Filed with the Securities and Exchange Commission on April 15, 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. 29
----
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 29
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Scudder Equity Trust
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(Exact Name of Registrant as Specified in Charter)
Two International Place, Boston, MA 02110
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-2567
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Thomas F. McDonough
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
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X on April 16, 1998 pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on April 16, 1998 pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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on __________ pursuant to paragraph (a)(2) of Rule 485
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If appropriate, check the following:
this post-effective amendment designates a new effective date
----- for a previously filed post-effective amendment
<PAGE>
SCUDDER LARGE COMPANY VALUE FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
PART A
Item
No. Item Caption Prospectus Caption
- - - - - --- ------------ ------------------
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information DISTRIBUTION AND PERFORMANCE INFORMATION
4. General Description INVESTMENT OBJECTIVE AND POLICIES
of Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES
AND INVESTMENTS
FUND ORGANIZATION
5. Management of the A MESSAGE FROM THE PRESIDENT
Fund FINANCIAL HIGHLIGHTS
FUND ORGANIZATION--Investment adviser,
Transfer agent
TRUSTEES AND OFFICERS
5A. Management's Discussion SHAREHOLDER BENEFITS--A team approach to
of Fund Performance investing
6. Capital Stock and Other TRANSACTION INFORMATION--Tax information
Securities DISTRIBUTION AND PERFORMANCE
INFORMATION--Dividends and capital
gains distributions
SHAREHOLDER BENEFITS--SAIL(TM)--Scudder
Automated Information Line, T.D.D.
service for the hearing impaired,
Dividend reinvestment plan
FUND ORGANIZATION
HOW TO CONTACT SCUDDER
7. Purchase of Securities Being PURCHASES
Offered TRANSACTION INFORMATION--Purchasing
shares, Share price, Processing
time, Third party transactions,
Minimum balances
SHAREHOLDER BENEFITS--Dividend
Reinvestment Plan
INVESTMENT PRODUCTS AND SERVICES
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
FUND ORGANIZATION--Underwriter
8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming
shares, Tax Identification Number,
Minimum balances
9. Pending Legal Proceedings NOT APPLICABLE
Cross Reference - Page 1
<PAGE>
SCUDDER LARGE COMPANY VALUE FUND
CROSS REFERENCE SHEET
PART B
Item
No. Item Caption Caption in Statement of Additional Information
- - - - - --- ------------ ----------------------------------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and FUND ORGANIZATION
History
13. Investment Objectives and THE FUND'S INVESTMENT OBJECTIVE AND
Policies POLICIES
PORTFOLIO TRANSACTIONS--Brokerage
Commissions and Portfolio Turnover
14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders of
Securities
16. Investment Advisory and INVESTMENT ADVISER
Other Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other
Information
17. Brokerage Allocation and PORTFOLIO TRANSACTIONS--Brokerage
Other Practices Commissions and Portfolio Turnover
18. Capital Stock and Other FUND ORGANIZATION
Securities DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS
19. Purchase, Redemption and PURCHASES
Pricing of Securities EXCHANGES AND REDEMPTIONS
Being Offered FEATURES AND SERVICES OFFERED BY THE
FUND--Distribution Plans
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of PERFORMANCE INFORMATION
Performance Data
23. Financial Statements FINANCIAL STATEMENTS
Cross Reference - Page 2
<PAGE>
SCUDDER VALUE FUND
CROSS-REFERENCE SHEET
Items Required By Form N-1A
PART A
Item
No. Item Caption Prospectus Caption
- - - - - --- ------------ ------------------
1. Cover Page COVER PAGE
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial FINANCIAL HIGHLIGHTS
Information DISTRIBUTION AND PERFORMANCE INFORMATION
4. General Description of INVESTMENT OBJECTIVE AND POLICIES
Registrant WHY INVEST IN THE FUND?
ADDITIONAL INFORMATION ABOUT POLICIES
AND INVESTMENTS
FUND ORGANIZATION
5. Management of the Fund A MESSAGE FROM THE PRESIDENT
FINANCIAL HIGHLIGHTS
FUND ORGANIZATION--Investment adviser,
Transfer agent
TRUSTEES AND OFFICERS
5A. Management's Discussion of SHAREHOLDER BENEFITS--A team approach to
Fund Performance investing
6. Capital Stock and Other TRANSACTION INFORMATION--Tax information
Securities DISTRIBUTION AND PERFORMANCE
INFORMATION--Dividends and capital
gains distributions
SHAREHOLDER BENEFITS--SAIL(TM)--Scudder
Automated Information Line, T.D.D.
service for the hearing impaired,
Dividend reinvestment plan
FUND ORGANIZATION
HOW TO CONTACT SCUDDER
7. Purchase of Securities Being PURCHASES
Offered TRANSACTION INFORMATION--Purchasing
shares, Share price, Processing
time, Third party transactions,
Minimum balances
SHAREHOLDER BENEFITS--Dividend
Reinvestment Plan
INVESTMENT PRODUCTS AND SERVICES
SCUDDER TAX-ADVANTAGED RETIREMENT PLANS
FUND ORGANIZATION--Underwriter
8. Redemption or Repurchase EXCHANGES AND REDEMPTIONS
TRANSACTION INFORMATION--Redeeming
shares, Tax Identification Number,
Minimum balances
9. Pending Legal Proceedings NOT APPLICABLE
Cross Reference - Page 3
<PAGE>
SCUDDER VALUE FUND
CROSS REFERENCE SHEET
PART B
Item
No. Item Caption Caption in Statement of Additional Information
- - - - - --- ------------ ----------------------------------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. General Information and FUND ORGANIZATION
History
13. Investment Objectives THE FUND'S INVESTMENT OBJECTIVE AND
and Policies POLICIES
PORTFOLIO TRANSACTIONS--Brokerage
Commissions and Portfolio Turnover
14. Management of the Fund INVESTMENT ADVISER
TRUSTEES AND OFFICERS
REMUNERATION
15. Control Persons and TRUSTEES AND OFFICERS
Principal Holders of
Securities
16. Investment Advisory and INVESTMENT ADVISER
Other Services DISTRIBUTOR
ADDITIONAL INFORMATION--Experts, Other
Information
17. Brokerage Allocation and PORTFOLIO TRANSACTIONS--Brokerage
Other Practices Commissions and Portfolio Turnover
18. Capital Stock and Other FUND ORGANIZATION
Securities DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
19. Purchase, Redemption and PURCHASES
Pricing of Securities EXCHANGES AND REDEMPTIONS
Being Offered FEATURES AND SERVICES OFFERED BY THE
FUND--Distribution Plans
SPECIAL PLAN ACCOUNTS
NET ASSET VALUE
20. Tax Status DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
TAXES
21. Underwriters DISTRIBUTOR
22. Calculation of PERFORMANCE INFORMATION
Performance Data
23. Financial Statements FINANCIAL STATEMENTS
Cross Reference - Page 4
<PAGE>
This prospectus sets forth concisely the information about the Scudder Shares of
Value Fund that a prospective investor should know before investing. Value Fund
is a diversified series of Scudder Equity Trust, an open-end management
investment company. Please retain this prospectus for future reference.
If you require more detailed information, a combined Statement of Additional
Information dated April 16, 1998, as amended from time to time, may be obtained
without charge by writing Scudder Investor Services, Inc., Two International
Place, Boston, MA 02110-4103 or calling 1-800-225-2470. The Statement, which is
incorporated by reference into this prospectus, has been filed with the
Securities and Exchange Commission and is available along with other related
materials on the SEC's Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Contents--see page 4.
NOT FDIC-
INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
SCUDDER (logo)
Scudder
Value
Fund
Prospectus
April 16, 1998
A mutual fund which seeks long-term growth of capital through investment in
undervalued equity securities.
<PAGE>
Expense information
How to compare a Scudder fund
This information is designed to help you understand the various costs and
expenses of investing in the Scudder Shares (the "Scudder Shares" or "Shares"),
a class of shares of Value Fund (the "Fund").+++ By reviewing this table and
those in other mutual funds' prospectuses, you can compare the Fund's fees and
expenses with those of other funds.
1) Shareholder transaction expenses: Expenses charged directly to your
individual account in the Fund for various transactions.
Sales commissions to purchase shares (sales load) NONE
Commissions to reinvest dividends NONE
Redemption fees NONE*
Fees to exchange shares NONE
2) Annual Fund operating expenses: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the
Fund's average daily net assets for the fiscal year ended September 30,
1997.
Investment management fee 0.70%**
12b-1 fees NONE
Other expenses 0.58%
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Total Fund operating expenses 1.28%**
=====
Example
Based on the level of total Fund operating expenses listed above, the total
expenses relating to a $1,000 investment in the Shares, assuming a 5% annual
return and redemption at the end of each period, are listed below. Investors do
not pay these expenses directly; they are paid by the Fund before it
distributes its net investment income to shareholders. (As noted above, the
Fund has no redemption fees of any kind.)
