and to any other Fund advisors
or consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent, custodians,
subcustodians, transfer agents, dividend disbursing agents and registrars;
payment for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; expenses of preparing share
certificates and, except as provided below in this section 5, other expenses in
connection with the issuance, offering, distribution, sale, redemption or
repurchase of securities issued by the Fund; expenses relating to investor and
public relations; expenses and fees of registering or qualifying Shares of the
Fund for sale; interest charges, bond premiums and other insurance expense;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; costs of
shareholders' and other meetings; and travel expenses (or an appropriate portion
thereof) of Trustees and officers of the Trust who are directors, officers or
employees of you to the extent that such expenses relate to attendance at
meetings of the Board of Trustees of the Trust or any committees thereof or
advisors thereto held outside of Boston, Massachusetts or New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of the Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan in
conformity with Rule 12b-1 under the 1940 Act providing that the Fund (or some
other party) shall assume some or all of such expenses. You shall be required to
pay such of the foregoing sales expenses as are not required to be paid by the
principal underwriter pursuant to the underwriting agreement or are not
permitted to be paid by the Fund (or some other party) pursuant to such a plan.
4
<PAGE>
6. Management Fee. For all services to be rendered, payments to be made
and costs to be assumed by you as provided in sections 3, 4 and 5 hereof, the
Trust on behalf of the Fund shall pay you in United States Dollars on the last
day of each month the unpaid balance of a fee equal to the excess of 1/12 of
0.70 of 1 percent of the average daily net assets as defined below of the Fund
for such month over any compensation waived by you from time to time (as more
fully described below). You shall be entitled to receive during any month such
interim payments of your fee hereunder as you shall request, provided that no
such payment shall exceed 75 percent of the amount of your fee then accrued on
the books of the Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of
the values placed on the Fund's net assets as of 4:00 p.m. (New York time) on
each day on which the net asset value of the Fund is determined consistent with
the provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully
determines the value of its net assets as of some other time on each business
day, as of such time. The value of the net assets of the Fund shall always be
determined pursuant to the applicable provisions of the Declaration and the
Registration Statement. If the determination of net asset value does not take
place for any particular day, then for the purposes of this section 6, the value
of the net assets of the Fund as last determined shall be deemed to be the value
of its net assets as of 4:00 p.m. (New York time), or as of such other time as
the value of the net assets of the Fund's portfolio may be lawfully determined
on that day. If the Fund determines the value of the net assets of its portfolio
more than once on any day, then the last such determination thereof on that day
shall be deemed to be the sole determination thereof on that day for the
purposes of this section 6.
You may waive all or a portion of your fees provided for hereunder and
such waiver shall be treated as a reduction in purchase price of your services.
You shall be contractually bound hereunder by the terms of any publicly
announced waiver of your fee, or any limitation of the Fund's expenses, as if
such waiver or limitation were fully set forth herein.
7. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be
deemed to be exclusive and it is understood that you may render investment
advice, management and services to others. In acting under this Agreement, you
shall be an independent contractor and not an agent of the Trust. Whenever the
Fund and one or more other accounts or investment companies advised by the
Manager have available funds for investment, investments suitable and
appropriate for each shall be allocated in accordance with procedures believed
by the Manager to be equitable to each entity. Similarly, opportunities to sell
securities shall be allocated in a manner believed by the Manager to be
equitable. The Fund recognizes that in some cases this procedure may adversely
affect the size of the position that may be acquired or disposed of for the
Fund.
5
<PAGE>
8. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Trust agrees that
you shall not be liable under this Agreement for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, provided that nothing in this Agreement
shall be deemed to protect or purport to protect you against any liability to
the Trust, the Fund or its shareholders to which you would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard of your
obligations and duties hereunder. Any person, even though also employed by you,
who may be or become an employee of and paid by the Fund shall be deemed, when
acting within the scope of his or her employment by the Fund, to be acting in
such employment solely for the Fund and not as your employee or agent.
9. Duration and Termination of This Agreement. This Agreement shall
remain in force until September 30, 1998, and continue in force from year to
year thereafter, but only so long as such continuance is specifically approved
at least annually (a) by the vote of a majority of the Trustees who are not
parties to this Agreement or interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Trustees of the Trust, or by the vote of a majority of the
outstanding voting securities of the Fund. The aforesaid requirement that
continuance of this Agreement be "specifically approved at least annually" shall
be construed in a manner consistent with the 1940 Act and the rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Trust's Board of Trustees on 60 days'
written notice to you, or by you on 60 days' written notice to the Trust. This
Agreement shall terminate automatically in the event of its assignment.
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
11. Limitation of Liability for Claims. The Declaration, a copy of
which, together with all amendments thereto, is on file in the Office of the
Secretary of the Commonwealth of Massachusetts, provides that the name "Scudder
Equity Trust" refers to the Trustees under the Declaration collectively as
Trustees and not as individuals or personally, and that no shareholder of the
Fund, or Trustee, officer, employee or agent of the Trust, shall be subject to
claims against or obligations of the Trust or of the Fund to any extent
whatsoever, but that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability
as set forth in the Declaration and you agree that the obligations assumed by
the Trust on behalf of the Fund pursuant to this Agreement shall be limited in
all cases to the Fund and its assets, and you shall not seek satisfaction of any
such obligation from the shareholders or any shareholder of the Fund or any
other series of the Trust, or from any Trustee, officer, employee or agent of
the Trust. You understand that the rights and obligations of each Fund, or
series, under the Declaration are separate and distinct from those of any and
all other series.
6
<PAGE>
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"affiliated person," "assignment" and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the SEC by any rule, regulation or
order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or
management agreements entered into between you and the Trust on behalf of the
Fund.
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
SCUDDER EQUITY TRUST, on behalf of
Scudder Value Fund
By: /s/ Daniel Pierce
-----------------
President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Stephen R. Beckwith
----------------------
Managing Director
7
Value Equity Trust
Two International Place
Boston, Massachusetts 02110
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Scudder Large Company Value Fund
Ladies and Gentlemen:
Value Equity Trust (the "Trust") has been established as a
Massachusetts business Trust to engage in the business of an investment company.
Pursuant to the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees has divided the Trust's shares of
beneficial interest, par value $0.01 per share, (the "Shares") into separate
series, or funds, including Scudder Large Company Value Fund (the "Fund").
Series may be abolished and dissolved, and additional series established, from
time to time by action of the Trustees.
The Trust, on behalf of the Fund, has selected you to act as the sole
investment manager of the Fund and to provide certain other services, as more
fully set forth below, and you have indicated that you are willing to act as
such investment manager and to perform such services under the terms and
conditions hereinafter set forth. Accordingly, the Trust on behalf of the Fund
agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of
investing and reinvesting the assets of the Fund in the manner and in accordance
with the investment objectives, policies and restrictions specified in the
currently effective Prospectus (the "Prospectus") and Statement of Additional
Information (the "SAI") relating to the Fund included in the Trust's
Registration Statement on Form N-1A, as amended from time to time, (the
"Registration Statement") filed by the Trust under the Investment Company Act of
1940, as amended, (the "1940 Act") and the Securities Act of 1933, as amended.
Copies of the documents referred to in the preceding sentence have been
furnished to you by the Trust. The Trust has also furnished you with copies
properly certified or authenticated of each of the following additional
documents related to the Trust and the Fund:
(a) The Declaration dated March 17, 1988, as amended to date.
<PAGE>
(b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders of the Fund
selecting you as investment manager and approving the form of this
Agreement.
(d) Establishment and Designation of Series of Shares of Beneficial Interest
dated December 23, 1996 relating to the Fund.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Sublicense to Use the Scudder Trademarks. As exclusive licensee of the
rights to use and sublicense the use of the "Scudder" and "Scudder Kemper
Investments, Inc."/"Scudder, Stevens & Clark, Inc." trademarks (together, the
"Scudder Marks"), you hereby grant the Trust a nonexclusive right and sublicense
to use (i) the "Scudder" name and mark as part of the Trust's name (the "Fund
Name"), and (ii) the Scudder Marks in connection with the Trust's investment
products and services, in each case only for so long as this Agreement, any
other investment management agreement between you and the Trust, or any
extension, renewal or amendment hereof or thereof remains in effect, and only
for so long as you are a licensee of the Scudder Marks, provided however, that
you agree to use your best efforts to maintain your license to use and
sublicense the Scudder Marks. The Trust agrees that it shall have no right to
sublicense or assign rights to use the Scudder Marks, shall acquire no interest
in the Scudder Marks other than the rights granted herein, that all of the
Trust's uses of the Scudder Marks shall inure to the benefit of Scudder Trust
Company as owner and licensor of the Scudder Marks (the "Trademark Owner"), and
that the Trust shall not challenge the validity of the Scudder Marks or the
Trademark Owner's ownership thereof. The Trust further agrees that all services
and products it offers in connection with the Scudder Marks shall meet
commercially reasonable standards of quality, as may be determined by you or the
Trademark Owner from time to time, provided that you acknowledge that the
services and products the Trust rendered during the one-year period preceding
the date of this Agreement are acceptable. At your reasonable request, the Trust
shall cooperate with you and the Trademark Owner and shall execute and deliver
any and all documents necessary to maintain and protect (including but not
limited to in connection with any trademark infringement action) the Scudder
Marks and/or enter the Trust as a registered user thereof. At such time as this
Agreement or any other investment management agreement shall no longer be in
effect between you (or your successor) and the Trust, or you no longer are a
licensee of the Scudder Marks, the Trust shall (to the extent that, and as soon
as, it lawfully can) cease to use the Fund Name or any other name indicating
that it is advised by, managed by or otherwise connected with you (or any
organization which shall have succeeded to your business as investment manager)
or the Trademark Owner. In no event shall the Trust use the Scudder Marks or any
other name or mark confusingly similar thereto (including, but not limited to,
any name or mark that includes the name "Scudder") if this Agreement or any
other investment advisory agreement between you (or your successor) and the Fund
is terminated.
2
<PAGE>
3. Portfolio Management Services. As manager of the assets of the Fund,
you shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 3, you shall
be entitled to receive and act upon advice of counsel to the Trust or counsel to
you. You shall also make available to the Trust promptly upon request all of the
Fund's investment records and ledgers as are necessary to assist the Trust in
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments,
currencies, repurchase agreements, futures, options and other contracts relating
to investments to be purchased, sold or entered into by the Fund and place
orders with broker-dealers, foreign currency dealers, futures commission
merchants or others pursuant to your determinations and all in accordance with
Fund policies as expressed in the Registration Statement. You shall determine
what portion of the Fund's portfolio shall be invested in securities and other
assets and what portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on
the investment performance of the Fund and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Trust's officers or Board of Trustees shall
reasonably request.
4. Administrative Services. In addition to the portfolio management
services specified above in section 3, you shall furnish at your expense for the
use of the Fund such office space and facilities in the United States as the
Fund may require for its reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Trust administrative services
on behalf of the Fund necessary for operating as an open-end investment company
and not provided by persons not parties to this Agreement including, but not
limited to, preparing reports to and meeting materials for the Trust's Board of
Trustees and reports and notices to Fund shareholders; supervising, negotiating
contractual arrangements with, to the extent appropriate, and monitoring the
performance of, accounting agents, custodians, depositories, transfer agents and
pricing agents, accountants, attorneys, printers, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be necessary or
desirable to Fund operations;
3
<PAGE>
preparing and making filings with the Securities and Exchange Commission (the
"SEC") and other regulatory and self-regulatory organizations, including, but
not limited to, preliminary and definitive proxy materials, post-effective
amendments to the Registration Statement, semi-annual reports on Form N-SAR and
notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the tabulation of
proxies by the Fund's transfer agent; assisting in the preparation and filing of
the Fund's federal, state and local tax returns; preparing and filing the Fund's
federal excise tax return pursuant to Section 4982 of the Code; providing
assistance with investor and public relations matters; monitoring the valuation
of portfolio securities and the calculation of net asset value; monitoring the
registration of Shares of the Fund under applicable federal and state securities
laws; maintaining or causing to be maintained for the Fund all books, records
and reports and any other information required under the 1940 Act, to the extent
that such books, records and reports and other information are not maintained by
the Fund's custodian or other agents of the Fund; assisting in establishing the
accounting policies of the Fund; assisting in the resolution of accounting
issues that may arise with respect to the Fund's operations and consulting with
the Fund's independent accountants, legal counsel and the Fund's other agents as
necessary in connection therewith; establishing and monitoring the Fund's
operating expense budgets; reviewing the Fund's bills; processing the payment of
bills that have been approved by an authorized person; assisting the Fund in
determining the amount of dividends and distributions available to be paid by
the Fund to its shareholders, preparing and arranging for the printing of
dividend notices to shareholders, and providing the transfer and dividend paying
agent, the custodian, and the accounting agent with such information as is
required for such parties to effect the payment of dividends and distributions;
and otherwise assisting the Trust as it may reasonably request in the conduct of
the Fund's business, subject to the direction and control of the Trust's Board
of Trustees. Nothing in this Agreement shall be deemed to shift to you or to
diminish the obligations of any agent of the Fund or any other person not a
party to this Agreement which is obligated to provide services to the Fund.
5. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 5, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including the Fund's
share of payroll taxes) who are affiliated persons of you, and you shall make
available, without expense to the Fund, the services of such of your directors,
officers and employees as may duly be elected officers of the Trust, subject to
their individual consent to serve and to any limitations imposed by law. You
shall provide at your expense the portfolio management services described in
section 3 hereof and the administrative services described in section 4 hereof.
You shall not be required to pay any expenses of the Fund other than
those specifically allocated to you in this section 5. In particular, but
without limiting the generality of the foregoing, you shall not be responsible,
except to the extent of the reasonable compensation of such of the Fund's
Trustees and officers as are directors, officers or employees of you whose
services may be involved, for the following expenses of the Fund: organization
expenses of the Fund (including out-of-pocket expenses, but not including your
overhead or employee costs); fees payable to you and to any other Fund advisors
or consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
4
<PAGE>
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent, custodians,
subcustodians, transfer agents, dividend disbursing agents and registrars;
payment for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; expenses of preparing share
certificates and, except as provided below in this section 5, other expenses in
connection with the issuance, offering, distribution, sale, redemption or
repurchase of securities issued by the Fund; expenses relating to investor and
public relations; expenses and fees of registering or qualifying Shares of the
Fund for sale; interest charges, bond premiums and other insurance expense;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; costs of
shareholders' and other meetings; and travel expenses (or an appropriate portion
thereof) of Trustees and officers of the Trust who are directors, officers or
employees of you to the extent that such expenses relate to attendance at
meetings of the Board of Trustees of the Trust or any committees thereof or
advisors thereto held outside of Boston, Massachusetts or New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of the Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan in
conformity with Rule 12b-1 under the 1940 Act providing that the Fund (or some
other party) shall assume some or all of such expenses. You shall be required to
pay such of the foregoing sales expenses as are not required to be paid by the
principal underwriter pursuant to the underwriting agreement or are not
permitted to be paid by the Fund (or some other party) pursuant to such a plan.
6. Management Fee. For all services to be rendered, payments to be made
and costs to be assumed by you as provided in sections 3, 4 and 5 hereof, the
Trust on behalf of the Fund shall pay you in United States Dollars on the last
day of each month the unpaid balance of a fee equal to the excess of 1/12 of
0.75 of 1 percent of the average daily net assets as defined below of the Fund
for such month; provided that, for any calendar month during which the average
of such values exceeds $500 million, the fee payable for that month based on the
portion of the average of such values in excess of $500 million shall be 1/12 of
0.65 of 1 percent of such portion; and provided that, for any calendar month
during which the average of such values exceeds $1 billion, the fee payable for
that month based on the portion of the average of such values in excess of $1
billion shall be 1/12 of 0.60 of 1 percent of such portion; and provided that,
for any calendar month during which the average of such values exceeds $1.5
billion, the fee payable for that month based on the portion of the average of
such values in excess of $1.5 billion shall be 1/12 of 0.55 of 1 percent of such
portion; and provided that, effective September 30, 1998, for
5
<PAGE>
any calendar month during which the average of such values exceeds $2.0 billion,
the fee payable for that month based on the portion of the average of such
values in excess of $2.0 billion shall be 1/12 of 0.50 percent of such portion
over any compensation waived by you from time to time (as more fully described
below). You shall be entitled to receive during any month such interim payments
of your fee hereunder as you shall request, provided that no such payment shall
exceed 75 percent of the amount of your fee then accrued on the books of the
Fund and unpaid.