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$13 $41 $70 $155
See "Fund organization--Investment adviser" for further information about the
investment management fee. This example assumes reinvestment of all dividends
and distributions and that the percentage amounts listed under "Annual Fund
operating expenses" remain the same each year. This example should not be
considered a representation of past or future expenses or return. Actual Fund
expenses and return vary from year to year and may be higher or lower than
those shown.
+++ The information set forth on this page relates only to the Scudder Shares.
The Fund also offers three other classes of shares, which may have
different fees and expenses (which may affect performance), have different
minimum investment requirements and are entitled to different services. See
"Fund Organization."
* You may redeem by writing or calling the Fund. If you wish to receive your
redemption proceeds via wire, there is a $5 wire service fee. For
additional information, please refer to "Transaction information--Redeeming
shares."
** Until July 31, 1997, the Adviser waived a portion of its investment
management fee to the extent necessary so that the total annualized
expenses of the Fund did not exceed 1.25% of average daily net assets.
Expenses shown above are restated to reflect what the Fund would have paid
during the fiscal year ended September 30, 1997 absent such waiver.
2
<PAGE>
Financial highlights
The following table includes selected data for a share of the Scudder Shares
class of Value Fund outstanding throughout each period and other performance
information derived from the audited financial statements.+++ If you would like
more detailed information concerning the Fund's performance, a complete
portfolio listing and audited financial statements are available in the Fund's
Annual Report dated September 30, 1997, which may be obtained without charge by
writing or calling Scudder Investor Services, Inc.
<TABLE>
<CAPTION>
For the Period
December 31, 1992
(commencement of
operations) to
Years Ended September 30, September 30,
1997(a) 1996 1995 1994 1993
- - - - - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------
Net asset value, beginning of period ....... $17.52 $15.87 $13.08 $13.38 $12.00
Income from investment operations: --------------------------------------------------------------------------------
Net investment income ...................... .34 .21 .18 .13 .10
Net realized and unrealized gain on
investments ............................. 7.22 2.40 2.86 .11 1.28
--------------------------------------------------------------------------------
Total from investment operations ........... 7.56 2.61 3.04 .24 1.38
Less distributions from: --------------------------------------------------------------------------------
Net investment income ...................... (.07) (.04) (.12) (.11) --
Net realized gains on investment
transactions (1.48) (.92) (.13) (.43) --
--------------------------------------------------------------------------------
Total distributions ........................ (1.55) (.96) (.25) (.54) --
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Net asset value, end of period ............. $23.53 $17.52 $15.87 $13.08 $13.38
--------------------------------------------------------------------------------
- - - - - ------------------------------------------------------------------------------------------------------------------------------
Total Return (%) (b) ....................... 45.80 17.18 23.62 1.88 11.50**
Ratios and Supplemental Data
Net assets, end of period ($ millions) ..... 298 89 68 35 29
Ratio of operating expenses, net to
average daily net assets (%) ............ 1.24 1.25 1.25 1.25 1.25*
Ratio of operating expenses before expense
reductions, to average daily net
assets (%) .............................. 1.28 1.31 1.44 1.61 2.16*
Ratio of net investment income to average
daily net assets (%) .................... 1.67 1.34 1.57 1.16 1.56*
Portfolio turnover rate (%) ................ 47.40 90.8 98.2 74.6 60.8*
Average commission rate paid (c) ........... $.0577 $.0577 $ -- $ -- $ --
</TABLE>
(a) Based on monthly average shares outstanding during the period.
(b) Total return would have been lower had certain expenses not been reduced.
(c) Average commission rate paid per share of common and preferred stocks is
calculated for fiscal years beginning on or after October 1, 1995.
* Annualized
** Not annualized
3
<PAGE>
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, managing more than $200 billion in assets globally for
mutual fund investors, retirement and pension plans, institutional and corporate
clients, and private family and individual accounts. It is one of the ten
largest mutual fund companies in the U.S.
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 the mutual funds in a special program for the American
Association of Retired Persons, as well as the fund options available through
Scudder Horizon Plan, a tax-advantaged variable annuity. We also advise The
Japan Fund, and 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 as well as IRAs,
401(k)s, Keoghs and other retirement plans.
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.
Funds or fund classes in the Scudder Family of Funds are offered without
commissions to purchase or redeem shares or to exchange from one fund to
another. There are no 12b-1 fees either, which many other funds now charge to
support their marketing efforts. All of your investment goes to work for you. We
look forward to welcoming you as a shareholder.
/s/ Edmond D. Villani
Value Fund
Investment objective
o long-term growth of capital through investment in undervalued equity
securities
Investment characteristics
o a portfolio composed primarily of equity securities that are considered
undervalued relative to current and estimated future earnings and dividends
o a highly disciplined investment management process incorporating both
traditional fundamental research and modern quantitative techniques
o a focus on medium- to large-sized companies
Contents
Investment objective and policies 5
Why invest in the Fund? 6
Additional information about policies
and investments 6
Distribution and performance information 9
Fund organization 10
Transaction information 12
Shareholder benefits 16
Purchases 18
Exchanges and redemptions 19
Trustees and Officers 21
Investment products and services 23
How to contact Scudder 23
4
<PAGE>
Investment objective and policies
Value Fund (the "Fund"), a diversified series of Scudder Equity Trust (the
"Trust"), seeks long-term growth of capital through investment in undervalued
equity securities. The Fund invests in the securities of companies that, in the
opinion of its investment adviser, Scudder Kemper Investments, Inc. (the
"Adviser"), are undervalued in the marketplace in relation to current and
estimated future earnings and dividends. These companies generally sell at
price-earnings ratios below the market average, as defined by the Standard &
Poor's Corporation 500 Composite Price Index.
The Fund invests at least 80% of its assets in equity securities, which consist
of common stocks, preferred stocks, securities convertible into common stocks,
rights and warrants. The Fund changes its portfolio securities for long-term
investment considerations and not for trading purposes.
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs. There can be no assurance that the Fund's objective will be
met.
Investments
The Fund invests primarily in the equity securities of medium- to large-sized
domestic companies with annual revenues or market capitalization of at least
$600 million. The Adviser uses in-depth fundamental research and a proprietary
computerized quantitative model to identify companies that are currently
undervalued in relation to current and estimated future earnings and dividends.
The investment process also involves an assessment of business risk, including
the Adviser's analysis of the strength of a company's balance sheet, the
accounting practices a company follows, the volatility of a company's earnings
over time, and the vulnerability of earnings to changes in external factors,
such as the general economy, the competitive environment, governmental action,
and technological change.
The current share price or other valuation measures of these companies may not
reflect their business potential because investors may perform incomplete
analyses, have limited time horizons, or allow emotions to influence their
investment decisions. Other similar factors can also influence short-term market
behavior. The Adviser's quantitative approach is designed to help avoid these
pitfalls.
While a broad range of investments 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 its assets in
securities of foreign companies which meet the same criteria applicable to the
Fund's domestic investments. The Fund may invest up to 20% of its assets in debt
obligations, including zero coupon securities and commercial paper and may enter
into repurchase agreements and reverse repurchase agreements. In addition, the
Fund may engage in strategic transactions and invest in illiquid securities. See
"Additional information about policies and investments" for more information
about these investment techniques.
For temporary defensive purposes, the Fund may invest without limit in cash and
cash equivalents when the Adviser deems such a position advisable in light of
economic or market conditions. It is impossible to predict accurately how long
such alternate strategies may be utilized. More information about these
5
<PAGE>
investment techniques is provided under "Additional information about policies
and investments."
Why invest in the Fund?
Value Fund provides investors with convenient, low-cost access to a diversified
portfolio of stocks believed by the Adviser to be undervalued. The Fund invests
predominantly in the equity securities of financially sound U.S. companies.
These companies tend to have below-market price-earnings ratios yet, in the
opinion of the Adviser, will reward investors with above-average appreciation
over time.
The Fund is distinctive in the manner in which it combines systematic valuation
techniques with intensive, traditional fundamental research. The Adviser's
proprietary computer-based valuation model was developed and tested over several
years before being first implemented in 1987. In addition to identifying
undervalued securities, the quantitative model also provides the discipline
required to identify and sell appreciated securities as their prices rise to
reflect their earnings potential. The model relies on the Adviser's independent
equity research efforts for estimates of future earnings and dividend growth and
proprietary quality ratings, an important measure of risk. The Adviser maintains
one of the largest equity research departments in the industry and has done so
for more than 60 years. The Adviser also oversees separately managed
institutional assets using this price-sensitive approach.
The Fund is appropriate for investors who understand the risks of stock market
investing. Although the Fund emphasizes securities of companies the Adviser
believes are undervalued, movements of the stock market will affect the Fund's
share price.
While the Fund may invest in a broad range of industries, it is not, by itself,
a complete investment program. Nonetheless, it can serve as a core component of
an investment program that includes money market, bond and specialized equity
investments. Moreover, growth portfolios and value portfolios generally do not
move in tandem, so adding the Fund to your portfolio of growth stocks or growth
mutual funds should increase your portfolio diversification and reduce
investment risk.
Additional information about policies and investments
Investment restrictions
The Fund has certain investment restrictions which are designed to reduce the
Fund's investment risk. Fundamental investment restrictions may not be changed
without a vote of shareholders; non-fundamental investment restrictions may be
changed by a vote of the Trust's Board of Trustees.
As a matter of fundamental policy, the Fund may not borrow money, except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Fund may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes, although the Fund may engage up to 5% of
its total assets in reverse repurchase agreements or dollar rolls.
As a matter of fundamental policy, the Fund may not make loans except through
the lending of portfolio securities, the purchase of debt securities or
interests in indebtedness or through repurchase agreements. The Fund has adopted
a non-fundamental policy restricting the lending of portfolio securities to no
more than 5% of total assets.
A complete description of these and other policies and restrictions is contained
under "Investment Restrictions" in the Fund's Scudder Shares Statement of
Additional Information.
Common stocks
Under normal circumstances, the Fund invests primarily in common stocks. Common
stock is issued by companies to raise cash for business purposes and represents
a proportionate interest
6
<PAGE>
in the issuing companies. Therefore, the Fund participates in the success or
failure of any company in which it holds stock. The market values of common
stock can fluctuate significantly, reflecting the business performance of the
issuing company, investor perception and general economic or financial market
movements. Smaller companies are especially sensitive to these factors and may
even become valueless. Despite the risk of price volatility, however, common
stocks also offer the greatest potential for gain on investment, compared to
other classes of financial assets, such as bonds or cash equivalents.
Debt securities
The Fund may purchase investment-grade debt securities, which are those rated
Aaa, Aa, A or Baa by Moody's Investor Services, Inc. ("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 Adviser. The Fund may also purchase debt
securities which are rated below investment-grade. (See "Risk factors.")
Repurchase agreements
As a means of earning income for periods as short as overnight, the Fund may
enter into repurchase agreements with selected banks and broker/dealers. Under a
repurchase agreement, the Fund acquires securities, subject to the seller's
agreement to repurchase at a specified time and price.
Convertible securities
The Fund may invest in convertible securities (bonds, notes, debentures,
preferred stocks and other securities convertible into common stocks) that may
offer higher income than the common stocks into which they are convertible. The
convertible securities in which the Fund may invest include fixed-income or zero
coupon debt securities, which may be converted or exchanged at a stated or
determinable exchange ratio into underlying shares of common stock. Prior to
their conversion, convertible securities may have characteristics similar to
nonconvertible debt securities.
Foreign securities
While the Fund generally emphasizes investments in companies domiciled in the
U.S., it may invest in listed and unlisted foreign securities that meet the same
criteria as the Fund's domestic holdings. The Fund may invest in foreign
securities when the anticipated performance of foreign securities is believed by
the Adviser to offer more return potential than domestic alternatives in keeping
with the investment objective of the Fund.
Illiquid securities
The Fund may invest in securities for which there is not an active trading
market, or which have resale restrictions. These types of securities generally
offer a higher return than more readily marketable securities, but carry the
risk that the Fund may not be able to dispose of them at an advantageous time or
price.
Strategic Transactions and derivatives
The Fund may, but is not required to, utilize various other investment
strategies as described below to hedge various market risks (such as interest
rates, currency exchange rates, and broad or specific equity or fixed-income
market movements), to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio or to enhance potential gain. These
strategies may be executed through the use of derivative contracts. Such
strategies are generally accepted as a part of modern portfolio management and
are regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing these investment strategies, the Fund may purchase and
sell exchange-listed and over-the-counter put and call options on securities,
equity and fixed-income indices and other financial instruments, purchase and
sell financial futures contracts and options
7
<PAGE>
thereon, enter into various interest rate transactions such as swaps, caps,
floors or collars, and enter into various currency transactions such as currency
forward contracts, currency futures contracts, currency swaps or options on
currencies or currency futures (collectively, all the above are called
"Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not to create leveraged exposure in the Fund. Please refer to "Risk
factors--Strategic Transactions and derivatives" for more information.
Risk factors
The Fund's risks are determined by the nature of the securities held and the
portfolio management strategies used by the Adviser. The following are
descriptions of certain risks related to the investments and techniques that the
Fund may use from time to time.
Debt securities. The Fund may invest up to 20% of its assets in debt securities,
including securities which are rated below investment-grade or, if unrated, are
considered by the Adviser to be equivalent to below investment-grade debt
securities (commonly referred to as "junk bonds"). The lower the ratings of such
debt securities, the greater their risks render them like equity securities. The
Fund will invest no more than 10% of its assets in securities rated B or lower
by Moody's or S&P, and may not invest more than 5% of its net assets in
securities rated C by Moody's or D by S&P, which may be in default with respect
to payment of principal or interest. Also, longer-maturity bonds tend to
fluctuate more in price as interest rates change than do short-term bonds,
providing both opportunity and risk.
Repurchase agreements. If a seller under a repurchase agreement becomes
insolvent, the Fund's right to dispose of the securities may be restricted. In
the event of the commencement of bankruptcy or insolvency proceedings of the
seller of the securities before repurchase of the securities under a repurchase
agreement, the Fund may encounter delay and incur costs including a decline in
value of the securities before being able to sell the securities.
Convertible securities. While convertible securities generally offer lower
yields than nonconvertible debt securities of similar quality, their prices may
reflect changes in the value of the underlying common stock. Convertible
securities generally entail less credit risk than the issuer's common stock.
Foreign securities. Investments in foreign securities involve special
considerations, due to
8
<PAGE>
more limited information, higher brokerage costs and different accounting
standards. They may also entail certain risks, such as possible imposition of
dividend or interest withholding or confiscatory taxes, possible currency
blockages or transfer restrictions, expropriation, nationalization or other
adverse political or economic developments and the difficulty of enforcing
obligations in other countries. Foreign securities may be less liquid and more
volatile than comparable domestic securities, and there is less government
regulation of stock exchanges, brokers, listed companies and banks than in the
U.S. Purchases of foreign securities are usually made in foreign currencies and,
as a result, the Fund may incur currency conversion costs and may be affected
favorably or unfavorably by changes in the value of foreign currencies against
the U.S. dollar.
Illiquid securities. The absence of a trading market can make it difficult to
ascertain a market value for these 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.
Strategic Transactions and derivatives. Strategic Transactions, including
derivative contracts, have risks associated with them including possible default
by the other party to the transaction, illiquidity and, to the extent the
Adviser's view as to certain market movements is incorrect, the risk that the
use of such Strategic Transactions could result in losses greater than if they
had not been used. Use of put and call options may result in losses to the Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation the Fund
can realize on its investments or cause the Fund to hold a security it might
otherwise sell. The use of currency transactions can result in the Fund's
incurring losses as a result of a number of factors including the imposition of
exchange controls, suspension of settlements or the inability to deliver or
receive a specified currency. The use of options and futures transactions
entails certain other risks. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of the Fund creates the possibility that losses on the
hedging instrument may be greater than gains in the value of the Fund's
position. In addition, futures and options markets may not be liquid in all
circumstances and certain over-the-counter options may have no markets. As a
result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures contracts and options transactions for hedging should tend to minimize
the risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Shares' combined Statement of Additional
Information.
Distribution and performance information
Dividends and capital gains distributions
The Fund intends to distribute any dividends from its net investment income and
net realized capital gains after utilization of capital loss carryforwards, if
any, annually in December
9
<PAGE>
to prevent application of federal excise tax, although an additional
distribution may be made if required, at a later date. Any dividends or capital
gains distributions declared in October, November or December with a record date
in such a month and paid the following January will be treated by shareholders
for federal income tax purposes as if received on December 31 of the calendar
year declared. According to preference, shareholders may receive distributions
in cash or have them reinvested in additional Shares of the Fund. If an
investment is in the form of a retirement plan, all dividends and capital gains
distributions must be reinvested into the shareholder's account. Dividends
ordinarily will vary from one class of the Fund to another.
Generally, dividends from net investment income are taxable to shareholders as
ordinary income. Long-term capital gains distributions, if any, are 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), regardless of
the length of time shareholders have owned their shares. Short-term capital
gains and any other taxable income distributions are taxable as ordinary income.
A portion of such dividends from net investment income may qualify for the
dividends-received deduction for corporations.
The Fund sends detailed tax information about the amount and type of its
distributions to shareholders by January 31 of the following year.