The "average daily net assets" of the Fund shall mean the average of
the values placed on the Fund's net assets as of 4:00 p.m. (New York time) on
each day on which the net asset value of the Fund is determined consistent with
the provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully
determines the value of its net assets as of some other time on each business
day, as of such time. The value of the net assets of the Fund shall always be
determined pursuant to the applicable provisions of the Declaration and the
Registration Statement. If the determination of net asset value does not take
place for any particular day, then for the purposes of this section 6, the value
of the net assets of the Fund as last determined shall be deemed to be the value
of its net assets as of 4:00 p.m. (New York time), or as of such other time as
the value of the net assets of the Fund's portfolio may be lawfully determined
on that day. If the Fund determines the value of the net assets of its portfolio
more than once on any day, then the last such determination thereof on that day
shall be deemed to be the sole determination thereof on that day for the
purposes of this section 6.
You may waive all or a portion of your fees provided for hereunder and
such waiver shall be treated as a reduction in purchase price of your services.
You shall be contractually bound hereunder by the terms of any publicly
announced waiver of your fee, or any limitation of the Fund's expenses, as if
such waiver or limitation were fully set forth herein.
7. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be
deemed to be exclusive and it is understood that you may render investment
advice, management and services to others. In acting under this Agreement, you
shall be an independent contractor and not an agent of the Trust. Whenever the
Fund and one or more other accounts or investment companies advised by the
Manager have available funds for investment, investments suitable and
appropriate for each shall be allocated in accordance with procedures believed
by the Manager to be equitable to each entity. Similarly, opportunities to sell
securities shall be allocated in a manner believed by the Manager to be
equitable. The Fund recognizes that in some cases this
6
<PAGE>
procedure may adversely affect the size of the position that may be acquired or
disposed of for the Fund.
8. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Trust agrees that
you shall not be liable under this Agreement for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, provided that nothing in this Agreement
shall be deemed to protect or purport to protect you against any liability to
the Trust, the Fund or its shareholders to which you would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard of your
obligations and duties hereunder. Any person, even though also employed by you,
who may be or become an employee of and paid by the Fund shall be deemed, when
acting within the scope of his or her employment by the Fund, to be acting in
such employment solely for the Fund and not as your employee or agent.
9. Duration and Termination of This Agreement. This Agreement shall
remain in force until September 30, 1999, and continue in force from year to
year thereafter, but only so long as such continuance is specifically approved
at least annually (a) by the vote of a majority of the Trustees who are not
parties to this Agreement or interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Trustees of the Trust, or by the vote of a majority of the
outstanding voting securities of the Fund. The aforesaid requirement that
continuance of this Agreement be "specifically approved at least annually" shall
be construed in a manner consistent with the 1940 Act and the rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Trust's Board of Trustees on 60 days'
written notice to you, or by you on 60 days' written notice to the Trust. This
Agreement shall terminate automatically in the event of its assignment.
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
11. Limitation of Liability for Claims. The Declaration, a copy of
which, together with all amendments thereto, is on file in the Office of the
Secretary of the Commonwealth of Massachusetts, provides that the name "Value
Equity Trust" refers to the Trustees under the Declaration collectively as
Trustees and not as individuals or personally, and that no shareholder of the
Fund, or Trustee, officer, employee or agent of the Trust, shall be subject to
claims against
7
<PAGE>
or obligations of the Trust or of the Fund to any extent whatsoever, but that
the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability
as set forth in the Declaration and you agree that the obligations assumed by
the Trust on behalf of the Fund pursuant to this Agreement shall be limited in
all cases to the Fund and its assets, and you shall not seek satisfaction of any
such obligation from the shareholders or any shareholder of the Fund or any
other series of the Trust, or from any Trustee, officer, employee or agent of
the Trust. You understand that the rights and obligations of each Fund, or
series, under the Declaration are separate and distinct from those of any and
all other series.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"affiliated person," "assignment" and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the SEC by any rule, regulation or
order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or
management agreements entered into between you and the Trust on behalf of the
Fund.
8
<PAGE>
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
VALUE EQUITY TRUST, on behalf of
Scudder Large Company Value Fund
By: /s/ Thomas F. McDonough
-----------------------
Vice President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Daniel Pierce
-----------------
Managing Director
9
Value Equity Trust
Two International Place
Boston, Massachusetts 02110
September 7, 1998
Scudder Kemper Investments, Inc.
345 Park Avenue
New York, New York 10154
Investment Management Agreement
Value Fund
Ladies and Gentlemen:
Value Equity Trust (the "Trust") has been established as a
Massachusetts business Trust to engage in the business of an investment company.
Pursuant to the Trust's Declaration of Trust, as amended from time-to-time (the
"Declaration"), the Board of Trustees has divided the Trust's shares of
beneficial interest, par value $0.01 per share, (the "Shares") into separate
series, or funds, including Value Fund (the "Fund"). Series may be abolished and
dissolved, and additional series established, from time to time by action of the
Trustees.
The Trust, on behalf of the Fund, has selected you to act as the sole
investment manager of the Fund and to provide certain other services, as more
fully set forth below, and you have indicated that you are willing to act as
such investment manager and to perform such services under the terms and
conditions hereinafter set forth. Accordingly, the Trust on behalf of the Fund
agrees with you as follows:
1. Delivery of Documents. The Trust engages in the business of
investing and reinvesting the assets of the Fund in the manner and in accordance
with the investment objectives, policies and restrictions specified in the
currently effective Prospectus (the "Prospectus") and Statement of Additional
Information (the "SAI") relating to the Fund included in the Trust's
Registration Statement on Form N-1A, as amended from time to time, (the
"Registration Statement") filed by the Trust under the Investment Company Act of
1940, as amended, (the "1940 Act") and the Securities Act of 1933, as amended.
Copies of the documents referred to in the preceding sentence have been
furnished to you by the Trust. The Trust has also furnished you with copies
properly certified or authenticated of each of the following additional
documents related to the Trust and the Fund:
(a) The Declaration dated March 17, 1988, as amended to date.
<PAGE>
(b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws").
(c) Resolutions of the Trustees of the Trust and the shareholders of the Fund
selecting you as investment manager and approving the form of this
Agreement.
(d) Establishment and Designation of Series of Shares of Beneficial Interest
dated April 16, 1998 relating to the Fund.
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements, if any, to the
foregoing, including the Prospectus, the SAI and the Registration Statement.
2. Sublicense to Use the Scudder Trademarks. As exclusive licensee of the
rights to use and sublicense the use of the "Scudder" and "Scudder Kemper
Investments, Inc."/"Scudder, Stevens & Clark, Inc." trademarks (together, the
"Scudder Marks"), you hereby grant the Trust a nonexclusive right and sublicense
to use (i) the "Scudder" name and mark as part of the Trust's name (the "Fund
Name"), and (ii) the Scudder Marks in connection with the Trust's investment
products and services, in each case only for so long as this Agreement, any
other investment management agreement between you and the Trust, or any
extension, renewal or amendment hereof or thereof remains in effect, and only
for so long as you are a licensee of the Scudder Marks, provided however, that
you agree to use your best efforts to maintain your license to use and
sublicense the Scudder Marks. The Trust agrees that it shall have no right to
sublicense or assign rights to use the Scudder Marks, shall acquire no interest
in the Scudder Marks other than the rights granted herein, that all of the
Trust's uses of the Scudder Marks shall inure to the benefit of Scudder Trust
Company as owner and licensor of the Scudder Marks (the "Trademark Owner"), and
that the Trust shall not challenge the validity of the Scudder Marks or the
Trademark Owner's ownership thereof. The Trust further agrees that all services
and products it offers in connection with the Scudder Marks shall meet
commercially reasonable standards of quality, as may be determined by you or the
Trademark Owner from time to time, provided that you acknowledge that the
services and products the Trust rendered during the one-year period preceding
the date of this Agreement are acceptable. At your reasonable request, the Trust
shall cooperate with you and the Trademark Owner and shall execute and deliver
any and all documents necessary to maintain and protect (including but not
limited to in connection with any trademark infringement action) the Scudder
Marks and/or enter the Trust as a registered user thereof. At such time as this
Agreement or any other investment management agreement shall no longer be in
effect between you (or your successor) and the Trust, or you no longer are a
licensee of the Scudder Marks, the Trust shall (to the extent that, and as soon
as, it lawfully can) cease to use the Fund Name or any other name indicating
that it is advised by, managed by or otherwise connected with you (or any
organization which shall have succeeded to your business as investment manager)
or the Trademark Owner. In no event shall the Trust use the Scudder Marks or any
other name or mark confusingly similar thereto (including, but not limited to,
any name or mark that includes the name "Scudder") if this Agreement or any
other investment advisory agreement between you (or your successor) and the Fund
is terminated.
2
<PAGE>
3. Portfolio Management Services. As manager of the assets of the Fund,
you shall provide continuing investment management of the assets of the Fund in
accordance with the investment objectives, policies and restrictions set forth
in the Prospectus and SAI; the applicable provisions of the 1940 Act and the
Internal Revenue Code of 1986, as amended, (the "Code") relating to regulated
investment companies and all rules and regulations thereunder; and all other
applicable federal and state laws and regulations of which you have knowledge;
subject always to policies and instructions adopted by the Trust's Board of
Trustees. In connection therewith, you shall use reasonable efforts to manage
the Fund so that it will qualify as a regulated investment company under
Subchapter M of the Code and regulations issued thereunder. The Fund shall have
the benefit of the investment analysis and research, the review of current
economic conditions and trends and the consideration of long-range investment
policy generally available to your investment advisory clients. In managing the
Fund in accordance with the requirements set forth in this section 3, you shall
be entitled to receive and act upon advice of counsel to the Trust or counsel to
you. You shall also make available to the Trust promptly upon request all of the
Fund's investment records and ledgers as are necessary to assist the Trust in
complying with the requirements of the 1940 Act and other applicable laws. To
the extent required by law, you shall furnish to regulatory authorities having
the requisite authority any information or reports in connection with the
services provided pursuant to this Agreement which may be requested in order to
ascertain whether the operations of the Trust are being conducted in a manner
consistent with applicable laws and regulations.
You shall determine the securities, instruments, investments,
currencies, repurchase agreements, futures, options and other contracts relating
to investments to be purchased, sold or entered into by the Fund and place
orders with broker-dealers, foreign currency dealers, futures commission
merchants or others pursuant to your determinations and all in accordance with
Fund policies as expressed in the Registration Statement. You shall determine
what portion of the Fund's portfolio shall be invested in securities and other
assets and what portion, if any, should be held uninvested.
You shall furnish to the Trust's Board of Trustees periodic reports on
the investment performance of the Fund and on the performance of your
obligations pursuant to this Agreement, and you shall supply such additional
reports and information as the Trust's officers or Board of Trustees shall
reasonably request.
4. Administrative Services. In addition to the portfolio management
services specified above in section 3, you shall furnish at your expense for the
use of the Fund such office space and facilities in the United States as the
Fund may require for its reasonable needs, and you (or one or more of your
affiliates designated by you) shall render to the Trust administrative services
on behalf of the Fund necessary for operating as an open-end investment company
and not provided by persons not parties to this Agreement including, but not
limited to, preparing reports to and meeting materials for the Trust's Board of
Trustees and reports and notices to Fund shareholders; supervising, negotiating
contractual arrangements with, to the extent appropriate, and monitoring the
performance of, accounting agents, custodians, depositories, transfer agents and
pricing agents, accountants, attorneys, printers, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be necessary or
desirable to Fund operations;
3
<PAGE>
preparing and making filings with the Securities and Exchange Commission (the
"SEC") and other regulatory and self-regulatory organizations, including, but
not limited to, preliminary and definitive proxy materials, post-effective
amendments to the Registration Statement, semi-annual reports on Form N-SAR and
notices pursuant to Rule 24f-2 under the 1940 Act; overseeing the tabulation of
proxies by the Fund's transfer agent; assisting in the preparation and filing of
the Fund's federal, state and local tax returns; preparing and filing the Fund's
federal excise tax return pursuant to Section 4982 of the Code; providing
assistance with investor and public relations matters; monitoring the valuation
of portfolio securities and the calculation of net asset value; monitoring the
registration of Shares of the Fund under applicable federal and state securities
laws; maintaining or causing to be maintained for the Fund all books, records
and reports and any other information required under the 1940 Act, to the extent
that such books, records and reports and other information are not maintained by
the Fund's custodian or other agents of the Fund; assisting in establishing the
accounting policies of the Fund; assisting in the resolution of accounting
issues that may arise with respect to the Fund's operations and consulting with
the Fund's independent accountants, legal counsel and the Fund's other agents as
necessary in connection therewith; establishing and monitoring the Fund's
operating expense budgets; reviewing the Fund's bills; processing the payment of
bills that have been approved by an authorized person; assisting the Fund in
determining the amount of dividends and distributions available to be paid by
the Fund to its shareholders, preparing and arranging for the printing of
dividend notices to shareholders, and providing the transfer and dividend paying
agent, the custodian, and the accounting agent with such information as is
required for such parties to effect the payment of dividends and distributions;
and otherwise assisting the Trust as it may reasonably request in the conduct of
the Fund's business, subject to the direction and control of the Trust's Board
of Trustees. Nothing in this Agreement shall be deemed to shift to you or to
diminish the obligations of any agent of the Fund or any other person not a
party to this Agreement which is obligated to provide services to the Fund.
5. Allocation of Charges and Expenses. Except as otherwise specifically
provided in this section 5, you shall pay the compensation and expenses of all
Trustees, officers and executive employees of the Trust (including the Fund's
share of payroll taxes) who are affiliated persons of you, and you shall make
available, without expense to the Fund, the services of such of your directors,
officers and employees as may duly be elected officers of the Trust, subject to
their individual consent to serve and to any limitations imposed by law. You
shall provide at your expense the portfolio management services described in
section 3 hereof and the administrative services described in section 4 hereof.
You shall not be required to pay any expenses of the Fund other than
those specifically allocated to you in this section 5. In particular, but
without limiting the generality of the foregoing, you shall not be responsible,
except to the extent of the reasonable compensation of such of the Fund's
Trustees and officers as are directors, officers or employees of you whose
services may be involved, for the following expenses of the Fund: organization
expenses of the Fund (including out-of-pocket expenses, but not including your
overhead or employee costs); fees payable to you and to any other Fund advisors
or consultants; legal expenses; auditing and accounting expenses; maintenance of
books and records which are required to be maintained by the Fund's custodian or
other agents of the Trust; telephone, telex, facsimile, postage and other
4
<PAGE>
communications expenses; taxes and governmental fees; fees, dues and expenses
incurred by the Fund in connection with membership in investment company trade
organizations; fees and expenses of the Fund's accounting agent, custodians,
subcustodians, transfer agents, dividend disbursing agents and registrars;
payment for portfolio pricing or valuation services to pricing agents,
accountants, bankers and other specialists, if any; expenses of preparing share
certificates and, except as provided below in this section 5, other expenses in
connection with the issuance, offering, distribution, sale, redemption or
repurchase of securities issued by the Fund; expenses relating to investor and
public relations; expenses and fees of registering or qualifying Shares of the
Fund for sale; interest charges, bond premiums and other insurance expense;
freight, insurance and other charges in connection with the shipment of the
Fund's portfolio securities; the compensation and all expenses (specifically
including travel expenses relating to Trust business) of Trustees, officers and
employees of the Trust who are not affiliated persons of you; brokerage
commissions or other costs of acquiring or disposing of any portfolio securities
of the Fund; expenses of printing and distributing reports, notices and
dividends to shareholders; expenses of printing and mailing Prospectuses and
SAIs of the Fund and supplements thereto; costs of stationery; any litigation
expenses; indemnification of Trustees and officers of the Trust; costs of
shareholders' and other meetings; and travel expenses (or an appropriate portion
thereof) of Trustees and officers of the Trust who are directors, officers or
employees of you to the extent that such expenses relate to attendance at
meetings of the Board of Trustees of the Trust or any committees thereof or
advisors thereto held outside of Boston, Massachusetts or New York, New York.