Performance information
From time to time, quotations of the performance of the Fund's Scudder Shares
may be included in advertisements, sales literature or shareholder reports.
Performance information is computed separately for each class of Fund shares in
accordance with formulae prescribed by the Securities and Exchange Commission.
Performance figures will vary in part because of the different expense
structures of the Fund's different classes of shares. All performance figures
are historical, show the performance of a hypothetical investment and are not
intended to indicate future performance. "Total return" is the change in value
of an investment in a class of the Fund for a specified period. The "average
annual total return" is the average annual compound rate of return of an
investment in a particular class of the Fund assuming the investment has been
held for the life of the Fund as of a stated ending date. "Cumulative total
return" represents the cumulative change in value of an investment in a
particular class of the Fund for various periods. All types of total return
calculations assume that all dividends and capital gains distributions during
the period were reinvested in the relevant class of shares of the Fund.
Performance will vary based upon, among other things, changes in market
conditions and the level of the Fund's expenses as well as particular class
expenses.
Fund organization
Value Fund is a diversified series of Scudder Equity Trust, an open-end
management investment company registered under the Investment Company Act of
1940 (the "1940 Act"). The name Scudder Value Fund as used herein also means
Value Fund. The Trust's predecessor was organized as a Delaware corporation in
May 1966. The Trust was reorganized as a Massachusetts business trust in October
1985.
The Fund's activities are supervised by the Trust's Board of Trustees. The Trust
has adopted a plan pursuant to Rule 18f-3 (the "Plan") under the 1940 Act to
permit the Trust to establish a multiple class distribution system.
Under the Plan, shares of each class represent an equal pro rata interest in the
Fund and, generally, shall have identical voting, dividend, liquidation, and
other rights, preferences, powers, restrictions, limitations, qualifications and
terms and conditions, except that: (1) each class shall have a different
designation; (2) each class of shares shall
10
<PAGE>
bear its own "class expenses;" (3) each class shall have exclusive voting rights
on any matter submitted to shareholders that relates to its administrative
services, shareholder services or distribution arrangements; (4) each class
shall have separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class;
(5) each class may have separate and distinct exchange privileges; (6) each
class may have different conversion features, and (7) each class may have
separate account size requirements. Expenses currently designated as "Class
Expenses" by the Trust's Board of Trustees under the Plan include, for example,
transfer agency fees attributable to a specific class and certain securities
registration fees.
In addition to the Scudder Shares class offered herein, the Fund offers three
other classes of shares, which may have different fees and expenses (which may
affect performance), may have different minimum investment requirements and are
entitled to different services.
Each share of a class of the 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 the Fund shall vote
together on any matter, except to the extent otherwise required by the 1940 Act,
or when the Board of Trustees of the Trust has determined that the matter
affects only the interest of shareholders of one or more classes of the Fund, in
which case only the shareholders of such class or classes of the Fund 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 Trust's Declaration of
Trust.
Investment adviser
The Fund retains the investment management firm of Scudder Kemper Investments,
Inc., a Delaware corporation formerly known as Scudder, Stevens & Clark, Inc.,
to manage its daily investment and business affairs subject to the policies
established by the Board of Trustees. The Trustees have overall responsibility
for the management of the Fund under Massachusetts law.
Scudder, Stevens & Clark, Inc. ("Scudder"), and Zurich Insurance Company
("Zurich"), an international insurance and financial services organization, have
formed a new global investment organization by combining Scudder's business with
that of Zurich's subsidiary, Zurich Kemper Investments, Inc. and Scudder has
changed its name to Scudder Kemper Investments, Inc. As a result of the
transaction, Zurich owns approximately 70% of the Adviser, with the balance
owned by the Adviser's officers and employees.
The Fund pays the Adviser an annual fee of 0.70% of the Fund's average daily net
assets. The Adviser agreed to maintain the annualized expenses of the Fund at
not more than 1.25% of the average daily net assets of the Fund until July 31,
1997. As a result of this waiver the Adviser received an investment management
fee of 0.66% of the Fund's average daily net assets for the fiscal period ended
September 30, 1997.
The fee is payable monthly, provided that the Fund will make such interim
payments as may be requested by the Adviser not to exceed 75% of the amount of
the fee then accrued on the books of the Fund and unpaid.
All of the Fund's expenses are paid out of gross investment income. Holders of
Scudder Shares pay no direct charges or fees for investment or administrative
services.
Scudder Kemper Investments, Inc. is located at 345 Park Avenue, New York, New
York.
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 Adviser, its affiliates or
11
<PAGE>
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 Fund's business and
operations. The Adviser 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.
Transfer agent
Scudder Service Corporation, P.O. Box 2291, Boston, Massachusetts 02107-2291, a
subsidiary of the Adviser, is the transfer, shareholder servicing and
dividend-paying agent for the Scudder Shares class of the Fund.
The Fund, on behalf of the Scudder Shares class, may enter into arrangements
with banks and other institutions which are omnibus account holders of shares of
the Scudder Shares class providing for the payment of fees to the institution
for servicing and maintaining accounts of beneficial owners of the omnibus
account. Such payments are expenses of the Scudder Shares class only.
Underwriter
Scudder Investor Services, Inc., a subsidiary of the Adviser, is the principal
underwriter of the Scudder Shares class of the Fund. Scudder Investor Services,
Inc. confirms, as agent, all purchases of shares of the Scudder Shares class of
the Fund. Scudder Investor Relations is a telephone information service provided
by Scudder Investor Services, Inc.
Fund accounting agent
Scudder Fund Accounting Corporation, a subsidiary of the Adviser, is responsible
for determining the daily net asset value per share and maintaining the general
accounting records of the Fund.
Custodian
State Street Bank and Trust Company is the Fund's custodian.
Transaction information
Scudder Shares are generally not available to new investors. Investors in the
Fund as of April 15, 1998, can continue to purchase 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.
Purchasing Scudder Shares
Purchases are executed at the next calculated net asset value per Share after
the Shares' transfer agent receives the purchase request in good order.
Purchases are made in full and fractional shares. (See "Share price.")
By check. If you purchase shares with a check that does not clear, your purchase
will be canceled and you will be subject to any losses or fees incurred in the
transaction. Checks must be drawn on or payable through a U.S. bank. If you
purchase shares by check and redeem them within seven business days of purchase,
the Fund may hold redemption proceeds until the purchase check has cleared. If
you purchase shares by federal funds wire, you may avoid this delay. Redemption
requests by telephone prior to the expiration of the seven-day period will not
be accepted.
By wire. To open a new account by wire, first call Scudder at 1-800-225-5163 to
obtain an account number. A representative will instruct you to send a
completed, signed application
12
<PAGE>
to the transfer agent. Accounts cannot be opened without a completed, signed
application and a Scudder fund account number. Contact your bank to arrange a
wire transfer to:
The Scudder Funds
State Street Bank and Trust Company
Boston, MA 02101
ABA Number 011000028
DDA Account 9903-5552
Your wire instructions must also include:
- - - - - - the name of the fund and class in which the money is to be invested,
- - - - - - the account number of the fund, and
- - - - - - the name(s) of the account holder(s).
The account will be established once the application and money order are
received in good order.
You may also make additional investments of $100 or more to your existing
account by wire.
By telephone order. Existing shareholders may purchase shares at a certain day's
price by calling 1-800-225-5163 before the close of regular trading on the New
York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time, on that day.
Orders must be for $10,000 or more and cannot be for an amount greater than four
times the value of your account at the time the order is placed. A confirmation
with complete purchase information is sent shortly after your order is received.
You must include with your payment the order number given at the time the order
is placed. If payment by check or wire is not received within three business
days, the order is subject to cancellation and the shareholder will be
responsible for any loss to the Fund resulting from this cancellation. Telephone
orders are not available for shares held in Scudder IRA accounts and most other
Scudder retirement plan accounts.
By "QuickBuy." If you elected "QuickBuy" for your account, you can call
toll-free to purchase shares. The money will be automatically transferred from
your predesignated bank checking account. Your bank must be a member of the
Automated Clearing House for you to use this service. If you did not elect
"QuickBuy," call 1-800-225-5163 for more information.
To purchase additional shares, call 1-800-225-5163. Purchases may not be for
more than $250,000. Proceeds in the amount of your purchase will be transferred
from your bank checking account in two or three business days following your
call. For requests received by the close of regular trading on the Exchange,
shares will be purchased at the net asset value per share calculated at the
close of trading on the day of your call. "QuickBuy" requests received after the
close of regular trading on the Exchange will begin their processing and be
purchased at the net asset value calculated the following business day.