You shall not be required to pay expenses of any activity which is
primarily intended to result in sales of Shares of the Fund if and to the extent
that (i) such expenses are required to be borne by a principal underwriter which
acts as the distributor of the Fund's Shares pursuant to an underwriting
agreement which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan in
conformity with Rule 12b-1 under the 1940 Act providing that the Fund (or some
other party) shall assume some or all of such expenses. You shall be required to
pay such of the foregoing sales expenses as are not required to be paid by the
principal underwriter pursuant to the underwriting agreement or are not
permitted to be paid by the Fund (or some other party) pursuant to such a plan.
6. Management Fee. For all services to be rendered, payments to be made
and costs to be assumed by you as provided in sections 3, 4 and 5 hereof, the
Trust on behalf of the Fund shall pay you in United States Dollars on the last
day of each month the unpaid balance of a fee equal to the excess of 1/12 of
0.70 of 1 percent of the average daily net assets as defined below of the Fund
for such month; and provided that, effective September 30, 1998, for any
calendar month during which the average of such values exceeds $500 million, the
fee payable for that month based on the portion of the average of such values in
excess of $500 million shall be 1/12 of 0.65 of 1 percent of such portion over
any compensation waived by you from time to time (as more fully described
below). You shall be entitled to receive during any month such interim payments
of your fee hereunder as you shall request, provided that no such payment shall
exceed 75 percent of the amount of your fee then accrued on the books of the
Fund and unpaid.
5
<PAGE>
The "average daily net assets" of the Fund shall mean the average of
the values placed on the Fund's net assets as of 4:00 p.m. (New York time) on
each day on which the net asset value of the Fund is determined consistent with
the provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully
determines the value of its net assets as of some other time on each business
day, as of such time. The value of the net assets of the Fund shall always be
determined pursuant to the applicable provisions of the Declaration and the
Registration Statement. If the determination of net asset value does not take
place for any particular day, then for the purposes of this section 6, the value
of the net assets of the Fund as last determined shall be deemed to be the value
of its net assets as of 4:00 p.m. (New York time), or as of such other time as
the value of the net assets of the Fund's portfolio may be lawfully determined
on that day. If the Fund determines the value of the net assets of its portfolio
more than once on any day, then the last such determination thereof on that day
shall be deemed to be the sole determination thereof on that day for the
purposes of this section 6.
You may waive all or a portion of your fees provided for hereunder and
such waiver shall be treated as a reduction in purchase price of your services.
You shall be contractually bound hereunder by the terms of any publicly
announced waiver of your fee, or any limitation of the Fund's expenses, as if
such waiver or limitation were fully set forth herein.
7. Avoidance of Inconsistent Position; Services Not Exclusive. In
connection with purchases or sales of portfolio securities and other investments
for the account of the Fund, neither you nor any of your directors, officers or
employees shall act as a principal or agent or receive any commission. You or
your agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities and other investments for the Fund's account with
brokers or dealers selected by you in accordance with Fund policies as expressed
in the Registration Statement. If any occasion should arise in which you give
any advice to clients of yours concerning the Shares of the Fund, you shall act
solely as investment counsel for such clients and not in any way on behalf of
the Fund.
Your services to the Fund pursuant to this Agreement are not to be
deemed to be exclusive and it is understood that you may render investment
advice, management and services to others. In acting under this Agreement, you
shall be an independent contractor and not an agent of the Trust. Whenever the
Fund and one or more other accounts or investment companies advised by the
Manager have available funds for investment, investments suitable and
appropriate for each shall be allocated in accordance with procedures believed
by the Manager to be equitable to each entity. Similarly, opportunities to sell
securities shall be allocated in a manner believed by the Manager to be
equitable. The Fund recognizes that in some cases this procedure may adversely
affect the size of the position that may be acquired or disposed of for the
Fund.
8. Limitation of Liability of Manager. As an inducement to your
undertaking to render services pursuant to this Agreement, the Trust agrees that
you shall not be liable under this Agreement for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, provided that nothing in this
6
<PAGE>
Agreement shall be deemed to protect or purport to protect you against any
liability to the Trust, the Fund or its shareholders to which you would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your duties, or by reason of your reckless
disregard of your obligations and duties hereunder. Any person, even though also
employed by you, who may be or become an employee of and paid by the Fund shall
be deemed, when acting within the scope of his or her employment by the Fund, to
be acting in such employment solely for the Fund and not as your employee or
agent.
9. Duration and Termination of This Agreement. This Agreement shall
remain in force until September 30, 1999, and continue in force from year to
year thereafter, but only so long as such continuance is specifically approved
at least annually (a) by the vote of a majority of the Trustees who are not
parties to this Agreement or interested persons of any party to this Agreement,
cast in person at a meeting called for the purpose of voting on such approval,
and (b) by the Trustees of the Trust, or by the vote of a majority of the
outstanding voting securities of the Fund. The aforesaid requirement that
continuance of this Agreement be "specifically approved at least annually" shall
be construed in a manner consistent with the 1940 Act and the rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
This Agreement may be terminated with respect to the Fund at any time,
without the payment of any penalty, by the vote of a majority of the outstanding
voting securities of the Fund or by the Trust's Board of Trustees on 60 days'
written notice to you, or by you on 60 days' written notice to the Trust. This
Agreement shall terminate automatically in the event of its assignment.
10. Amendment of this Agreement. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved in a manner consistent with the 1940 Act and rules and
regulations thereunder and any applicable SEC exemptive order therefrom.
11. Limitation of Liability for Claims. The Declaration, a copy of
which, together with all amendments thereto, is on file in the Office of the
Secretary of the Commonwealth of Massachusetts, provides that the name "Value
Equity Trust" refers to the Trustees under the Declaration collectively as
Trustees and not as individuals or personally, and that no shareholder of the
Fund, or Trustee, officer, employee or agent of the Trust, shall be subject to
claims against or obligations of the Trust or of the Fund to any extent
whatsoever, but that the Trust estate only shall be liable.
You are hereby expressly put on notice of the limitation of liability
as set forth in the Declaration and you agree that the obligations assumed by
the Trust on behalf of the Fund pursuant to this Agreement shall be limited in
all cases to the Fund and its assets, and you shall not seek satisfaction of any
such obligation from the shareholders or any shareholder of the Fund
7
<PAGE>
or any other series of the Trust, or from any Trustee, officer, employee or
agent of the Trust. You understand that the rights and obligations of each Fund,
or series, under the Declaration are separate and distinct from those of any and
all other series.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
In interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the 1940 Act (particularly the definitions of
"affiliated person," "assignment" and "majority of the outstanding voting
securities"), as from time to time amended, shall be applied, subject, however,
to such exemptions as may be granted by the SEC by any rule, regulation or
order.
This Agreement shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, provided that nothing herein shall be construed
in a manner inconsistent with the 1940 Act, or in a manner which would cause the
Fund to fail to comply with the requirements of Subchapter M of the Code.
This Agreement shall supersede all prior investment advisory or
management agreements entered into between you and the Trust on behalf of the
Fund.
8
<PAGE>
If you are in agreement with the foregoing, please execute the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract
effective as of the date of this Agreement.
Yours very truly,
VALUE EQUITY TRUST, on behalf of
Value Fund
By: /s/Thomas F. McDonough
--------------------------
Vice President
The foregoing Agreement is hereby accepted as of the date hereof.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/Daniel Pierce
------------------
Managing Director
9
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 16th day of April, 1998 between Value Fund, a series of
SCUDDER EQUITY TRUST, a Massachusetts business trust (the "Fund"), and KEMPER
DISTRIBUTORS, INC., a Delaware corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to act as agent for the distribution of shares
of beneficial interest (hereinafter called "shares") of the Class A shares,
Class B shares and Class C shares of the Fund in jurisdictions wherein shares of
the Fund may legally be offered for sale; provided, however, that the Fund in
its absolute discretion may (a) issue or sell shares directly to holders of
shares of the Fund upon such terms and conditions and for such consideration, if
any, as it may determine, whether in connection with the distribution of
subscription or purchase rights, the payment or reinvestment of dividends or
distributions, or otherwise; or (b) issue or sell shares at net asset value to
the shareholders of any other investment company, for which KDI shall act as
exclusive distributor, who wish to exchange all or a portion of their investment
in shares of such other investment company for shares of the Fund. KDI shall
appoint various financial service firms ("Firms") to provide distribution
services to investors. The Firms shall provide such office space and equipment,
telephone facilities, personnel, literature distribution, advertising and
promotion as is necessary or beneficial for providing information and
distribution services to existing and potential clients of the Firms. KDI may
also provide some of the above services for the Fund.
KDI accepts such appointment as distributor and principal underwriter and agrees
to render such services and to assume the obligations herein set forth for the
compensation herein provided. KDI shall for all purposes herein provided be
deemed to be an independent contractor and, unless expressly provided herein or
otherwise authorized, shall have no authority to act for or represent the Fund
in any way. KDI, by separate agreement with the Fund, may also serve the Fund in
other capacities. The services of KDI to the Fund under this Agreement are not
to be deemed exclusive, and KDI shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.
In carrying out its duties and responsibilities hereunder, KDI will, pursuant to
separate written contracts, appoint various
<PAGE>
Firms to provide advertising, promotion and other distribution services
contemplated hereunder directly to or for the benefit of existing and potential
shareholders who may be clients of such Firms. Such Firms shall at all times be
deemed to be independent contractors retained by KDI and not the Fund.
KDI shall use its best efforts with reasonable promptness to sell such part of
the authorized shares of the Fund remaining unissued as from time to time shall
be effectively registered under the Securities Act of 1933 ("Securities Act"),
at prices determined as hereinafter provided and on terms hereinafter set forth,
all subject to applicable federal and state laws and regulations and to the
Declaration of Trust of the Fund.
2. KDI shall sell shares of the Fund to or through qualified Firms in such
manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without the
prior consent of the Fund. In addition to sales made by it as agent of the Fund,
KDI may, in its discretion, also sell shares of the Fund as principal to persons
with whom it does not have selling group agreements.
Shares of any class of any series of the Fund offered for sale or sold by KDI
shall be so offered or sold at a price per share determined in accordance with
the then current prospectus. The price the Fund shall receive for all shares
purchased from it shall be the net asset value used in determining the public
offering price applicable to the sale of such shares. Any excess of the sales
price over the net asset value of the shares of the Fund sold by KDI as agent
shall be retained by KDI as a commission for its services hereunder. KDI may
compensate Firms for sales of shares at the commission levels provided in the
Fund's prospectus from time to time. KDI may pay other commissions, fees or
concessions to Firms, and may pay them to others in its discretion, in such
amounts as KDI shall determine from time to time. KDI shall be entitled to
receive and retain any applicable contingent deferred sales charge as described
in the Fund's prospectus. KDI shall also receive any distribution services fee
payable by the Fund as provided in Section 8 hereof.
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.
2
<PAGE>
3. The Fund will use its best efforts to keep effectively registered under the
Securities Act for sale as herein contemplated such shares as KDI shall
reasonably request and as the Securities and Exchange Commission shall permit to
be so registered. Notwithstanding any other provision hereof, the Fund may
terminate, suspend or withdraw the offering of shares whenever, in its sole
discretion, it deems such action to be desirable.
4. The Fund will execute any and all documents and furnish any and all
information that may be reasonably necessary in connection with the
qualification of its shares for sale (including the qualification of the Fund as
a dealer where necessary or advisable) in such states as KDI may reasonably
request (it being understood that the Fund shall not be required without its
consent to comply with any requirement which in its opinion is unduly
burdensome). The Fund will furnish to KDI from time to time such information
with respect to the Fund and its shares as KDI may reasonably request for use in
connection with the sale of shares of the Fund.
5. KDI shall issue and deliver or shall arrange for various Firms to issue and
deliver on behalf of the Fund such confirmations of sales made by it pursuant to
this agreement as may be required. At or prior to the time of issuance of
shares, KDI will pay or cause to be paid to the Fund the amount due the Fund for
the sale of such shares. Certificates shall be issued or shares registered on
the transfer books of the Fund in such names and denominations as KDI may
specify.
6. KDI shall order shares of the Fund from the Fund only to the extent that it
shall have received purchase orders therefor. KDI will not make, or authorize
Firms or others to make (a) any short sales of shares of the Fund; or (b) any
sales of such shares to any Director or officer of the Fund or to any officer or
director of KDI or of any corporation or association furnishing investment
advisory, managerial or supervisory services to the Fund, or to any corporation
or association, unless such sales are made in accordance with the then current
prospectus relating to the sale of such shares. KDI, as agent of and for the
account of the Fund, may repurchase the shares of the Fund at such prices and
upon such terms and conditions as shall be specified in the current prospectus
of the Fund. In selling or reacquiring shares of the Fund for the account of the
Fund, KDI will in all respects conform to the requirements of all state and
federal laws and the Conduct Rules of the National Association of Securities
Dealers, Inc., relating to such sale or reacquisition, as the case may be, and
will indemnify and save harmless the Fund and Trustees from any damage or
expense on account of any wrongful act or failure to act by KDI or any employee,
representative or agent of KDI.
3
<PAGE>
KDI will observe and be bound by all the provisions of the Declaration of Trust
of the Fund (and of any fundamental policies adopted by the Fund pursuant to the
Investment Company Act of 1940, notice of which shall have been given to KDI)
which at the time in any way require, limit, restrict, prohibit or otherwise
regulate any action on the part of KDI hereunder.
7. The Fund shall assume and pay all charges and expenses of its operations not
specifically assumed or otherwise to be provided by KDI under this Agreement.
The Fund will pay or cause to be paid expenses (including the fees and
disbursements of its own counsel) of any registration of the Fund and its shares
under the United States securities laws and expenses incident to the issuance of
shares of beneficial interest, such as the cost of share certificates, issue
taxes, and fees of the transfer agent. KDI will pay all expenses (other than
expenses which one or more Firms may bear pursuant to any agreement with KDI)
incident to the sale and distribution of the shares issued or sold hereunder,
including, without limiting the generality of the foregoing, all (a) expenses of
printing and distributing any prospectus and of preparing, printing and
distributing or disseminating any other literature, advertising and selling aids
in connection with the offering of the shares for sale (except that such
expenses need not include expenses incurred by the Fund in connection with the
preparation, typesetting, printing and distribution of any registration
statement or prospectus, report or other communication to shareholders in their
capacity as such), (b) expenses of advertising in connection with such offering
and (c) expenses (other than the Fund's auditing expenses) of qualifying or
continuing the qualification of the shares for sale and, in connection
therewith, of qualifying or continuing the qualification of the Fund as a dealer
or broker under the laws of such states as may be designated by KDI under the
conditions herein specified. No transfer taxes, if any, which may be payable in
connection with the issue or delivery of shares sold as herein contemplated or
of the certificates for such shares shall be borne by the Fund, and KDI will
indemnify and hold harmless the Fund against liability for all such transfer
taxes.
8. For the services and facilities described herein in connection with Class B
shares and Class C shares of each series of the Fund, the Fund will pay to KDI
at the end of each calendar month a distribution services fee computed at the
annual rate of .75% of average daily net assets attributable to the Class B
shares and Class C shares of each such series. For the month and year in which
this Agreement becomes effective or terminates, there shall be an appropriate
proration on the basis of the number of days that the Agreement is in effect
during the month and year, respectively. The foregoing fee shall be in addition
to and shall not be reduced or offset by the amount of any
4
<PAGE>
contingent deferred sales charge received by KDI under Section 2 hereof.
The net asset value shall be calculated in accordance with the provisions of the
Fund's current prospectus. On each day when net asset value is not calculated,
the net asset value of a share of any class of any series of the Fund shall be
deemed to be the net asset value of such a share as of the close of business on
the last previous day on which such calculation was made. The distribution
services fee for any class of the Fund shall be based upon average daily net
assets of the series attributable to the class and such fee shall be charged
only to such class.
9. KDI shall prepare reports for the Board of Directors/Trustees of the Fund on
a quarterly basis in connection with the Fund's distribution plan for Class B
shares and Class C shares showing amounts paid to the various Firms and such
other information as from time to time shall be reasonably requested by the
Board of Directors/Trustees.
10. To the extent applicable, this Agreement constitutes the plan for the Class
B shares and Class C shares of each series of the Fund pursuant to Rule 12b-1
under the Investment Company Act of 1940; and this Agreement and plan shall be
approved and renewed in accordance with Rule 12b-1 for such Class B shares and
Class C shares separately.
This Agreement shall become effective on the date hereof and shall continue
until September 30, 1998; and shall continue from year to year thereafter only
so long as such continuance is approved in the manner required by the Investment
Company Act of 1940.
This Agreement shall automatically terminate in the event of its assignment and
may be terminated at any time without the payment of any penalty by the Fund or
by KDI on sixty (60) days written notice to the other party. The Fund may effect
termination with respect to any class of any series of the Fund by a vote of (i)
a majority of the Board of Directors/Trustees, (ii) a majority of the
Directors/Trustees who are not interested persons of the Fund and who have no
direct or indirect financial interest in this Agreement or in any agreement
related to this Agreement, or (iii) a majority of the outstanding voting
securities of the class. Without prejudice to any other remedies of the Fund,
the Fund may terminate this Agreement at any time immediately upon KDI's failure
to fulfill any of its obligations hereunder.
This Agreement may not be amended to increase the amount to be paid to KDI by
the Fund for services hereunder with respect to a class of any series of the
Fund without the vote of a majority of
5
<PAGE>
the outstanding voting securities of such class. All material amendments to this
Agreement must in any event be approved by a vote of the Board of
Directors/Trustees of the Fund including the Directors/Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in this Agreement or in any agreement related to this Agreement, cast
in person at a meeting called for such purpose.
The terms "assignment", "interested" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the Investment Company
Act of 1940 and the rules and regulations thereunder.
Termination of this Agreement shall not affect the right of KDI to receive
payments on any unpaid balance of the compensation described in Section 8 earned
prior to such termination.
11. KDI will not use or distribute, or authorize the use, distribution or
dissemination by Firms or others in connection with the sale of Fund shares any
statements other than those contained in the Fund's current prospectus, except
such supplemental literature or advertising as shall be lawful under federal and
state securities laws and regulations. KDI will furnish the Fund with copies of
all such material.
12. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
13. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
14. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust, and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and Trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Fund hereunder
are not binding upon any of the Trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund. With
respect to any claim by KDI for recovery of any liability of the Fund arising
hereunder allocated to a particular series or class, whether in accordance with
the express terms hereof or otherwise, KDI shall have recourse solely against
the assets of that series or class to satisfy such claim and shall have no
recourse against the assets of any other series or class for such purpose.
6
<PAGE>
15. This Agreement shall be construed in accordance with applicable federal law
and (except as to Section 14 hereof which shall be construed in accordance with
the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
16. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
7
<PAGE>
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed
as of the day and year first above written.
SCUDDER EQUITY TRUST, on behalf of
Value Fund
By: /s/Daniel Pierce
----------------
Title: President
ATTEST:
/s/Thomas F. McDonough
- ----------------------
Title:
KEMPER DISTRIBUTORS, INC.
By: /s/Mark S. Casady
-----------------
Title: Vice President
ATTEST:
/s/Kathryn L. Quirk
- -------------------
Title:
8
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 6th day of August, 1998 between VALUE EQUITY TRUST, a
Massachusetts business trust (the "Trust"), on behalf of Value Fund, a series of
the Trust (the "Fund"), and KEMPER DISTRIBUTORS, INC., a Delaware corporation
("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Trust hereby appoints KDI to act as agent for the distribution of shares
of beneficial interest (hereinafter called "shares") of the Class A shares,
Class B shares and Class C shares of the Fund in jurisdictions wherein shares of
the Fund may legally be offered for sale; provided, however, that the Trust in
its absolute discretion may (a) issue or sell shares directly to holders of
shares of the Fund upon such terms and conditions and for such consideration, if
any, as it may determine, whether in connection with the distribution of
subscription or purchase rights, the payment or reinvestment of dividends or
distributions, or otherwise; or (b) issue or sell shares at net asset value to
the shareholders of any other investment company, for which KDI shall act as
exclusive distributor, who wish to exchange all or a portion of their investment
in shares of such other investment company for shares of the Fund. KDI shall
appoint various financial service firms ("Firms") to provide distribution
services to investors. The Firms shall provide such office space and equipment,
telephone facilities, personnel, literature distribution, advertising and
promotion as is necessary or beneficial for providing information and
distribution services to existing and potential clients of the Firms. KDI may
also provide some of the above services for the Trust.
KDI accepts such appointment as distributor and principal underwriter and agrees
to render such services and to assume the obligations herein set forth for the
compensation herein provided. KDI shall for all purposes herein provided be
deemed to be an independent contractor and, unless expressly provided herein or
otherwise authorized, shall have no authority to act for or represent the Trust
in any way. KDI, by separate agreement with the Trust, may also serve the Trust
in other capacities. The services of KDI to the Trust under this Agreement are
not to be deemed exclusive, and KDI shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.
In carrying out its duties and responsibilities hereunder, KDI will, pursuant to
separate written contracts, appoint various Firms to provide advertising,
promotion and other distribution services contemplated hereunder directly to or
for the benefit of existing and potential shareholders who may be clients of
such Firms. Such Firms shall at all times be deemed to be independent
contractors retained by KDI and not the Trust.
KDI shall use its best efforts with reasonable promptness to sell such part of
the authorized shares of the Fund remaining unissued as from time to time shall
be effectively registered under the Securities Act of 1933 ("Securities Act"),
at prices determined as hereinafter provided and on terms hereinafter set forth,
all subject to applicable federal and state laws and regulations and to the
Declaration of Trust of the Trust.
<PAGE>
2. KDI shall sell shares of the Fund to or through qualified Firms in such
manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without the
prior consent of the Trust. In addition to sales made by it as agent of the
Fund, KDI may, in its discretion, also sell shares of the Fund as principal to
persons with whom it does not have selling group agreements.
Shares of any class of the Fund offered for sale or sold by KDI shall be so
offered or sold at a price per share determined in accordance with the then
current prospectus. The price the Trust shall receive, on behalf of the Fund,
for all Fund shares purchased from it shall be the net asset value used in
determining the public offering price applicable to the sale of such shares. Any
excess of the sales price over the net asset value of the shares of the Fund
sold by KDI as agent shall be retained by KDI as a commission for its services
hereunder. KDI may compensate Firms for sales of shares at the commission levels
provided in the Fund's prospectus from time to time. KDI may pay other
commissions, fees or concessions to Firms, and may pay them to others in its
discretion, in such amounts as KDI shall determine from time to time. KDI shall
be entitled to receive and retain any applicable contingent deferred sales
charge as described in the Fund's prospectus. KDI shall also receive any
distribution services fee payable by the Fund as provided in the Fund's Amended
and Restated Rule 12b-1 Plan, as amended from time to time (the "Plan").
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.
3. The Trust will use its best efforts to keep effectively registered under the
Securities Act for sale as herein contemplated such shares as KDI shall
reasonably request and as the Securities and Exchange Commission shall permit to
be so registered. Notwithstanding any other provision hereof, the Trust may
terminate, suspend or withdraw the offering of Fund shares whenever, in its sole
discretion, it deems such action to be desirable.
4. The Trust will execute any and all documents and furnish any and all
information that may be reasonably necessary in connection with the
qualification of Fund shares for sale (including the qualification of the Trust
or the Fund as a dealer where necessary or advisable) in such states as KDI may
reasonably request (it being understood that the Trust shall not be required
without its consent to comply with any requirement which in its opinion is
unduly burdensome). The Trust will furnish to KDI from time to time such
information with respect to the Fund and its shares as KDI may reasonably
request for use in connection with the sale of shares of the Fund.
5. KDI shall issue and deliver or shall arrange for various Firms to issue and
deliver on behalf of the Fund such confirmations of sales made by it pursuant to
this agreement as may be required. At or prior to the time of issuance of
shares, KDI will pay or cause to be paid to the Fund the amount due the Trust,
on behalf of the Fund, for the sale of such Fund shares. Certificates shall be
issued or shares registered on the transfer books of the Fund in such names and
denominations as
2
<PAGE>
KDI may specify.
6. KDI shall order shares of the Fund from the Trust only to the extent that it
shall have received purchase orders therefor. KDI will not make, or authorize
Firms or others to make (a) any short sales of shares of the Fund; or (b) any
sales of such shares to any Trustee or officer of the Trust or to any officer or
director of KDI or of any corporation or association furnishing investment
advisory, managerial or supervisory services to the Fund, or to any corporation
or association, unless such sales are made in accordance with the then current
prospectus relating to the sale of such shares. KDI, as agent of and for the
account of the Fund, may repurchase the shares of the Fund at such prices and
upon such terms and conditions as shall be specified in the current prospectus
of the Fund. In selling or reacquiring shares of the Fund for the account of the
Fund, KDI will in all respects conform to the requirements of all state and
federal laws and the Conduct Rules of the National Association of Securities
Dealers, Inc., relating to such sale or reacquisition, as the case may be, and
will indemnify and save harmless the Trust and its Trustees from any damage or
expense on account of any wrongful act or failure to act by KDI or any employee,
representative or agent of KDI. KDI will observe and be bound by all the
provisions of the Declaration of Trust of the Trust (and of any fundamental
policies adopted by the Trust pursuant to the Investment Company Act of 1940,
notice of which shall have been given to KDI) which at the time in any way
require, limit, restrict, prohibit or otherwise regulate any action on the part
of KDI hereunder.
7. The Trust, on behalf of the Fund, shall assume and pay all charges and
expenses of its operations not specifically assumed or otherwise to be provided
by KDI under this Agreement or the Plan. The Trust, on behalf of the Fund, will
pay or cause to be paid expenses (including the fees and disbursements of its
own counsel) of any registration of the Fund and its shares under the United
States securities laws and expenses incident to the issuance of shares of
beneficial interest, such as the cost of share certificates, issue taxes, and
fees of the transfer agent. KDI will pay all expenses (other than expenses which
one or more Firms may bear pursuant to any agreement with KDI) incident to the
sale and distribution of the shares issued or sold hereunder, including, without
limiting the generality of the foregoing, all (a) expenses of printing and
distributing any prospectus and of preparing, printing and distributing or
disseminating any other literature, advertising and selling aids in connection
with the offering of the shares for sale (except that such expenses need not
include expenses incurred by the Fund in connection with the preparation,
typesetting, printing and distribution of any registration statement or
prospectus, report or other communication to shareholders in their capacity as
such), (b) expenses of advertising in connection with such offering and (c)
expenses (other than the Fund's auditing expenses) of qualifying or continuing
the qualification of the shares for sale and, in connection therewith, of
qualifying or continuing the qualification of the Trust as a dealer or broker
under the laws of such states as may be designated by KDI under the conditions
herein specified. No transfer taxes, if any, which may be payable in connection
with the issue or delivery of shares sold as herein contemplated or of the
certificates for such shares shall be borne by the Fund, and KDI will indemnify
and hold harmless the Trust against liability for all such transfer taxes.
8. The net asset value shall be calculated in accordance with the provisions of
the Fund's current
3
<PAGE>
prospectus. On each day when net asset value is not calculated, the net asset
value of a share of any class of any series of the Fund shall be deemed to be
the net asset value of such a share as of the close of business on the last
previous day on which such calculation was made.
9. This Agreement shall become effective on the date hereof and shall continue
until September 30, 1999; and shall continue from year to year thereafter only
so long as such continuance is approved in the manner required by the Investment
Company Act of 1940.
This Agreement shall automatically terminate in the event of its assignment and
may be terminated at any time without the payment of any penalty by the Trust or
by KDI on sixty (60) days' written notice to the other party. The Trust, on
behalf of the Fund, may effect termination with respect to any class of any
class of the Fund by a vote of (i) a majority of the Board of Trustees of the
Trust, (ii) a majority of the Trustees of the Trust who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan, this Agreement or in any other agreement related to
the Plan or this Agreement, or (iii) a majority of the outstanding voting
securities of such class. Without prejudice to any other remedies of the Trust,
the Trust may terminate this Agreement at any time immediately upon KDI's
failure to fulfill any of its obligations hereunder.
This Agreement may not be amended to increase the amount to be paid to KDI by
the Trust, on behalf of the Fund, for services hereunder with respect to a class
of the Fund without the vote of a majority of the outstanding voting securities
of such class. All material amendments to this Agreement must in any event be
approved by a vote of the Board of Trustees of the Trust including the Trustees
who are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan, this Agreement or in any other
agreement related to the Plan or this Agreement, cast in person at a meeting
called for such purpose.
The terms "assignment", "interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the
Investment Company Act of 1940 and the rules and regulations thereunder.
KDI shall receive such compensation for its distribution services as set forth
in the Plan. Termination of this Agreement shall not affect the right of KDI to
receive payments on any unpaid balance of the compensation earned prior to such
termination, as set forth in the Plan.
10. KDI will not use or distribute, or authorize the use, distribution or
dissemination by Firms or others in connection with the sale of Fund shares any
statements other than those contained in the Fund's current prospectus, except
such supplemental literature or advertising as shall be lawful under federal and
state securities laws and regulations. KDI will furnish the Trust with copies of
all such material.
11. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
12. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed,
4
<PAGE>
postage prepaid, to the other party at such address as such other party may
designate for the receipt of such notice.
13. All parties hereto are expressly put on notice of the Trust's Agreement and
Declaration of Trust, and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and Trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Trust hereunder
are not binding upon any of the Trustees or officers of the Trust or the
shareholders of the Fund individually but are binding upon only the assets and
property of the Fund. With respect to any claim by KDI for recovery of any
liability of the Trust arising hereunder allocated to a particular series or
class, whether in accordance with the express terms hereof or otherwise, KDI
shall have recourse solely against the assets of that series or class to satisfy
such claim and shall have no recourse against the assets of any other series or
class for such purpose.
14. This Agreement shall be construed in accordance with applicable federal law
and with the laws of The Commonwealth of Massachusetts.
15. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
5
<PAGE>
IN WITNESS WHEREOF, the Trust and KDI have caused this Agreement to be executed
as of the day and year first above written.
VALUE EQUITY TRUST, on behalf of
Value Fund
By: /s/Thomas F. McDonough
--------------------------
Title: Vice President
ATTEST:
/s/Caroline Pearson
- -------------------------
Title: Assistant Secretary
KEMPER DISTRIBUTORS, INC.