If you purchase shares by "QuickBuy" and redeem them within seven days of the
purchase, the Fund may hold the redemption proceeds for a period of up to seven
business days. If you purchase shares and there are insufficient funds in your
bank account, the purchase will be canceled and you will be subject to any
losses or fees incurred in the transaction. "QuickBuy" transactions are not
available for most retirement plan accounts. However, "QuickBuy" transactions
are available for Scudder IRA accounts.
By exchange. Scudder Shares may be exchanged for shares of other funds in the
Scudder Family of Funds unless otherwise determined by the Board of Trustees.
Your new account will have the same registration and address as your existing
account.
The exchange requirements for corporations, other organizations, trusts,
fiduciaries, agents, institutional investors and retirement plans may be
different from those for regular accounts. Please call 1-800-225-5163 for more
information, including information about the transfer of special account
features.
You can also make exchanges among your Scudder fund accounts on SAIL, the
Scudder
13
<PAGE>
Automated Information Line, by calling 1-800-343-2890.
Redeeming Scudder Shares
The Fund allows you to redeem Shares (i.e., sell them back to the Fund) without
redemption fees.
By telephone. This is the quickest and easiest way to sell Shares. If you
provided your banking information on your application, you can call to request
that federal funds be sent to your authorized bank account. If you did not
include your banking information on your application, call 1-800-225-5163 for
more information.
Redemption proceeds will be wired to your bank unless otherwise requested. If
your bank cannot receive federal reserve wires, redemption proceeds will be
mailed to your bank. There will be a $5 charge for all wire redemptions.
You can also make redemptions from your Scudder fund account on SAIL by calling
1-800-343-2890.
If you open an account by wire, you cannot redeem shares by telephone until the
transfer agent for the Shares has received your completed and signed
application. Telephone redemption is not available for shares held in Scudder
IRA accounts and most other Scudder retirement plan accounts.
In the event that you are unable to reach the Fund by telephone, you should
write to the Fund; see "How to contact Scudder" for the address.
By "QuickSell." If you elected "QuickSell" for your account, you can call
toll-free to redeem shares. The money will be automatically transferred to your
predesignated bank checking account. Your bank must be a member of the Automated
Clearing House for you to use this service. If you did not elect "QuickSell,"
call 1-800-225-5163 for more information.
To redeem shares, call 1-800-225-5163. Redemptions must be for at least $250.
Proceeds in the amount of your redemption will be transferred to your bank
checking account in two or three business days following your call. For requests
received by the close of regular trading on the Exchange, Shares will be
redeemed at the net asset value per Share calculated at the close of trading on
the day of your call. "QuickSell" requests received after the close of regular
trading on the Exchange will begin their processing and be redeemed at the net
asset value calculated the following business day.
"QuickSell" transactions are not available for Scudder IRA accounts and most
other retirement plan accounts.
Signature guarantees. For your protection and to prevent fraudulent redemptions,
on written redemption requests in excess of $100,000 we require an original
signature and an original signature guarantee for each person in whose name the
account is registered. (The Fund reserves the right, however, to require a
signature guarantee for all redemptions.) You can obtain a signature guarantee
from most banks, credit unions or savings associations, or from broker/dealers,
municipal securities broker/dealers, government securities broker/dealers,
national securities exchanges, registered securities associations or clearing
agencies deemed eligible by the Securities and Exchange Commission. Signature
guarantees by notaries public are not acceptable. Redemption requirements for
corporations, other organizations, trusts, fiduciaries, agents, institutional
investors and retirement plans may be different from those for regular accounts.
For more information, please call 1-800-225-5163.
Telephone transactions
Shareholders automatically receive the ability to exchange Scudder Shares by
telephone and the right to redeem by telephone up to $100,000 to their address
of record. Shareholders also may, by telephone, request that redemption proceeds
be sent to a predesignated bank account. The Fund uses procedures designed to
give reasonable assurance that telephone instructions are genuine, including
recording telephone calls, testing a caller's identity and sending written
14
<PAGE>
confirmation of telephone transactions. If the Fund does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Fund will not be liable for acting upon instructions
communicated by telephone that it reasonably believes to be genuine.
Share price
Purchases and redemptions, including exchanges, are made at net asset value.
Scudder Fund Accounting Corporation determines net asset value per Share as of
the close of regular trading on the Exchange, normally 4 p.m. eastern time, on
each day the Exchange is open for trading. Net asset value per Share is
calculated by dividing the value of total Fund assets attributable to the
Shares, less all liabilities attributable to the Shares, by the total number of
Shares outstanding.
Processing time
All purchase and redemption requests must be received in good order by the
transfer agent for the Scudder Shares. Those requests received by the close of
regular trading on the Exchange are executed at the net asset value per Share
calculated at the close of regular trading that day.
Purchase and redemption requests received after the close of regular trading on
the Exchange will be executed the following business day.
If you wish to make a purchase of $500,000 or more, you should notify Scudder
Investor Relations by calling 1-800-225-5163.
The Fund will normally send your redemption proceeds within one business day
following the redemption request, but may take up to seven 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 a
pattern of frequent purchases and sales made in response to short-term
fluctuations in the Fund's share price appears evident.
Tax information
A redemption of shares, including an exchange into another Scudder fund, is a
sale of shares and may result in a gain or loss for income tax purposes.
Tax identification number
Be sure to complete the Tax Identification Number section of the Fund's
application when you open an account. Federal tax law requires the Fund to
withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a 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 Fund with a tax identification number during the
30-day notice period.
Minimum balances
Holders of Scudder Shares should maintain a share balance worth at least $2,500,
which amount may be changed by the Board of Trustees. Scudder retirement plans
and certain other accounts have similar or lower minimum balance requirements. A
holder of Scudder Shares may open an account with at least $1,000, if an
automatic investment plan of $100/month is established.
Holders of Scudder Shares who maintain a non-fiduciary account balance of less
than $2,500 in the Fund, without establishing an automatic investment plan, will
be assessed an annual $10.00 per fund charge with the fee to be paid to the
Fund. The $10.00 charge will not apply to
15
<PAGE>
shareholders with a combined household account balance in any of the Scudder
Funds of $25,000 or more. The Fund reserves the right, following 60 days'
written notice to shareholders, to redeem all shares in accounts below $250,
including accounts of new investors, where a reduction in value has occurred due
to a redemption or exchange out of the account. The Fund will mail the proceeds
of the redeemed account to the shareholder. Reductions in value that result
solely from market activity will not trigger an involuntary redemption.
Retirement accounts and certain other accounts will not be assessed the $10.00
charge or be subject to automatic liquidation. Please refer to "Exchanges and
Redemptions--Other information" in the Shares' Statement of Additional
Information for more information.
Third party transactions
If purchases and redemptions of shares are arranged and settlement is made at an
investor's election through a member of the National Association of Securities
Dealers, Inc., other than Scudder Investor Services, Inc., that member may, at
its discretion, charge a fee for that service.
Redemption-in-kind
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by the Fund
and valued as they are for purposes of computing the Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities to cash. The Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, as a result
of which the Fund is obligated to redeem shares, with respect to any one
shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of a share at the beginning of the period.
Shareholder benefits
Experienced professional management
Scudder Kemper Investments, Inc., one of the nation's most experienced
investment management firms, actively manages your Scudder fund investment.
Professional management is an important advantage for investors who do not have
the time or expertise to invest directly in individual securities.
A team approach to investing
Value Fund is managed by a team of investment professionals, each of whom plays
an important role in the Fund's investment process. Team members work together
to develop investment strategies and select securities for the Fund's portfolio.
They are supported by the Adviser's large staff of economists, research
analysts, traders and other investment specialists who work in the Adviser's
offices across the United States and abroad. The Adviser believes its team
approach benefits Fund investors by bringing together many disciplines and
leveraging its extensive resources.
Lead Portfolio Manager Donald E. Hall has had responsibility for the Fund's
day-to-day management since its inception in 1992. Mr. Hall, who has 15 years of
experience in the value style of investing, joined the Adviser in 1982. William
J. Wallace, Portfolio Manager, has been a member of the Fund's team since 1992
and has 17 years of investment experience.
SAIL(TM)--Scudder Automated Information Line
For personalized account information including fund prices, yields and account
balances, to perform transactions in existing Scudder fund accounts, or to
obtain information on any Scudder fund, shareholders can call Scudder's
Automated Information Line (SAIL) at 1-800-343-2890, 24 hours a day. During
periods of extreme economic or market changes, or other conditions, it may be
difficult for you to effect telephone transactions in your account. In such
16
<PAGE>
an event you should write to the Fund; please see "How to contact Scudder" for
the address.
Investment flexibility
Scudder offers toll-free telephone exchange between funds at current net asset
value. You can move your investments among money market, income, growth,
tax-free and growth and income funds with a simple toll-free call or, if you
prefer, by sending your instructions through the mail or by fax. (The exchange
privilege may not be available for certain Scudder funds or classes thereof. For
more information, please call 1-800-225-5163.) Telephone and fax redemptions and
exchanges are subject to termination and their terms are subject to change at
any time by the Fund or the transfer agent. In some cases, the transfer agent or
Scudder Investor Services, Inc. may impose additional conditions on telephone
transactions.
Personal Counsel(SM) -- A Managed Fund Portfolio Program
If you would like to receive direct guidance and management of your overall
mutual fund portfolio to help you pursue your investment goals, you may be
interested in Personal Counsel from Scudder. Personal Counsel, a program of
Scudder Investor Services, Inc., a registered investment adviser and a
subsidiary of Scudder Kemper Investments, Inc., combines the benefits of a
customized portfolio of no-load mutual funds with ongoing portfolio monitoring
and individualized service, for an annual fee of generally 1.25% or less of
assets. In addition, it draws upon the Adviser's more than 75-year heritage of
providing investment counsel to large corporate and private clients. If you have
$100,000 or more to invest initially and would like more information about
Personal Counsel, please call 1-800-700-0183.
Dividend reinvestment plan
You may have dividends and distributions automatically reinvested in additional
Scudder Shares. Please call 1-800-225-5163 to request this feature.
Shareholder statements
You will receive a detailed statement summarizing account activity, including
dividend and capital gain reinvestment, purchases and redemptions. All of your
statements should be retained to help you keep track of account activity and the
cost of shares for tax purposes.
Shareholder reports
In addition to account statements, you receive periodic shareholder reports
highlighting relevant information, including investment results and a review of
portfolio changes.
To reduce the volume of mail you receive, only one copy of most Fund reports,
such as the Annual Report for the Scudder Shares, may be mailed to your
household (same surname, same address). Please call 1-800-225-5163 if you wish
to receive additional shareholder reports.
Newsletters
Four times a year, Scudder sends you Perspectives, an informative newsletter
covering economic and investment developments, service enhancements and other
topics of interest to Scudder fund investors.
Scudder Investor Centers
As a convenience to shareholders who like to conduct business in person, Scudder
Investor Services, Inc. maintains Investor Centers in Boca Raton, Boston,
Chicago, New York and San Francisco.
T.D.D. service for the hearing impaired
Scudder's full range of investor information and shareholder services is
available to hearing impaired investors through a toll-free T.D.D. (Telephone
Device for the Deaf) service. If you have access to a T.D.D., call
1-800-543-7916 for investment information or specific account questions and
transactions.
17
<PAGE>
Purchases
<TABLE>
<CAPTION>
Opening Minimum initial investment: $2,500; IRAs $1,000
an account Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
See appropriate plan literature.
<S> <C> <C> <C>
Make checks o By Mail Send your completed and signed application and check
payable to "The
Scudder Funds." by regular mail to: or by express, registered,
or certified mail to:
The Scudder Funds The Scudder Funds
P.O. Box 2291 66 Brooks Drive
Boston, MA Braintree, MA 02184
02107-2291
o By Wire Please see Transaction information--Purchasing Scudder
Shares--By wire for details, including the ABA wire transfer
number. Then call 1-800-225-5163 for instructions.
o In Person Visit one of our Investor Centers to complete your application with the
help of a Scudder representative. Investor Center locations are listed
under Shareholder benefits.
-----------------------------------------------------------------------------------------------------------------------
Purchasing Minimum additional investment: $100; IRAs $50
additional Group retirement plans (401(k), 403(b), etc.) have similar or lower minimums.
shares See appropriate plan literature.
Make checks o By Mail Send a check with a Scudder investment slip, or with a letter of
payable to "The instruction including your account number and the complete
Scudder Funds." Fund and class name, to the appropriate address listed above.
o By Wire Please see Transaction information--Purchasing Scudder
Shares--By wire for details, including the ABA wire transfer
number.
o In Person Visit one of our Investor Centers to make an additional
investment in your Scudder fund account. Investor Center
locations are listed under Shareholder benefits.
o By Telephone Please see Transaction information--Purchasing Scudder
Shares--By QuickBuy or By telephone order for more details.
o By Automatic You may arrange to make investments on a regular basis
Investment Plan through automatic deductions from your bank checking
($50 minimum) account. Please call 1-800-225-5163 for more information and an
enrollment form.
</TABLE>
18
<PAGE>
Exchanges and redemptions
<TABLE>
<CAPTION>
Exchanging Minimum investments: $2,500 to establish a new account;
shares $100 to exchange among existing accounts
<S> <C> <C> <C> <C> <C>
o By Telephone To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day).
For information o By Mail Print or type your instructions and include:
on exchanging to or Fax - the name of the Fund and class and the account number you are
other Scudder exchanging from;
Funds, see - your name(s) and address as they appear on your account;
"Transaction - the dollar amount or number of shares you wish to exchange;
information--By - the name of the Fund and class you are exchanging into;
exchange." - your signature(s) as it appears on your account; and
- a daytime telephone number.
Send your instructions
by regular mail to: or by express, registered, or by fax to:
or certified mail to:
The Scudder Funds The Scudder Funds 1-800-821-6234
P.O. Box 2291 66 Brooks Drive
Boston, MA 02107-2291 Braintree, MA 02184
-----------------------------------------------------------------------------------------------------------------------
Redeeming o By Telephone
shares To speak with a service representative, call 1-800-225-5163 from
8 a.m. to 8 p.m. eastern time or to access SAIL(TM), Scudder's Automated
Information Line, call 1-800-343-2890 (24 hours a day). You may have
redemption proceeds sent to your predesignated bank account, or
redemption proceeds of up to $100,000 sent to your address of record.
o By Mail Send your instructions for redemption to the appropriate address or fax number
or Fax 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.
A signature guarantee is required for redemptions over $100,000.
See Transaction information--Redeeming Scudder Shares.
o 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
</TABLE>
19
<PAGE>
Scudder tax-advantaged retirement plans
Scudder offers a variety of tax-advantaged retirement plans for individuals,
businesses and non-profit organizations. These flexible plans are designed for
use with the Scudder Family of Funds (except Scudder tax-free funds, which are
inappropriate for such plans). Scudder Funds offer a broad range of investment
objectives and can be used to seek almost any investment goal. Using Scudder's
retirement plans can help shareholders save on current taxes while building
their retirement savings.
o Scudder No-Fee IRAs. These retirement plans allow a maximum annual
contribution of up to $2,000 per person for anyone with earned income (up
to $2,000 per individual for married couples filing jointly, even if only
one spouse has earned income). Many people can deduct all or part of their
contributions from their taxable income, and all investment earnings accrue
on a tax-deferred basis. The Scudder No-Fee IRA charges you no annual
custodial fee.
o Scudder Roth No-Fee IRAs. Similar to the traditional IRA in many respects,
these retirement plans provide a unique opportunity for qualifying
individuals to accumulate investment earnings tax free. Unlike a
traditional IRA, with a Roth IRA, if you meet the distribution
requirements, you can withdraw your money without paying any taxes on the
earnings. No tax deduction is allowed for contributions to a Roth IRA. The
Scudder Roth IRA charges you no annual custodial fee.
o 401(k) Plans. 401(k) plans allow employers and employees to make
tax-deductible retirement contributions. Scudder offers a full service
program that includes recordkeeping, prototype plan, employee
communications and trustee services, as well as investment options.
o Profit Sharing and Money Purchase Pension Plans. These plans allow
corporations, partnerships and people who are self-employed to make annual,
tax-deductible contributions of up to $30,000 for each person covered by
the plans. Plans may be adopted individually or paired to maximize
contributions. These are sometimes known as Keogh plans.
o 403(b) Plans. Retirement plans for tax-exempt organizations and school
systems to which employers and employees may both contribute.
o SEP-IRAs. Easily administered retirement plans for small businesses and
self-employed individuals. The maximum annual contribution to SEP-IRA
accounts is adjusted each year for inflation. The Scudder SEP-IRA charges
you no annual custodial fee.
o Scudder Horizon Plan. A no-load variable annuity that lets you build assets
by deferring taxes on your investment earnings. You can start with $2,500
or more.
Scudder Trust Company (an affiliate of the Adviser) is Trustee or Custodian for
some of these plans and is paid an annual fee for some of the above retirement
plans. For information about establishing a Scudder No-Fee IRA, SEP-IRA, Profit
Sharing Plan, Money Purchase Pension Plan or a Scudder Horizon Plan, please call
1-800-225-2470. For information about 401(k)s or 403(b)s please call
1-800-323-6105. To effect transactions in existing IRA, SEP-IRA and most Profit
Sharing or Pension Plan accounts, call 1-800-225-5163.
The variable annuity contract is provided by Charter National Life Insurance
Company (in New York State, Intramerica Life Insurance Company [S 1802]). The
contract is offered by Scudder Insurance Agency, Inc. (in New York State, Nevada
and Montana, Scudder Insurance Agency of New York, Inc.). CNL, Inc. is the
Principal Underwriter. Scudder Horizon Plan is not available in all states.