By: /s/Daniel Pierce
--------------------------
Title: Chairman
ATTEST:
/s/W. Thomas
- -------------------------
Title: Vice President
--------------
6
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this 7th day of September, 1998 between VALUE EQUITY TRUST, a
Massachusetts business trust (the "Trust"), on behalf of Value Fund, a series of
the Trust (the "Fund"), and KEMPER DISTRIBUTORS, INC., a Delaware corporation
("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Trust hereby appoints KDI to act as agent for the distribution of shares
of beneficial interest (hereinafter called "shares") of the Class A shares,
Class B shares and Class C shares of the Fund in jurisdictions wherein shares of
the Fund may legally be offered for sale; provided, however, that the Trust in
its absolute discretion may (a) issue or sell shares directly to holders of
shares of the Fund upon such terms and conditions and for such consideration, if
any, as it may determine, whether in connection with the distribution of
subscription or purchase rights, the payment or reinvestment of dividends or
distributions, or otherwise; or (b) issue or sell shares at net asset value to
the shareholders of any other investment company, for which KDI shall act as
exclusive distributor, who wish to exchange all or a portion of their investment
in shares of such other investment company for shares of the Fund. KDI shall
appoint various financial service firms ("Firms") to provide distribution
services to investors. The Firms shall provide such office space and equipment,
telephone facilities, personnel, literature distribution, advertising and
promotion as is necessary or beneficial for providing information and
distribution services to existing and potential clients of the Firms. KDI may
also provide some of the above services for the Trust.
KDI accepts such appointment as distributor and principal underwriter and agrees
to render such services and to assume the obligations herein set forth for the
compensation herein provided. KDI shall for all purposes herein provided be
deemed to be an independent contractor and, unless expressly provided herein or
otherwise authorized, shall have no authority to act for or represent the Trust
in any way. KDI, by separate agreement with the Trust, may also serve the Trust
in other capacities. The services of KDI to the Trust under this Agreement are
not to be deemed exclusive, and KDI shall be free to render similar services or
other services to others so long as its services hereunder are not impaired
thereby.
In carrying out its duties and responsibilities hereunder, KDI will, pursuant to
separate written contracts, appoint various Firms to provide advertising,
promotion and other distribution services contemplated hereunder directly to or
for the benefit of existing and potential shareholders who may be clients of
such Firms. Such Firms shall at all times be deemed to be independent
contractors retained by KDI and not the Trust.
KDI shall use its best efforts with reasonable promptness to sell such part of
the authorized shares of the Fund remaining unissued as from time to time shall
be effectively registered under the Securities Act of 1933 ("Securities Act"),
at prices determined as hereinafter provided and on terms hereinafter set forth,
all subject to applicable federal and state laws and regulations and to the
Declaration of Trust of the Trust.
<PAGE>
2. KDI shall sell shares of the Fund to or through qualified Firms in such
manner, not inconsistent with the provisions hereof and the then effective
registration statement (and related prospectus) of the Fund under the Securities
Act, as KDI may determine from time to time, provided that no Firm or other
person shall be appointed or authorized to act as agent of the Fund without the
prior consent of the Trust. In addition to sales made by it as agent of the
Fund, KDI may, in its discretion, also sell shares of the Fund as principal to
persons with whom it does not have selling group agreements.
Shares of any class of the Fund offered for sale or sold by KDI shall be so
offered or sold at a price per share determined in accordance with the then
current prospectus. The price the Trust shall receive, on behalf of the Fund,
for all Fund shares purchased from it shall be the net asset value used in
determining the public offering price applicable to the sale of such shares. Any
excess of the sales price over the net asset value of the shares of the Fund
sold by KDI as agent shall be retained by KDI as a commission for its services
hereunder. KDI may compensate Firms for sales of shares at the commission levels
provided in the Fund's prospectus from time to time. KDI may pay other
commissions, fees or concessions to Firms, and may pay them to others in its
discretion, in such amounts as KDI shall determine from time to time. KDI shall
be entitled to receive and retain any applicable contingent deferred sales
charge as described in the Fund's prospectus. KDI shall also receive any
distribution services fee payable by the Fund as provided in the Fund's Amended
and Restated Rule 12b-1 Plan, as amended from time to time (the "Plan").
KDI will require each Firm to conform to the provisions hereof and the
Registration Statement (and related prospectus) at the time in effect under the
Securities Act with respect to the public offering price or net asset value, as
applicable, of the Fund's shares, and neither KDI nor any such Firms shall
withhold the placing of purchase orders so as to make a profit thereby.
3. The Trust will use its best efforts to keep effectively registered under the
Securities Act for sale as herein contemplated such shares as KDI shall
reasonably request and as the Securities and Exchange Commission shall permit to
be so registered. Notwithstanding any other provision hereof, the Trust may
terminate, suspend or withdraw the offering of Fund shares whenever, in its sole
discretion, it deems such action to be desirable.
4. The Trust will execute any and all documents and furnish any and all
information that may be reasonably necessary in connection with the
qualification of Fund shares for sale (including the qualification of the Trust
or the Fund as a dealer where necessary or advisable) in such states as KDI may
reasonably request (it being understood that the Trust shall not be required
without its consent to comply with any requirement which in its opinion is
unduly burdensome). The Trust will furnish to KDI from time to time such
information with respect to the Fund and its shares as KDI may reasonably
request for use in connection with the sale of shares of the Fund.
5. KDI shall issue and deliver or shall arrange for various Firms to issue and
deliver on behalf of the Fund such confirmations of sales made by it pursuant to
this agreement as may be required. At or prior to the time of issuance of
shares, KDI will pay or cause to be paid to the Fund the
2
<PAGE>
amount due the Trust, on behalf of the Fund, for the sale of such Fund shares.
Certificates shall be issued or shares registered on the transfer books of the
Fund in such names and denominations as KDI may specify.
6. KDI shall order shares of the Fund from the Trust only to the extent that it
shall have received purchase orders therefor. KDI will not make, or authorize
Firms or others to make (a) any short sales of shares of the Fund; or (b) any
sales of such shares to any Trustee or officer of the Trust or to any officer or
director of KDI or of any corporation or association furnishing investment
advisory, managerial or supervisory services to the Fund, or to any corporation
or association, unless such sales are made in accordance with the then current
prospectus relating to the sale of such shares. KDI, as agent of and for the
account of the Fund, may repurchase the shares of the Fund at such prices and
upon such terms and conditions as shall be specified in the current prospectus
of the Fund. In selling or reacquiring shares of the Fund for the account of the
Fund, KDI will in all respects conform to the requirements of all state and
federal laws and the Conduct Rules of the National Association of Securities
Dealers, Inc., relating to such sale or reacquisition, as the case may be, and
will indemnify and save harmless the Trust and its Trustees from any damage or
expense on account of any wrongful act or failure to act by KDI or any employee,
representative or agent of KDI. KDI will observe and be bound by all the
provisions of the Declaration of Trust of the Trust (and of any fundamental
policies adopted by the Trust pursuant to the Investment Company Act of 1940,
notice of which shall have been given to KDI) which at the time in any way
require, limit, restrict, prohibit or otherwise regulate any action on the part
of KDI hereunder.
7. The Trust, on behalf of the Fund, shall assume and pay all charges and
expenses of its operations not specifically assumed or otherwise to be provided
by KDI under this Agreement or the Plan. The Trust, on behalf of the Fund, will
pay or cause to be paid expenses (including the fees and disbursements of its
own counsel) of any registration of the Fund and its shares under the United
States securities laws and expenses incident to the issuance of shares of
beneficial interest, such as the cost of share certificates, issue taxes, and
fees of the transfer agent. KDI will pay all expenses (other than expenses which
one or more Firms may bear pursuant to any agreement with KDI) incident to the
sale and distribution of the shares issued or sold hereunder, including, without
limiting the generality of the foregoing, all (a) expenses of printing and
distributing any prospectus and of preparing, printing and distributing or
disseminating any other literature, advertising and selling aids in connection
with the offering of the shares for sale (except that such expenses need not
include expenses incurred by the Fund in connection with the preparation,
typesetting, printing and distribution of any registration statement or
prospectus, report or other communication to shareholders in their capacity as
such), (b) expenses of advertising in connection with such offering and (c)
expenses (other than the Fund's auditing expenses) of qualifying or continuing
the qualification of the shares for sale and, in connection therewith, of
qualifying or continuing the qualification of the Trust as a dealer or broker
under the laws of such states as may be designated by KDI under the conditions
herein specified. No transfer taxes, if any, which may be payable in connection
with the issue or delivery of shares sold as herein contemplated or of the
certificates for such shares shall be borne by the Fund, and KDI will indemnify
and hold harmless the Trust against liability for all such transfer taxes.
3
<PAGE>
8. The net asset value shall be calculated in accordance with the provisions of
the Fund's current prospectus. On each day when net asset value is not
calculated, the net asset value of a share of any class of any series of the
Fund shall be deemed to be the net asset value of such a share as of the close
of business on the last previous day on which such calculation was made.
9. This Agreement shall become effective on the date hereof and shall continue
until September 30, 1999; and shall continue from year to year thereafter only
so long as such continuance is approved in the manner required by the Investment
Company Act of 1940.
This Agreement shall automatically terminate in the event of its assignment and
may be terminated at any time without the payment of any penalty by the Trust or
by KDI on sixty (60) days' written notice to the other party. The Trust, on
behalf of the Fund, may effect termination with respect to any class of any
class of the Fund by a vote of (i) a majority of the Board of Trustees of the
Trust, (ii) a majority of the Trustees of the Trust who are not interested
persons of the Trust and who have no direct or indirect financial interest in
the operation of the Plan, this Agreement or in any other agreement related to
the Plan or this Agreement, or (iii) a majority of the outstanding voting
securities of such class. Without prejudice to any other remedies of the Trust,
the Trust may terminate this Agreement at any time immediately upon KDI's
failure to fulfill any of its obligations hereunder.
This Agreement may not be amended to increase the amount to be paid to KDI by
the Trust, on behalf of the Fund, for services hereunder with respect to a class
of the Fund without the vote of a majority of the outstanding voting securities
of such class. All material amendments to this Agreement must in any event be
approved by a vote of the Board of Trustees of the Trust including the Trustees
who are not interested persons of the Trust and who have no direct or indirect
financial interest in the operation of the Plan, this Agreement or in any other
agreement related to the Plan or this Agreement, cast in person at a meeting
called for such purpose.
The terms "assignment", "interested person" and "vote of a majority of the
outstanding voting securities" shall have the meanings set forth in the
Investment Company Act of 1940 and the rules and regulations thereunder.
KDI shall receive such compensation for its distribution services as set forth
in the Plan. Termination of this Agreement shall not affect the right of KDI to
receive payments on any unpaid balance of the compensation earned prior to such
termination, as set forth in the Plan.
10. KDI will not use or distribute, or authorize the use, distribution or
dissemination by Firms or others in connection with the sale of Fund shares any
statements other than those contained in the Fund's current prospectus, except
such supplemental literature or advertising as shall be lawful under federal and
state securities laws and regulations. KDI will furnish the Trust with copies of
all such material.
11. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
4
<PAGE>
12. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
13. All parties hereto are expressly put on notice of the Trust's Agreement and
Declaration of Trust, and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and Trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
representatives and not individually, and the obligations of the Trust hereunder
are not binding upon any of the Trustees or officers of the Trust or the
shareholders of the Fund individually but are binding upon only the assets and
property of the Fund. With respect to any claim by KDI for recovery of any
liability of the Trust arising hereunder allocated to a particular series or
class, whether in accordance with the express terms hereof or otherwise, KDI
shall have recourse solely against the assets of that series or class to satisfy
such claim and shall have no recourse against the assets of any other series or
class for such purpose.
14. This Agreement shall be construed in accordance with applicable federal law
and with the laws of The Commonwealth of Massachusetts.
15. This Agreement is the entire contract between the parties relating to the
subject matter hereof and supersedes all prior agreements between the parties
relating to the subject matter hereof.
5
<PAGE>
IN WITNESS WHEREOF, the Trust and KDI have caused this Agreement to be executed
as of the day and year first above written.
VALUE EQUITY TRUST, on behalf of
Value Fund
By:/s/Thomas F. McDonough
-------------------------------
Title: Vice President
ATTEST:
/s/Caroline Pearson
- -------------------------
Title: Assistant Secretary
KEMPER DISTRIBUTORS, INC.
By:/s/Daniel Pierce
-------------------------------
Title: Chairman
ATTEST:
/s/W. Thomas
- -------------------------
Title: Vice President
-------------------
6
VALUE EQUITY TRUST
Two International Place
Boston, MA 02110
September 7, 1998
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
Underwriting Agreement
Dear Ladies and Gentlemen:
Equity Value Trust (hereinafter called the "Trust") is a business trust
organized under the laws of Massachusetts and is engaged in the business of an
investment company. The authorized capital of the Trust consists of shares of
beneficial interest, with par value of $0.01 per share ("Shares"), currently
divided into two portfolios ("Portfolio"); however, shares may be divided into
additional Portfolios of the Trust and the Portfolios may be terminated from
time to time. The Trust has selected you to act as principal underwriter (as
such term is defined in Section 2(a)(29) of the Investment Company Act of 1940,
as amended (the "1940 Act")) of the Shares and you are willing to act as such
principal underwriter and to perform the duties and functions of underwriter in
the manner and on the terms and conditions hereinafter set forth. Accordingly,
the Trust hereby agrees with you as follows:
1. Delivery of Documents. The Trust has furnished you with copies properly
certified or authenticated of each of the following:
(a) Declaration of Trust of the Trust, dated March 17, 1988, as amended to
date.
(b) By-Laws of the Trust as in effect on the date hereof.
(c) Resolutions of the Board of Trustees of the Trust selecting you as
principal underwriter and approving this form of Agreement.
<PAGE>
The Trust will furnish you from time to time with copies, properly
certified or authenticated, of all amendments of or supplements to the
foregoing, if any.
The Trust will furnish you promptly with properly certified or
authenticated copies of any registration statement filed by it with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
(the "1933 Act") or the 1940 Act, together with any financial statements and
exhibits included therein, and all amendments or supplements thereto hereafter
filed.
2. Registration and Sale of Additional Shares. The Trust will from time to
time use its best efforts to register under the 1933 Act such number of Shares
not already so registered as you may reasonably be expected to sell on behalf of
the Trust. You and the Trust will cooperate in taking such action as may be
necessary from time to time to comply with requirements applicable to the sale
of Shares by you or the Trust in any states mutually agreeable to you and the
Trust, and to maintain such compliance. This Agreement relates to the issue and
sale of Shares that are duly authorized and registered under the 1933 Act and
available for sale by the Trust, including redeemed or repurchased Shares if and
to the extent that they may be legally sold and if, but only if, the Trust sees
fit to sell them.
3. Sale of Shares. Subject to the provisions of paragraphs 5 and 7 hereof
and to such minimum purchase requirements as may from time to time be currently
indicated in the Trust's prospectus or statement of additional information, you
are authorized to sell as agent on behalf of the Trust Shares authorized for
issue and registered under the 1933 Act. You may also purchase as principal
Shares for resale to the public. Such sales will be made by you on behalf of the
Trust by accepting unconditional orders to purchase Shares placed with you by
investors and such purchases will be made by you only after acceptance by you of
such orders. The sales price to the public of Shares shall be the public
offering price as defined in paragraph 6 hereof.
4. Solicitation of Orders. You will use your best efforts (but only in
states in which you may lawfully do so) to obtain from investors unconditional
orders for Shares authorized for issue by the Trust and registered under the
1933 Act, provided that you may in your discretion refuse to accept orders for
Shares from any particular applicant.
2
<PAGE>
5. Sale of Shares by the Trust. Unless you are otherwise notified by the
Trust, any right granted to you to accept orders for Shares or to make sales on
behalf of the Trust or to purchase Shares for resale will not apply to (i)
Shares issued in connection with the merger or consolidation of any other
investment company with the Trust or its acquisition, by purchase or otherwise,
of all or substantially all of the assets of any investment company or
substantially all the outstanding shares of any such company, and (ii) to Shares
that may be offered by the Trust to shareholders of the Trust by virtue of their
being such shareholders.
6. Public Offering Price. All Shares sold to investors by you will be sold
at the public offering price. The public offering price for all accepted
subscriptions will be the net asset value per Share, determined, in the manner
provided in the Trust's registration statements as from time to time in effect
under the 1933 Act and the 1940 Act, next after the order is accepted by you.