Scudder Investor Relations is a service provided through Scudder Investor
Services, Inc., Distributor.
20
<PAGE>
Trustees and Officers
Daniel Pierce*
President and Trustee
Paul Bancroft III
Trustee; Venture Capitalist and Consultant
Sheryle J. Bolton
Trustee; Chief Executive Officer, Scientific
Learning Corporation
William T. Burgin
Trustee; General Partner, Bessemer Venture
Partners
Thomas J. Devine
Trustee; Consultant
Keith R. Fox
Trustee; President, Exeter Capital
Management Corporation
William H. Luers
Trustee; President, The Metropolitan Museum
of Art
Wilson Nolen
Trustee, Consultant
Kathryn L. Quirk*
Trustee, Vice President and
Assistant Secretary
Robert W. Lear
Honorary Trustee; Executive-in-Residence,
Columbia University Graduate School of
Business
Robert G. Stone, Jr.
Honorary Trustee; Chairman of the Board
and Director, Kirby Corporation
Donald E. Hall*
Vice President
Jerard K. Hartman*
Vice President
Thomas W. Joseph*
Vice President
Kathleen T. Millard*
Vice President
Thomas F. McDonough*
Vice President, Secretary and Treasurer
John R. Hebble*
Assistant Treasurer
Caroline Pearson*
Assistant Secretary
*Scudder Kemper Investments, Inc.
21
<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--
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 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 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 Growth
- - - - - -------------
Worldwide
Scudder Global Fund
Scudder International Growth and Income Fund
Scudder International 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
Retirement Programs and Education Accounts
- - - - - --------------------------------------------------------------------------------
Retirement Programs
- - - - - -------------------
Traditional IRA
Roth IRA
SEP-IRA
Keogh Plan
401(k), 403(b) Plans
Scudder Horizon Plan **+++ +++
(a variable annuity)
Education Accounts
- - - - - ------------------
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. +++ +++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.
22
<PAGE>
How to contact Scudder
Account Service and Information:
For existing account service and transactions
Scudder Investor Relations -- 1-800-225-5163
For 24 hour account information, fund information, exchanges, and an
overview of all the services available to you
Scudder Electronic Account Services -- http://funds.scudder.com
For personalized information about your Scudder accounts, exchanges and
redemptions
Scudder Automated Information Line (SAIL) -- 1-800-343-2890
Investment Information:
For information about the Scudder funds, including additional applications
and prospectuses, or for answers to investment questions
Scudder Investor Relations -- 1-800-225-2470
[email protected]
Scudder's World Wide Web Site -- http://funds.scudder.com
For establishing 401(k) and 403(b) plans
Scudder Defined Contribution Services -- 1-800-323-6105
Scudder Brokerage Services:
To receive information about this discount brokerage service and to obtain
an application
Scudder Brokerage Services* -- 1-800-700-0820
Personal Counsel(SM) -- A Managed Fund Portfolio Program:
To receive information about this mutual fund portfolio guidance and
management program
Personal Counsel from Scudder -- 1-800-700-0183
Please address all correspondence to:
The Scudder Funds
P.O. Box 2291
Boston, Massachusetts
02107-2291
Or Stop by a Scudder Investor Center:
Many shareholders enjoy the personal, one-on-one service of the Scudder Investor
Centers. Check for an Investor Center near you--they can be found in the
following cities:
Boca Raton Chicago San Francisco
Boston New York
Scudder Investor Relations and Scudder Investor Centers are services provided
through Scudder Investor Services, Inc., Distributor.
* Scudder Brokerage Services, Inc., 42 Longwater Drive, Norwell, MA
02061--Member NASD/SIPC.
23
<PAGE>
SCUDDER LARGE COMPANY VALUE FUND
A Pure No-Load(TM) (No Sales Charges) Diversified Mutual Fund
which Seeks to Maximize Long-Term Capital Appreciation
February 1, 1998
As Revised April 16, 1998
and
VALUE FUND - SCUDDER SHARES
A Diversified Mutual Fund
which Seeks Long-Term Growth of Capital through
Investment in Undervalued Equity Securities
- - - - - --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
April 16, 1998
- - - - - --------------------------------------------------------------------------------
This combined Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectuses of Scudder Large Company
Value Fund , dated February 1, 1998 as revised April 16, 1998, and of the
Scudder Shares of Value Fund, dated April 16, 1998, as amended from time to
time, copies of which may be obtained without charge in writing to Scudder
Investor Services, Inc., Two International Place, Boston, Massachusetts
02110-4103.
<PAGE>
TABLE OF CONTENTS
Page
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.................................................14
Other Investment Policies...............................................15
PURCHASES.....................................................................16
Additional Information About Opening An Account.........................16
Additional Information About Making Subsequent Investments..............17
Additional Information About Making Subsequent Investments by QuickBuy..18
Checks..................................................................18
Wire Transfer of Federal Funds..........................................18
Share Price.............................................................19
Share Certificates......................................................19
Other Information.......................................................19
EXCHANGES AND REDEMPTIONS.....................................................20
Exchanges...............................................................20
Redemption by Telephone.................................................20
Redemption By QuickSell.................................................21
Redemption by Mail or Fax...............................................22
Redemption-in-Kind......................................................22
Other Information.......................................................22
FEATURES AND SERVICES OFFERED BY THE FUNDS....................................23
The Pure No-Load(TM) Concept............................................23
Dividends and Capital Gains Distribution Options........................25
Diversification.........................................................25
Scudder Investor Centers................................................25
Reports to Shareholders.................................................25
Transaction Summaries...................................................26
THE SCUDDER FAMILY OF FUNDS...................................................26
SPECIAL PLAN ACCOUNTS.........................................................30
Scudder Retirement Plans: Profit-Sharing and Money Purchase Pension
Plans for Corporations and Self-Employed Individuals.................31
Scudder 401(k): Cash or Deferred Profit-Sharing Plan for Corporations
and Self-Employed Individuals........................................31
Scudder IRA: Individual Retirement Account.............................31
Scudder Roth IRA: Individual Retirement Account........................32
Scudder 403(b) Plan.....................................................32
Automatic Withdrawal Plan...............................................33
Group or Salary Deduction Plan..........................................33
Automatic Investment Plan...............................................33
Uniform Transfers/Gifts to Minors Act...................................33
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS.....................................34
PERFORMANCE INFORMATION.......................................................34
Average Annual Total Return.............................................34
Cumulative Total Return.................................................35
Total Return............................................................36
Comparison of Fund Performance..........................................36
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
ORGANIZATION OF THE FUNDS.....................................................39
INVESTMENT ADVISER............................................................42
Personal Investments by Employees of the Adviser........................45
TRUSTEES AND OFFICERS.........................................................45
REMUNERATION..................................................................47
Responsibilities of the Board--Board and Committee Meetings.............47
Compensation of Officers and Trustees...................................47
DISTRIBUTOR...................................................................48
TAXES.........................................................................49
PORTFOLIO TRANSACTIONS........................................................52
Brokerage Commissions...................................................52
Portfolio Turnover......................................................54
NET ASSET VALUE...............................................................54
ADDITIONAL INFORMATION........................................................55
Experts.................................................................55
Shareholder Indemnification.............................................55
Other Information.......................................................55
FINANCIAL STATEMENTS..........................................................56
APPENDIX
ii
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
(See "Investment objective and policies" and "Additional information about
policies and investments" in the respective prospectuses for the Fund or
Shares (as defined below))
Scudder Equity Trust, a Massachusetts business trust of which Scudder
Large Company Value Fund and Value Fund are series, is referred to herein as the
"Trust." Scudder Large Company Value Fund and Value Fund are each a diversified
series of an open-end management company. With respect to Value Fund, only
Scudder Value Shares ("Scudder Shares" or "Shares") are offered herein. Scudder
Value Fund changed its name to Value Fund on April 16, 1998.
Value Fund offers the following classes of shares: Scudder Value Shares
(the "Scudder Shares") and Value Fund Class A, B and C shares (the "Kemper
Shares"). This Statement of Additional Information applies only to the Scudder
Large Company Value Fund and the Scudder Shares of Value Fund.
This combined Statement of Additional Information should be read in
conjunction with the prospectuses of Scudder Large Company Value Fund, dated
February 1, 1998 as revised April 16, 1998 (the "Large Company Value Fund
Prospectus"), and of the Scudder Shares of Value Fund, dated April 16, 1998 (the
"Scudder Shares Prospectus"), as amended from time to time. The Large Company
Value Fund Prospectus and the Scudder Shares Prospectus are each referred to as
a "Prospectus" 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 net assets in debt
securities where capital appreciation from debt securities is expected to exceed
the capital appreciation available from common stocks; and (iii) for temporary
defensive purposes, during periods when market or economic conditions may
warrant, in debt securities and short-term indebtedness. The Fund may also
invest in preferred stocks consistent with its objective. The securities in
which the Fund may invest are described under "Investment objective and
policies" in the Fund's prospectus.