7. Suspension of Sales. If and whenever the determination of net asset
value is suspended and until such suspension is terminated, no further orders
for Shares shall be accepted by you except unconditional orders placed with you
before you had knowledge of the suspension. In addition, the Trust reserves the
right to suspend sales and your authority to accept orders for Shares on behalf
of the Trust if, in the judgment of a majority of the Board of Trustees or a
majority of the Executive Committee of such Board, if such body exists, it is in
the best interests of the Trust to do so, such suspension to continue for such
period as may be determined by such majority; and in that event, no Shares will
be sold by you on behalf of the Trust while such suspension remains in effect
except for Shares necessary to cover unconditional orders accepted by you before
you had knowledge of the suspension.
8. Portfolio Securities. Portfolio securities of any Portfolio of the Trust
may be bought or sold by or through you and you may participate directly or
indirectly in brokerage commissions or "spread" in respect to transactions in
portfolio securities of any Portfolio of the Trust; provided, however, that all
sums of money received by you as a result of such purchases and sales or as a
result of such participation must, after reimbursement of your actual expenses
in connection with such activity, be paid over by you to or for the benefit of
the Trust.
3
<PAGE>
9. Expenses. (a) The Trust will pay (or will enter into arrangements
providing that others than you will pay) all fees and expenses:
(1) in connection with the preparation, setting in type and filing of any
registration statement (including a prospectus and statement of
additional information) under the 1933 Act or the 1940 Act, or both,
and any amendments or supplements thereto that may be made from time
to time;
(2) in connection with the registration and qualification of Shares for
sale, or compliance with other conditions applicable to the sale of
Shares in the various jurisdictions in which the Trust shall determine
it advisable to sell such Shares (including registering the Trust as a
broker or dealer or any officer of the Trust or other person as agent
or salesman of the Trust in any such jurisdictions);
(3) of preparing, setting in type, printing and mailing any notice, proxy
statement, report, prospectus or other communication to shareholders
of the Trust in their capacity as such;
(4) of preparing, setting in type, printing and mailing prospectuses
annually, and any supplements thereto, to existing shareholders;
(5) in connection with the issue and transfer of Shares resulting from the
acceptance by you of orders to purchase Shares placed with you by
investors, including the expenses of printing and mailing
confirmations of such purchase orders and the expenses of printing and
mailing a prospectus included with the confirmation of such orders;
(6) of any issue taxes or any initial transfer taxes;
(7) of WATS (or equivalent) telephone lines other than the portion
allocated to you in this paragraph 9;
(8) of wiring funds in payment of Share purchases or in satisfaction of
redemption or repurchase requests, unless such expenses are paid for
by the investor or shareholder who initiates the transaction;
4
<PAGE>
(9) of the cost of printing and postage of business reply envelopes sent
to Trust shareholders;
(10) of one or more CRT terminals connected with the computer facilities of
the transfer agent other than the portion allocated to you in this
paragraph 9;
(11) permitted to be paid or assumed by the Trust pursuant to a plan
("12b-1 Plan"), if any, adopted by the Trust in conformity with the
requirements of Rule 12b-1 under the 1940 Act ("Rule 12b-1") or any
successor rule, notwithstanding any other provision to the contrary
herein;
(12) of the expense of setting in type, printing and postage of the
periodic newsletter to shareholders other than the portion allocated
to you in this paragraph 9; and
(13) of the salaries and overhead of persons employed by you as shareholder
representatives other than the portion allocated to you in this
paragraph 9.
b) You shall pay or arrange for the payment of all fees and expenses:
(1) of printing and distributing any prospectuses or reports prepared for
your use in connection with the offering of Shares to the public;
(2) of preparing, setting in type, printing and mailing any other
literature used by you in connection with the offering of Shares to
the public;
(3) of advertising in connection with the offering of Shares to the
public;
(4) incurred in connection with your registration as a broker or dealer or
the registration or qualification of your officers, trustees, agents
or representatives under Federal and state laws;
(5) of that portion of WATS (or equivalent) telephone lines, allocated to
you on the basis of use by investors (but not shareholders) who
request information or prospectuses;
(6) of that portion of the expenses of setting in type, printing and
postage of the periodic newsletter to shareholders attributable to
promotional material included in such newsletter at your request
concerning investment companies other than the Trust or concerning the
Trust to the extent you are required to assume the expense thereof
5
<PAGE>
pursuant to paragraph 9(b)(8), except such material which is limited
to information, such as listings of other investment companies and
their investment objectives, given in connection with the exchange
privilege as from time to time described in the Trust's prospectus;
(7) of that portion of the salaries and overhead of persons employed by
you as shareholder representatives attributable to the time spent by
such persons in responding to requests from prospective investors and
shareholders for information about the Trust;
(8) of any activity which is primarily intended to result in the sale of
Shares, unless a 12b-1 Plan shall be in effect which provides that the
Trust shall bear some or all of such expenses, in which case the Trust
shall bear such expenses in accordance with such Plan; and
(9) of that portion of one or more CRT terminals connected with the
computer facilities of the transfer agent attributable to your use of
such terminal(s) to gain access to such of the transfer agent's
records as also serve as your records.
Expenses which are to be allocated between you and the Trust shall be
allocated pursuant to reasonable procedures or formulae mutually agreed upon
from time to time, which procedures or formulae shall to the extent practicable
reflect studies of relevant empirical data.
10. Conformity with Law. You agree that in selling Shares you will duly
conform in all respects with the laws of the United States and any state in
which Shares may be offered for sale by you pursuant to this Agreement and to
the rules and regulations of the National Association of Securities Dealers,
Inc., of which you are a member.
11. Independent Contractor. You shall be an independent contractor and
neither you nor any of your officers or employees is or shall be an employee of
the Trust in the performance of your duties hereunder. You shall be responsible
for your own conduct and the employment, control and conduct of your agents and
employees and for injury to such agents or employees or to others through your
agents or employees. You assume full responsibility for your agents and
employees under applicable statutes and agree to pay all employee taxes
thereunder.
6
<PAGE>
12. Indemnification. You agree to indemnify and hold harmless the Trust and
each of its trustees and officers and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act, against any and all
losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which the Trust or such trustees, officers, or controlling person
may become subject under such Act, under any other statute, at common law or
otherwise, arising out of the acquisition of any Shares by any person which (i)
may be based upon any wrongful act by you or any of your employees or
representatives, or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration statement
(including a prospectus or statement of additional information) covering Shares
or any amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading if such statement or
omission was made in reliance upon information furnished to the Trust by you, or
(iii) may be incurred or arise by reason of your acting as the Trust's agent
instead of purchasing and reselling Shares as principal in distributing the
Shares to the public, provided, however, that in no case (i) is your indemnity
in favor of a trustee or officer or any other person deemed to protect such
trustee or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii) are
you to be liable under your indemnity agreement contained in this paragraph with
respect to any claim made against the Trust or any person indemnified unless the
Trust or such person, as the case may be, shall have notified you in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the Trust or
upon such person (or after the Trust or such person shall have received notice
of such service on any designated agent), but failure to notify you of any such
claim shall not relieve you from any liability which you may have to the Trust
or any person against whom such action is brought otherwise than on account of
your indemnity agreement contained in this paragraph. You shall be entitled to
participate, at your own expense, in the defense, or, if you so elect, to assume
the defense of any suit brought to enforce any such liability, but if you
7
<PAGE>
elect to assume the defense, such defense shall be conducted by counsel chosen
by you and satisfactory to the Trust, to its officers and trustees, or to any
controlling person or persons, defendant or defendants in the suit. In the event
that you elect to assume the defense of any such suit and retain such counsel,
the Trust, such officers and trustees or controlling person or persons,
defendant or defendants in the suit shall bear the fees and expenses of any
additional counsel retained by them, but, in case you do not elect to assume the
defense of any such suit, you will reimburse the Trust, such officers and
trustees or controlling person or persons, defendant or defendants in such suit
for the reasonable fees and expenses of any counsel retained by them. You agree
promptly to notify the Trust of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any Shares.
The Trust agrees to indemnify and hold harmless you and each of your
trustees and officers and each person, if any, who controls you within the
meaning of Section 15 of the 1933 Act, against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to which
you or such trustees, officers or controlling person may become subject under
such Act, under any other statute, at common law or otherwise, arising out of
the acquisition of any Shares by any person which (i) may be based upon any
wrongful act by the Trust or any of its employees or representatives, or (ii)
may be based upon any untrue statement or alleged untrue statement of a material
fact contained in a registration statement (including a prospectus or statement
of additional information) covering Shares or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such statement or omission was made in reliance upon
information furnished to you by the Trust; provided, however, that in no case
(i) is the Trust's indemnity in favor of you, a trustee or officer or any other
person deemed to protect you, such trustee or officer or other person against
any liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of obligations and duties under
this Agreement or (ii) is the Trust to be liable under its indemnity agreement
contained in this paragraph with respect to any claims made
8
<PAGE>
against you or any such trustee, officer or controlling person unless you or
such trustee, officer or controlling person, as the case may be, shall have
notified the Trust in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon you or upon such trustee, officer or controlling person
(or after you or such trustee, officer or controlling person shall have received
notice of such service on any designated agent), but failure to notify the Trust
of any such claim shall not relieve it from any liability which it may have to
the person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this paragraph. The Trust will be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the Trust
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to you, your trustees, officers, or controlling person or
persons, defendant or defendants in the suit. In the event that the Trust elects
to assume the defense of any such suit and retain such counsel, you, your
trustees, officers or controlling person or persons, defendant or defendants in
the suit, shall bear the fees and expenses of any additional counsel retained by
them, but, in case the Trust does not elect to assume the defense of any such
suit, it will reimburse you or such trustees, officers or controlling person or
persons, defendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Trust agrees promptly to notify
you of the commencement of any litigation or proceedings against it or any of
its officers or trustees in connection with the issuance or sale of any Shares.
13. Authorized Representations. The Trust is not authorized to give any
information or to make any representations on behalf of you other than the
information and representations contained in a registration statement (including
a prospectus or statement of additional information) covering Shares, as such
registration statement and prospectus may be amended or supplemented from time
to time.
You are not authorized to give any information or to make any
representations on behalf of the Trust or in connection with the sale of Shares
other than the information and representations contained in a registration
statement (including a prospectus or statement of additional information)
9
<PAGE>
covering Shares, as such registration statement may be amended or supplemented
from time to time. No person other than you is authorized to act as principal
underwriter (as such term is defined in the 1940 Act) for the Trust.
14. Duration and Termination of this Agreement. This Agreement shall become
effective upon the date first written above and will remain in effect until
September 30, 1999 and from year to year thereafter, but only so long as such
continuance is specifically approved at least annually by the vote of a majority
of the trustees who are not interested persons of you or of the Trust, cast in
person at a meeting called for the purpose of voting on such approval, and by
vote of the Board of Trustees or of a majority of the outstanding voting
securities of the Trust. This Agreement may, on 60 days' written notice, be
terminated at any time without the payment of any penalty, by the Board of
Trustees of the Trust, by a vote of a majority of the outstanding voting
securities of the Trust, or by you. This Agreement will automatically terminate
in the event of its assignment. In interpreting the provisions of this paragraph
14, the definitions contained in Section 2(a) of the 1940 Act (particularly the
definitions of "interested person", "assignment" and "majority of the
outstanding voting securities"), as modified by any applicable order of the
Securities and Exchange Commission, shall be applied.
15. Amendment of this Agreement. No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. If the Trust should at any time deem it
necessary or advisable in the best interests of the Trust that any amendment of
this Agreement be made in order to comply with the recommendations or
requirements of the Securities and Exchange Commission or other governmental
authority or to obtain any advantage under state or federal tax laws and should
notify you of the form of such amendment, and the reasons therefor, and if you
should decline to assent to such amendment, the Trust may terminate this
Agreement forthwith. If you should at any time request that a change be made in
the Trust's Declaration of Trust or By-laws or in its methods of doing business,
in order to comply with any requirements of federal law or regulations of the
Securities and Exchange Commission or of a
10
<PAGE>
national securities association of which you are or may be a member relating to
the sale of shares of the Trust, and the Trust should not make such necessary
change within a reasonable time, you may terminate this Agreement forthwith.
16. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract.
Very truly yours,
EQUITY VALUE TRUST
By: /s/Thomas F. McDonough
-------------------------
Thomas F. McDonough
Vice President
11
<PAGE>
The foregoing agreement is hereby accepted as of the foregoing date
thereof.
SCUDDER INVESTOR SERVICES, INC.
By: /s/Daniel Pierce
-------------------
Daniel Pierce
Vice President
12
AGENCY AGREEMENT
(Trust Form)
AGREEMENT dated the __ day of April, 1998, by and between Value Fund, a series
of SCUDDER EQUITY TRUST, a Massachusetts business trust ("Fund"), and KEMPER
SERVICE COMPANY, a Delaware corporation ("Service Company").
WHEREAS, Fund wants to appoint Service Company as Transfer Agent and
Dividend Disbursing Agent, on behalf of the Class A shares, Class B shares and
Class C shares of the Fund, and Service Company wants to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Documents to be Filed with Appointment.
In connection with the appointment of Service Company as
Transfer Agent and Dividend Disbursing Agent for Fund, there
will be filed with Service Company the following documents:
A. A certified copy of the resolutions of the Board of
Trustees of Fund appointing Service Company as
Transfer Agent and Dividend Disbursing Agent,
approving the form of this Agreement, and designating
certain persons to give written instructions and
requests on behalf of Fund.
B. A certified copy of the Agreement and Declaration of
Trust of Fund and any amendments thereto.
C. A certified copy of the Bylaws of Fund.
D. Copies of Registration Statements filed with the
Securities and Exchange Commission.
E. Specimens of all forms of outstanding share
certificates as approved by the Board of Trustees of
Fund, with a certificate of the Secretary of Fund as
to such approval.
F. Specimens of the signatures of the officers of the
Fund authorized to sign share certificates and
individuals authorized to sign written instructions
and requests on behalf of the Fund.
G. An opinion of counsel for Fund:
(1) With respect to Fund's organization and
existence under the laws of The Commonwealth
of Massachusetts.
<PAGE>
(2) With respect to the status of all shares of
Fund covered by this appointment under the
Securities Act of 1933, and any other
applicable federal or state statute.
(3) To the effect that all issued shares are,
and all unissued shares will be when issued,
validly issued, fully paid and
non-assessable.
2. Certain Representations and Warranties of Service Company.
Service Company represents and warrants to Fund that:
A. It is a corporation duly organized and existing and
under the laws of the State of Delaware.
B. It is duly qualified to carry on its business in the
State of Missouri.
C. It is empowered under applicable laws and by its
Certificate of Incorporation and Bylaws to enter into
and perform the services contemplated in this
Agreement.
D. All requisite corporate action has been taken to
authorize it to enter into and perform this
Agreement.
E. It has and will continue to have and maintain the
necessary facilities, equipment and personnel to
perform its duties and obligations under this
Agreement.
F. It is, and will continue to be, registered as a
transfer agent under the Securities Exchange Act of
1934.
3. Certain Representations and Warranties of Fund. Fund
represents and warrants to Service Company that:
A. It is a business trust duly organized and existing
under the laws of The Commonwealth of Massachusetts.
B. It is an investment company registered under the
Investment Company Act of 1940.
C. A registration statement under the Securities Act of
1933 has been filed and will be effective with
respect to all shares of Fund being offered for sale
at any time and from time to time.
D. All requisite steps have been or will be taken to
register Fund's shares for sale in all applicable
states, including the District of Columbia.
2
<PAGE>
E. Fund and its Trustees are empowered under applicable
laws and by the Fund's Agreement and Declaration of
Trust and Bylaws to enter into and perform this
Agreement.
4. Scope of Appointment.
A. Subject to the conditions set forth in this
Agreement, Fund hereby employs and appoints Service
Company as Transfer Agent and Dividend Disbursing
Agent, on behalf of the Class A, Class B and Class C
shares of the Fund, effective the date hereof.
B. Service Company hereby accepts such employment and
appointment and agrees that it will act as Fund's
Transfer Agent and Dividend Disbursing Agent. Service
Company agrees that it will also act as agent in
connection with Fund's periodic withdrawal payment
accounts and other open-account or similar plans for
shareholders, if any.
C. Service Company agrees to provide the necessary
facilities, equipment and personnel to perform its
duties and obligations hereunder in accordance with
industry practice.
D. Fund agrees to use all reasonable efforts to deliver
to Service Company in Kansas City, Missouri, as soon
as they are available, all its shareholder account
records.
E. Subject to the provisions of Sections 20 and 21
hereof, Service Company agrees that it will perform
all the usual and ordinary services of Transfer Agent
and Dividend Disbursing Agent and as agent for the
various shareholder accounts, including, without
limitation, the following: issuing, transferring and
canceling share certificates, maintaining all
shareholder accounts, preparing shareholder meeting
lists, mailing proxies, receiving and tabulating
proxies, mailing shareholder reports and
prospectuses, withholding federal income taxes,
preparing and mailing checks for disbursement of
income and capital gains dividends, preparing and
filing all required U.S. Treasury Department
information returns for all shareholders, preparing
and mailing confirmation forms to shareholders and
dealers with respect to all purchases and
liquidations of Fund shares and other transactions in
shareholder accounts for which confirmations are
required, recording reinvestments of dividends and
distributions in Fund shares, recording redemptions
of Fund shares and preparing and mailing checks for
payments upon redemption and for disbursements to
systematic withdrawal plan shareholders.
3
<PAGE>
5. Compensation and Expenses.
A. In consideration for the services provided hereunder
by Service Company as Transfer Agent and Dividend
Disbursing Agent, Fund will pay to Service Company
from time to time compensation as agreed upon for all
services rendered as Agent, and also, all its
reasonable out-of-pocket expenses and other
disbursements incurred in connection with the agency.
Such compensation will be set forth in a separate
schedule to be agreed to by Fund and Service Company.
The initial agreement regarding compensation is
attached as Exhibit A.
B. Fund agrees to promptly reimburse Service Company for
all reasonable out-of-pocket expenses or advances
incurred by Service Company in connection with the
performance of services under this Agreement
including, but not limited to, postage (and first
class mail insurance in connection with mailing share
certificates), envelopes, check forms, continuous
forms, forms for reports and statements, stationery,
and other similar items, telephone and telegraph
charges incurred in answering inquiries from dealers
or shareholders, microfilm used each year to record
the previous year's transactions in shareholder
accounts and computer tapes used for permanent
storage of records and cost of insertion of materials
in mailing envelopes by outside firms. Service
Company may, at its option, arrange to have various
service providers submit invoices directly to the
Fund for payment of out-of-pocket expenses
reimbursable hereunder.
6. Efficient Operation of Service Company System.
A. In connection with the performance of its services
under this Agreement, Service Company is responsible
for the accurate and efficient functioning of its
system at all times, including:
(1) The accuracy of the entries in Service
Company's records reflecting purchase and
redemption orders and other instructions
received by Service Company from dealers,
shareholders, Fund or its principal
underwriter.
(2) The timely availability and the accuracy of
shareholder lists, shareholder account
verifications, confirmations and other
shareholder account information to be
produced from Service Company's records or
data.
(3) The accurate and timely issuance of dividend
and distribution checks in accordance with
instructions received from Fund.
4
<PAGE>
(4) The accuracy of redemption transactions and
payments in accordance with redemption
instructions received from dealers,
shareholders or Fund or other authorized
persons.
(5) The deposit daily in Fund's appropriate
special bank account of all checks and
payments received from dealers or
shareholders for investment in shares.
(6) The requiring of proper forms of
instructions, signatures and signature
guarantees and any necessary documents
supporting the rightfulness of transfers,
redemptions and other shareholder account
transactions, all in conformance with
Service Company's present procedures with
such changes as may be deemed reasonably
appropriate by Service Company or as may be
reasonably approved by or on behalf of Fund.
(7) The maintenance of a current duplicate set
of Fund's essential or required records, as
agreed upon from time to time by Fund and
Service Company, at a secure distant
location, in form available and usable
forthwith in the event of any breakdown or
disaster disrupting its main operation.
7. Indemnification.
A. Fund shall indemnify and hold Service Company
harmless from and against any and all claims,
actions, suits, losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities
arising out of or attributable to any action or
omission by Service Company pursuant to this
Agreement or in connection with the agency
relationship created by this Agreement, provided that
Service Company has acted in good faith, without
negligence and without willful misconduct.
B. Service Company shall indemnify and hold Fund
harmless from and against any and all claims,
actions, suits, losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities
arising out of or attributable to any action or
omission by Service Company pursuant to this
Agreement or in connection with the agency
relationship created by this Agreement, provided that
Service Company has not acted in good faith, without
negligence and without willful misconduct.
C. In order that the indemnification provisions
contained in this Section 7 shall apply, upon the
assertion of a claim for which either party (the
"Indemnifying Party") may be required to provide
indemnification hereunder, the party seeking
indemnification (the "Indemnitee") shall promptly
notify the Indemnifying Party of such assertion, and
shall keep
5
<PAGE>
such party advised with respect to all developments
concerning such claim. The Indemnifying Party shall
be entitled to assume control of the defense and the
negotiations, if any, regarding settlement of the
claim. If the Indemnifying Party assumes control, the
Indemnitee shall have the option to participate in
the defense and negotiations of such claim at its own
expense. The Indemnitee shall in no event confess,
admit to, compromise, or settle any claim for which
the Indemnifying Party may be required to indemnify
it except with the prior written consent of the
Indemnifying Party, which shall not be unreasonably
withheld.
8. Certain Covenants of Service Company and Fund.
A. All requisite steps will be taken by Fund from time
to time when and as necessary to register the Fund's
shares for sale in all states in which Fund's shares
shall at the time be offered for sale and require
registration. If at any time Fund receives notice of
any stop order or other proceeding in any such state
affecting such registration or the sale of Fund's
shares, or of any stop order or other proceeding
under the Federal securities laws affecting the sale
of Fund's shares, Fund will give prompt notice
thereof to Service Company.
B. Service Company hereby agrees to establish and
maintain facilities and procedures reasonably
acceptable to Fund for safekeeping of share
certificates, check forms, and facsimile signature
imprinting devices, if any; and for the preparation
or use, and for keeping account of, such
certificates, forms and devices. Further, Service
Company agrees to carry insurance, as specified in
Exhibit B hereto, with insurers reasonably acceptable
to Fund and in minimum amounts that are reasonably
acceptable to Fund, which will not be changed without
the consent of Fund, which consent shall not be
unreasonably withheld, and which will be expanded in
coverage or increased in amounts from time to time if
and when reasonably requested by Fund. If Service
Company determines that it is unable to obtain any
such insurance upon commercially reasonable terms, it
shall promptly so advise Fund in writing. In such
event, Fund shall have the right to terminate this
Agreement upon 30 days notice.
C. To the extent required by Section 31 of the
Investment Company Act of 1940 and Rules thereunder,
Service Company agrees that all records maintained by
Service Company relating to the services to be
performed by Service Company under this Agreement are
the property of Fund and will be preserved and will
be surrendered promptly to Fund on request.
D. Service Company agrees to furnish Fund semi-annual
reports of its financial condition, consisting of a
balance sheet, earnings statement and any other
reasonably available financial information reasonably
requested
6
<PAGE>
by Fund. The annual financial statements will be
certified by Service Company's certified public
accountants.
E. Service Company represents and agrees that it will
use all reasonable efforts to keep current on the
trends of the investment company industry relating to
shareholder services and will use all reasonable
efforts to continue to modernize and improve its
system without additional cost to Fund.
F. Service Company will permit Fund and its authorized
representatives to make periodic inspections of its
operations at reasonable times during business hours.
G. If Service Company is prevented from complying,
either totally or in part, with any of the terms or
provisions of this Agreement, by reason of fire,
flood, storm, strike, lockout or other labor trouble,
riot, war, rebellion, accidents, acts of God,
equipment, utility or transmission failure or damage,
and/or any other cause or casualty beyond the
reasonable control of Service Company, whether
similar to the foregoing matters or not, then upon
written notice to Fund, the requirements of this
Agreement that are affected by such disability, to
the extent so affected, shall be suspended during the
period of such disability; provided, however, that
Service Company shall make reasonable effort to
remove such disability as soon as possible. During
such period, Fund may seek alternate sources of
service without liability hereunder; and Service
Company will use all reasonable efforts to assist
Fund to obtain alternate sources of service. Service
Company shall have no liability to Fund for
nonperformance because of the reasons set forth in
this Section 8.G; but if a disability that, in Fund's
reasonable belief, materially affects Service
Company's ability to perform its obligations under
this Agreement continues for a period of 30 days,
then Fund shall have the right to terminate this
Agreement upon 10 days written notice to Service
Company.
9. Adjustment.
In case of any recapitalization, readjustment or other change
in the structure of Fund requiring a change in the form of
share certificates, Service Company will issue or register
certificates in the new form in exchange for, or in transfer
of, the outstanding certificates in the old form, upon
receiving the following:
A. Written instructions from an officer of Fund.
B. Certified copy of any amendment to the Agreement and
Declaration of Trust or other document effecting the
change.
7
<PAGE>
C. Certified copy of any order or consent of each
governmental or regulatory authority required by law
for the issuance of the shares in the new form, and
an opinion of counsel that no order or consent of any
other government or regulatory authority is required.
D. Specimens of the new certificates in the form
approved by the Board of Trustees of Fund, with a
certificate of the Secretary of Fund as to such
approval.
E. Opinion of counsel for Fund:
(1) With respect to the status of the shares of
Fund in the new form under the Securities
Act of 1933, and any other applicable
federal or state laws.
(2) To the effect that the issued shares in the
new form are, and all unissued shares will
be when issued, validly issued, fully paid
and non-assessable.
10. Share Certificates.
Fund will furnish Service Company with a sufficient supply of
blank share certificates and from time to time will renew such
supply upon the request of Service Company. Such certificates
will be signed manually or by facsimile signatures of the
officers of Fund authorized by law and Fund's Bylaws to sign
share certificates and, if required, will bear the trust seal
or facsimile thereof.
11. Death, Resignation or Removal of Signing Officer.
Fund will file promptly with Service Company written notice of
any change in the officers authorized to sign share
certificates, written instructions or requests, together with
two signature cards bearing the specimen signature of each
newly authorized officer, all as certified by an appropriate
officer of the Fund. In case any officer of Fund who will have
signed manually or whose facsimile signature will have been
affixed to blank share certificates will die, resign, or be
removed prior to the issuance of such certificates, Service
Company may issue or register such share certificates as the
share certificates of Fund notwithstanding such death,
resignation, or removal, until specifically directed to the
contrary by Fund in writing. In the absence of such direction,
Fund will file promptly with Service Company such approval,
adoption, or ratification as may be required by law.
8
<PAGE>
12. Future Amendments of Agreement and Declaration of Trust
and Bylaws.
Fund will promptly file with Service Company copies of all
material amendments to its Agreement and Declaration of Trust
and Bylaws and Registration Statement made after the date of
this Agreement.
13. Instructions, Opinion of Counsel and Signatures.
At any time Service Company may apply to any officer of Fund
for instructions, and may consult with legal counsel for Fund
at the expense of Fund, or with its own legal counsel at its
own expense, with respect to any matter arising in connection
with the agency; and it will not be liable for any action
taken or omitted by it in good faith in reliance upon such
instructions or upon the opinion of such counsel. Service
Company is authorized to act on the orders, directions or
instructions of such persons as the Board of Trustees of Fund
shall from time to time designate by resolution. Service
Company will be protected in acting upon any paper or
document, including any orders, directions or instructions,
reasonably believed by it to be genuine and to have been
signed by the proper person or persons; and Service Company
will not be held to have notice of any change of authority of
any person so authorized by Fund until receipt of written
notice thereof from Fund. Service Company will also be
protected in recognizing share certificates that it reasonably
believes to bear the proper manual or facsimile signatures of
the officers of Fund, and the proper countersignature of any
former Transfer Agent or Registrar, or of a Co-Transfer Agent
or Co-Registrar.
14. Papers Subject to Approval of Counsel.
The acceptance by Service Company of its appointment as
Transfer Agent and Dividend Disbursing Agent, and all
documents filed in connection with such appointment and
thereafter in connection with the agencies, will be subject to
the approval of legal counsel for Service Company, which
approval will not be unreasonably withheld.
15. Certification of Documents.
The required copy of the Agreement and Declaration of Trust of
Fund and copies of all amendments thereto will be certified by
the appropriate official of The Commonwealth of Massachusetts;
and if such Agreement and Declaration of Trust and amendments
are required by law to be also filed with a county, city or
other officer or official body, a certificate of such filing
will appear on the certified copy submitted to Service
Company. A copy of the order or consent of each governmental
or regulatory authority required by law for the issuance of
Fund shares will be certified by the Secretary or Clerk of
such governmental or regulatory authority, under proper seal
of such authority. The copy of the Bylaws and copies of all
amendments thereto and copies of resolutions of the Board of
9
<PAGE>
Trustees of Fund will be certified by the Secretary or an
Assistant Secretary of Fund.
16. Records.
Service Company will maintain customary records in connection
with its agency, and particularly will maintain those records
required to be maintained pursuant to sub-paragraph (2)(iv) of
paragraph (b) of Rule 31a-1 under the Investment Company Act
of 1940, if any.
17. Disposition of Books, Records and Canceled Certificates.
Service Company will send periodically to Fund, or to where
designated by the Secretary or an Assistant Secretary of Fund,
all books, documents, and all records no longer deemed needed
for current purposes and share certificates which have been
canceled in transfer or in exchange, upon the understanding
that such books, documents, records, and share certificates
will not be destroyed by Fund without the consent of Service
Company (which consent will not be unreasonably withheld), but
will be safely stored for possible future reference.
18. Provisions Relating to Service Company as Transfer Agent.
A. Service Company will make original issues of share
certificates upon written request of an officer of
Fund and upon being furnished with a certified copy
of a resolution of the Board of Trustees authorizing
such original issue, an opinion of counsel as
outlined in Section 1.G or 9.E of this Agreement, the
certificates required by Section 10 of this Agreement
and any other documents required by Section 1 or 9 of
this Agreement.
B. Before making any original issue of certificates,
Fund will furnish Service Company with sufficient
funds to pay any taxes required on the original issue
of the shares. Fund will furnish Service Company such
evidence as may be required by Service Company to
show the actual value of the shares. If no taxes are
payable, Service Company will upon request be
furnished with an opinion of outside counsel to that
effect.
C. Shares will be transferred and new certificates
issued in transfer, or shares accepted for redemption
and funds remitted therefor, upon surrender of the
old certificates in form deemed by Service Company
properly endorsed for transfer or redemption
accompanied by such documents as Service Company may
deem necessary to evidence the authority of the
person making the transfer or redemption, and bearing
satisfactory evidence of the payment of any
applicable share transfer taxes. Service Company
reserves the right to refuse to transfer or redeem
shares until it is satisfied that the endorsement or
signature on the certificate or any other document is
valid
10
<PAGE>
and genuine, and for that purpose it may require a
guarantee of signature by such persons as may from
time to time be specified in the prospectus related
to such shares or otherwise authorized by Fund.
Service Company also reserves the right to refuse to
transfer or redeem shares until it is satisfied that
the requested transfer or redemption is legally
authorized, and it will incur no liability for the
refusal in good faith to make transfers or
redemptions which, in its judgment, are improper,
unauthorized, or otherwise not rightful. Service
Company may, in effecting transfers or redemptions,
rely upon Simplification Acts or other statutes which
protect it and Fund in not requiring complete
fiduciary documentation.
D. When mail is used for delivery of share certificates,
Service Company will forward share certificates in
"nonnegotiable" form as provided by Fund by first
class mail, all such mail deliveries to be covered
while in transit to the addressee by insurance
arranged for by Service Company.
E. Service Company will issue and mail subscription
warrants and certificates provided by Fund and
representing share dividends, exchanges or split-ups,
or act as Conversion Agent upon receiving written
instructions from any officer of Fund and such other
documents as Service Company deems necessary.
F. Service Company will issue, transfer, and split-up
certificates upon receiving written instructions from
an officer of Fund and such other documents as
Service Company may deem necessary.
G. Service Company may issue new certificates in place
of certificates represented to have been lost,
destroyed, stolen or otherwise wrongfully taken, upon
receiving indemnity satisfactory to Service Company,
and may issue new certificates in exchange for, and
upon surrender of, mutilated certificates. Any such
issuance shall be in accordance with the provisions
of law governing such matter and any procedures
adopted by the Board of Trustees of the Fund of which
Service Company has notice.
H. Service Company will supply a shareholder's list to
Fund properly certified by an officer of Service
Company for any shareholder meeting upon receiving a
request from an officer of Fund. It will also supply
lists at such other times as may be reasonably
requested by an officer of Fund.
I. Upon receipt of written instructions of an officer of
Fund, Service Company will address and mail notices
to shareholders.
J. In case of any request or demand for the inspection
of the share books of Fund or any other books of Fund
in the possession of Service Company, Service Company
will endeavor to notify Fund and to secure
instructions
11
<PAGE>
as to permitting or refusing such inspection. Service
Company reserves the right, however, to exhibit the
share books or other books to any person in case it
is advised by its counsel that it may be held
responsible for the failure to exhibit the share
books or other books to such person.
19. Provisions Relating to Dividend Disbursing Agency.
A. Service Company will, at the expense of Fund, provide
a special form of check containing the imprint of any
device or other matter desired by Fund. Said checks
must, however, be of a form and size convenient for
use by Service Company.
B. If Fund wants to include additional printed matter,
financial statements, etc., with the dividend checks,
the same will be furnished to Service Company within
a reasonable time prior to the date of mailing of the
dividend checks, at the expense of Fund.
C. If Fund wants its distributions mailed in any special
form of envelopes, sufficient supply of the same will
be furnished to Service Company but the size and form
of said envelopes will be subject to the approval of
Service Company. If stamped envelopes are used, they
must be furnished by Fund; or, if postage stamps are
to be affixed to the envelopes, the stamps or the
cash necessary for such stamps must be furnished by
Fund.
D. Service Company will maintain one or more deposit
accounts as Agent for Fund, into which the funds for
payment of dividends, distributions, redemptions or
other disbursements provided for hereunder will be
deposited, and against which checks will be drawn.
20. Termination of Agreement.
A. This Agreement may be terminated by either party
upon sixty (60) days prior written notice to the
other party.
B. Fund, in addition to any other rights and remedies,
shall have the right to terminate this Agreement
forthwith upon the occurrence at any time of any of
the following events:
(1) Any interruption or cessation of operations
by Service Company or its assigns which
materially interferes with the business
operation of Fund.
(2) The bankruptcy of Service Company or its
assigns or the appointment of a receiver for
Service Company or its assigns.
12
<PAGE>
(3) Any merger, consolidation or sale of
substantially all the assets of Service
Company or its assigns.
(4) The acquisition of a controlling interest in
Service Company or its assigns, by any
broker, dealer, investment adviser or
investment company except as may presently
exist.
(5) Failure by Service Company or its assigns to
perform its duties in accordance with this
Agreement, which failure materially
adversely affects the business operations of
Fund and which failure continues for thirty
(30) days after written notice from Fund.
(6) The registration of Service Company or its
assigns as a transfer agent under the
Securities Exchange Act of 1934 is revoked,
terminated or suspended for any reason.
C. In the event of termination, Fund will promptly pay
Service Company all amounts due to Service Company
hereunder. Upon termination of this Agreement,
Service Company shall deliver all shareholder and
account records pertaining to Fund either to Fund or
as directed in writing by Fund.
21. Assignment.
A. Neither this Agreement nor any rights or obligations
hereunder may be assigned by Service Company without
the written consent of Fund; provided, however, no
assignment will relieve Service Company of any of its
obligations hereunder.
B. This Agreement including, without limitation, the
provisions of Section 7 will inure to the benefit of
and be binding upon the parties and their respective
successors and assigns.
C. Service Company is authorized by Fund to use the
system services of DST Systems, Inc. and the system
and other services, including data entry, of
Administrative Management Group, Inc.
22. Confidentiality.
A. Except as provided in the last sentence of Section
18.J hereof, or as otherwise required by law, Service
Company will keep confidential all records of and
information in its possession relating to Fund or its
shareholders or shareholder accounts and will not
disclose the same to any person except at the request
or with the consent of Fund.
13
<PAGE>
B. Except as otherwise required by law, Fund will keep
confidential all financial statements and other
financial records (other than statements and records
relating solely to Fund's business dealings with
Service Company) and all manuals, systems and other
technical information and data, not publicly
disclosed, relating to Service Company's operations
and programs furnished to it by Service Company
pursuant to this Agreement and will not disclose the
same to any person except at the request or with the
consent of Service Company. Notwithstanding anything
to the contrary in this Section 22.B, if an attempt
is made pursuant to subpoena or other legal process
to require Fund to disclose or produce any of the
aforementioned manuals, systems or other technical
information and data, Fund shall give Service Company
prompt notice thereof prior to disclosure or
production so that Service Company may, at its
expense, resist such attempt.
23. Survival of Representations and Warranties.
All representations and warranties by either party herein
contained will survive the execution and delivery of this
Agreement.
24. Miscellaneous.
A. This Agreement is executed and delivered in the State
of Illinois and shall be governed by the laws of said
state (except as to Section 24.G hereof which shall
be governed by the laws of The Commonwealth of
Massachusetts).
B. No provisions of this Agreement may be amended or
modified in any manner except by a written agreement
properly authorized and executed by both parties
hereto.
C. The captions in this Agreement are included for
convenience of reference only, and in no way define
or limit any of the provisions hereof or otherwise
affect their construction or effect.
D. This Agreement shall become effective as of the date
hereof.
E. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed
an original but all of which together shall
constitute one and the same instrument.
F. If any part, term or provision of this Agreement is
held by the courts to be illegal, in conflict with
any law or otherwise invalid, the remaining portion
or portions shall be considered severable and not be
affected, and the rights and obligations of the
parties shall be construed and enforced as if the
14
<PAGE>
Agreement did not contain the particular part, term
or provision held to be illegal or invalid.
G. All parties hereto are expressly put on notice of
Fund's Agreement and Declaration of Trust which is on
file with the Secretary of The Commonwealth of
Massachusetts, and the limitation of shareholder and
trustee liability contained therein. This Agreement
has been executed by and on behalf of Fund by its
representatives as such representatives and not
individually, and the obligations of Fund hereunder
are not binding upon any of the Trustees, officers or
shareholders of the Fund individually but are binding
upon only the assets and property of Fund. With
respect to any claim by Service Company for recovery
of that portion of the compensation and expenses (or
any other liability of Fund arising hereunder)
allocated to a particular Portfolio or class thereof,
whether in accordance with the express terms hereof
or otherwise, Service Company shall have recourse
solely against the assets of that Portfolio or class
thereof to satisfy such claim and shall have no
recourse against the assets of any other Portfolio or
class for such purpose.
H. This Agreement, together with the Fee Schedule, is
the entire contract between the parties relating to
the subject matter hereof and supersedes all prior
agreements between the parties.
15
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officer as of the day and year
first set forth above.
SCUDDER EQUITY TRUST, on behalf of
Value Fund
By /s/Daniel Pierce
----------------
Title: President
ATTEST:
/s/Thomas F. McDonough
- ----------------------
Title:
KEMPER SERVICE COMPANY
By /s/Robert A. Ruddell
--------------------
Title:
ATTEST:
/s/ Kathryn L. Quirk
- --------------------
Title:
16
<PAGE>
EXHIBIT A
FEE SCHEDULE (MULTIPLE CLASSES OF SHARES)
<TABLE>
<CAPTION>
FEE PAYABLE BY FUND
TRANSFER AGENCY FUNCTION CLASS A and C CLASS B
<S> <C> <C> <C>
1. Annual open shareholder account fee (per year per
account):
a. Non-daily dividend series. $6.00 $6.00
b. CDSC account fee. Not Applicable $2.25
c. Non-monetary transaction fee. $2.00 $2.00
2. Annual closed shareholder account fee (per year per
account). $6.00 $6.00
3. Establishment of new shareholder account (per new
account).* $4.00 $4.00
4. Transaction Based Fees (per transaction):
a. Dividend transaction fee (per dividend per
account). $ .40 $ .40
b. Automated transaction fee (per transaction).** $ .50 $ .50
c. Purchase or redemption of shares transaction
fee. $1.25 $1.25
d. Audio Response fee. $0.15 $0.15
</TABLE>
The out-of-pocket expenses of Service Company will be reimbursed by Fund in
accordance with the provisions of Section 5 of the Agency Agreement.
- --------
* The new shareholder account fee is not applicable to Class A Share
accounts established in connection with a conversion from Class B
Shares.
** Automated transaction includes, without limitation, money market series
purchases and redemptions, ACH purchases, systematic exchanges and
conversions from Class B Shares to Class A Shares.
17
<PAGE>
EXHIBIT B
INSURANCE COVERAGE
DESCRIPTION OF POLICY:
Brokers Blanket Bond, Standard Form 14
Covering losses caused by dishonesty of employees, physical loss of securities
on or outside of premises while in possession of authorized person, loss caused
by forgery or alteration of checks or similar instruments.
Errors and Omissions Insurance
Covering replacement of destroyed records and computer errors and omissions.
Special Forgery Bond
Covering losses through forgery or alteration of checks or drafts of customers
processed by insured but drawn on or against them.
Mail Insurance (applies to all full service operations)
Provides indemnity for the following types of securities lost in the mails:
o Non-negotiable securities mailed to domestic locations via registered
mail.
o Non-negotiable securities mailed to domestic locations via first-class
or certified mail.
o Non-negotiable securities mailed to foreign locations via registered
mail.
o Negotiable securities mailed to all locations via registered mail.
18
ADMINISTRATIVE SERVICES AGREEMENT
AGREEMENT dated this ___ day of April, 1998 by and between Value Fund, a series
of SCUDDER EQUITY TRUST, a Massachusetts business trust (the "Fund"), and KEMPER
DISTRIBUTORS, INC., a Delaware corporation ("KDI").
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby appoints KDI to provide information and administrative
services for the benefit of the Fund and its shareholders. In this regard, KDI
shall appoint various broker-dealer firms and other service or administrative
firms ("Firms") to provide related services and facilities for persons who are
investors in the Fund ("investors"). The Firms shall provide such office space
and equipment, telephone facilities, personnel or other services as may be
necessary or beneficial for providing information and services to investors in
the Fund. Such services and assistance may include, but are not limited to,
establishing and maintaining accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Fund and its
special features, assistance to investors in changing dividend and investment
options, account designations and addresses, and such other administrative
services as the Fund or KDI may reasonably request. Firms may include affiliates
of KDI. KDI may also provide some of the above services for the Fund directly.
KDI accepts such appointment and agrees during such period to render such
services and to assume the obligations herein set forth for the compensation
herein provided. KDI shall for all purposes herein provided be deemed to be an
independent contractor and, unless otherwise expressly provided or authorized,
shall have no authority to act for or represent the Fund in any way or otherwise
be deemed an agent of the Fund. KDI, by separate agreement with the Fund, may
also serve the Fund in other capacities. In carrying out its duties and
responsibilities hereunder, KDI will appoint various Firms to provide
administrative and other services described herein directly to or for the
benefit of investors in the Fund. Such Firms shall at all times be deemed to be
independent contractors retained by KDI and not the Fund. KDI and not the Fund
will be responsible for the payment of compensation to such Firms for such
services.
2. For the administrative services and facilities described in Section 1, the
Fund will pay to KDI at the end of each calendar month an administrative service
fee computed at an annual rate of up to 0.25 of 1% of the average daily net
assets of the Fund (except assets attributable to Class S Shares). The current
fee
<PAGE>
schedule is set forth as Appendix I hereto. The administrative service fee will
be calculated separately for each class of each series of the Fund as an expense
of each such class; provided, however, no administrative service fee shall be
payable with respect to Class S Shares. For the month and year in which this
Agreement becomes effective or terminates, there shall be an appropriate
proration on the basis of the number of days that the Agreement is in effect
during such month and year, respectively. The services of KDI to the Fund under
this Agreement are not to be deemed exclusive, and KDI shall be free to render
similar services or other services to others.
The net asset value for each share of the Fund shall be calculated in accordance
with the provisions of the Fund's current prospectus. On each day when net asset
value is not calculated, the net asset value of a share of the Fund shall be
deemed to be the net asset value of such a share as of the close of business on
the last day on which such calculation was made for the purpose of the foregoing
computations.
3. The Fund shall assume and pay all charges and expenses of its operations not
specifically assumed or otherwise to be provided by KDI under this Agreement.
4. This Agreement may be terminated at any time without the payment of any
penalty by the Fund or by KDI on sixty (60) days written notice to the other
party. Termination of this Agreement shall not affect the right of KDI to
receive payments on any unpaid balance of the compensation described in Section
2 hereof earned prior to such termination. This Agreement may not be amended for
any class of any series of the Fund to increase the amount to be paid to KDI for
services hereunder above .25 of 1% of the average daily net assets of such class
without the vote of a majority of the outstanding voting securities of such
class. All material amendments to this Agreement must in any event be approved
by vote of the Board of the Fund.
5. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder shall not be thereby
affected.
6. Any notice under this Agreement shall be in writing, addressed and delivered
or mailed, postage prepaid, to the other party at such address as such other
party may designate for the receipt of such notice.
7. All parties hereto are expressly put on notice of the Fund's Agreement and
Declaration of Trust and all amendments thereto, all of which are on file with
the Secretary of The Commonwealth of Massachusetts, and the limitation of
shareholder and trustee liability contained therein. This Agreement has been
executed by and on behalf of the Fund by its representatives as such
2
<PAGE>
representatives and not individually, and the obligations o the Fund thereunder
are not binding upon any of the trustees, officers or shareholders of the Fund
individually but are binding upon only the assets and property of the Fund. With
respect to any claim by KDI for recovery of any liability of the Fund arising
hereunder allocated to a particular series or class, whether in accordance with
the express terms hereof or otherwise, KDI shall have recourse solely against
the assets of that series or class to satisfy such claim and shall have no
recourse against the assets of any other series or class for such purpose.
8. This Agreement shall be construed in accordance with applicable federal law
and (except as to Section 7 hereof which shall be construed in accordance with
the laws of The Commonwealth of Massachusetts) the laws of the State of
Illinois.
IN WITNESS WHEREOF, the Fund and KDI have caused this Agreement to be executed
as of the day and year first above written.
SCUDDER EQUITY TRUST, on behalf KEMPER DISTRIBUTORS, INC.
of Value Fund
By: /s/Daniel Pierce By:/s/Mark S. Casady
-------------------- --------------------
Title: President Title: Vice President
3
<PAGE>
APPENDIX I
VALUE FUND
FEE SCHEDULE FOR ADMINISTRATIVE
SERVICES AGREEMENT
Pursuant to Section 2 of the Administrative Services Agreement to which this
Appendix is attached, the Fund and KDI agree that the administrative service fee
will be computed at an annual rate of .25 of 1% (the "Fee Rate") based upon
assets with respect to which a Firm provides administrative services.
SCUDDER EQUITY TRUST, on behalf KEMPER DISTRIBUTORS, INC.
of Value Fund
By: /s/Daniel Pierce By:/s/Mark S. Casady
-------------------- --------------------
Title: President Title: Vice President
Dated: April __, 1998
4