Investments in common stocks have a wide range of characteristics, and
management of the Fund believes that opportunity for long-term 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 may purchase, for capital appreciation, investment-grade debt
securities including zero coupon bonds. Investment-grade debt securities are
those rated Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's"), or
AAA, AA, A or BBB by Standard & Poor's 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.")
<PAGE>
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.
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
securities in which the Fund may invest are described under "Investment
objective and policies" in the Fund's prospectus.
The Fund invests at least 80% of its assets in equity securities
consisting of common stocks, preferred stocks and securities convertible into
common stocks. The Fund changes its portfolio securities for long-term
investment considerations and not for trading purposes.
The Fund invests primarily in the equity securities of medium-to-large
size domestic companies with annual revenues or market 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 are considered, only those that, in the
Adviser's opinion, are selling at comparatively large discounts to intrinsic
value will be purchased for the Fund. It is anticipated that the prices of the
Fund's investments will rise as a result of both earnings growth and rising
price-earnings ratios over time.
While the Fund emphasizes U.S. investments, it can invest 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.
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
2
<PAGE>
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 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 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
Foreign Securities. While the Funds generally emphasize investments in companies
domiciled in the U.S., they may invest in listed and unlisted foreign securities
of the same types as the domestic securities in which they may invest, when the
anticipated performance of foreign securities is believed by the Adviser to
offer more potential than domestic alternatives, in keeping with the investment
objectives of the Funds.
Investors should recognize that investing in foreign securities involves
certain special considerations, including those set forth below, which are not
typically associated with investing in U.S. securities and which may favorably
or unfavorably affect the Funds' performance. As foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign stock markets, while growing
in volume of trading activity, have substantially less volume than the New York
Stock Exchange (the "Exchange") and securities of some foreign companies are
less liquid and more volatile than securities of domestic companies. Similarly,
volume and liquidity in most foreign bond markets are less than the volume and
liquidity in the U.S. and at times, volatility of price can be greater than in
the U.S. Further, foreign markets have different clearance and settlement
procedures and in certain markets there have been times when settlements have
been unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when assets of the Funds are uninvested and no return is
earned thereon. The inability of the Funds to make intended security purchases
due to settlement problems could cause the Funds to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems either could result in losses to the Funds due to subsequent declines
in value of the portfolio security or, if the Funds have entered into a contract
to sell the security, could result in possible liability to the purchaser. Fixed
commissions on some foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges although the Funds will endeavor to achieve the
most favorable net results on their portfolio transactions. Further, the Funds
may encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts. There is generally less government supervision and
regulation of business and industry practices, stock exchanges, brokers and
listed companies than in the U.S. It may be more difficult for the Funds' agents
to keep currently informed about corporate actions such as stock dividends or
other matters which may affect the prices of portfolio securities.
Communications between the U.S. and foreign countries may be less reliable than
within the U.S.
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thereby increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities. Delivery of securities without
payment is required in some foreign markets. In addition, with respect to
certain foreign countries, there is the possibility of nationalization,
expropriation, the imposition of withholding or confiscatory taxes, political,
social, or economic instability, or diplomatic developments which could affect
U.S. investments in those countries. Investments in foreign securities may also
entail certain risks, such as possible currency blockages or transfer
restrictions, and the difficulty of enforcing rights in other countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
These considerations generally are more of a concern in developing
countries. For example, the possibility of revolution and the dependence on
foreign economic assistance may be greater in those countries than in developed
countries. The management of the Funds seeks to mitigate the risks associated
with these considerations through diversification and active professional
management. Although investments in companies domiciled in developing countries
may be subject to potentially greater risks than investments in developed
countries, the Funds will not invest in any securities of issuers located in
developing countries if the securities, in the judgment of the Adviser, are
speculative.
Investments in foreign securities usually will involve currencies of
foreign countries. Moreover, the Funds may temporarily hold funds in bank
deposits in foreign currencies during the completion of investment programs and
the value of the assets for the Funds, as measured in U.S. dollars, may be
affected favorably or unfavorably by changes in foreign currency exchange rates
and exchange control regulations, and the Funds may incur costs in connection
with conversions between various currencies. Although the Funds value their
assets daily in terms of U.S. dollars, the Funds do not intend to convert their
holdings of foreign currencies, if any, into U.S. dollars on a daily basis. The
Funds may do so from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Funds at one rate,
while offering a lesser rate of exchange should the Funds desire to resell that
currency to the dealer. The Funds will conduct their foreign currency exchange
transactions, if any, either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market or through forward foreign
currency exchange contracts.
To the extent that the Funds invest in foreign securities, each Fund's
share price could reflect the movements of both the different stock and bond
markets in which it is invested and the currencies in which the investments are
denominated: the strength or weakness of the U.S. dollar against foreign
currencies could account for part of each Fund's investment performance.
High Yield, High Risk Securities. Below investment-grade securities (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
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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.
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
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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 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 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 Investment Company Act of 1940, as amended (the "1940
Act"), a repurchase agreement is deemed to be a loan from a Fund to the seller
of the Obligation subject to the repurchase agreement and is therefore subject
to that Fund's investment restriction applicable to loans. It is not clear
whether a court would consider the Obligation purchased by a Fund subject to a
repurchase agreement as being owned by the Fund or as being collateral for a
loan by the Fund to the seller. In the event of the commencement of bankruptcy
or insolvency proceedings with
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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. The Scudder 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 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
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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.")
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
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had not been used. Use of put and call options may result in losses to a Fund,
force the sale or purchase of portfolio securities at inopportune times or for
prices higher than (in the case of put options) or lower than (in the case of
call options) current market values, limit the amount of appreciation a Fund can
realize on its investments or cause a Fund to hold a security it might otherwise
sell. The use of currency transactions can result in a Fund incurring losses as
a result of a number of factors including the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency. The use of options and futures transactions entails certain other
risks. In particular, the variable degree of correlation between price movements
of futures contracts and price movements in the related portfolio position of a
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of a Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time they tend to limit any potential gain
which might result from an increase in value of such position. Finally, the
daily variation margin requirements for futures contracts would create a greater
ongoing potential financial risk than would purchases of options, where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value, and possibly
income, and such losses can be greater than if the Strategic Transactions had
not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a premium,
the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, a Fund's purchase of a put option on a security might be designed
to protect its holdings in the underlying instrument (or, in some cases, a
similar instrument) against a substantial decline in the market value by giving
a Fund the right to sell such instrument at the option exercise price. A call
option, upon payment of a premium, gives the purchaser of the option the right
to buy, and the seller the obligation to sell, the underlying instrument at the
exercise price. A Fund's purchase of a call option on a security, financial
future, index, currency or other instrument might be intended to protect a Fund
against an increase in the price of the underlying instrument that it intends to
purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. Each Fund
is authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, OCC issued and exchange listed options generally
settle by physical delivery of the underlying security or currency, although in
the future cash settlement may become available. Index options and Eurodollar
instruments are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
A Fund's ability to close out its position as a purchaser or seller of an
OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to
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exist, although outstanding options on that exchange would generally continue to
be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. Each
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting a Fund to require the Counterparty to
sell the option back to a Fund at a formula price within seven days. Each Fund
expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, a Fund will
lose any premium it paid for the option as well as any anticipated benefit of
the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. Each Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the Securities and Exchange Commission ("SEC") currently takes the
position that OTC options purchased by a Fund, and portfolio securities
"covering" the amount of a Fund's obligation pursuant to an OTC option sold by
it (the cost of the sell-back plus the in-the-money amount, if any) are
illiquid, and are subject to 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.
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General Characteristics of Futures. Each Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures as a hedge
against anticipated interest rate, currency or equity market changes, for
duration management and for risk management purposes. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment
of initial and variation margin as described below. The sale of a futures
contract creates a firm obligation by a Fund, as seller, to deliver to the buyer
the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). Options on futures contracts
are similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such
position.
Each Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
rules and regulations of the Commodity Futures Trading Commission and will be
entered into only for bona fide hedging, risk management (including duration
management) or other portfolio management purposes. Typically, maintaining a
futures contract or selling an option thereon requires a Fund to deposit with a
financial intermediary as security for its obligations an amount of cash or
other specified assets (initial margin) which initially is typically 1% to 10%
of the face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
thereafter on a daily basis as the mark to market value of the contract
fluctuates. The purchase of an option on financial futures involves payment of a
premium for the option without any further obligation on the part of a Fund. If
a Fund exercises an option on a futures contract it will be obligated to post
initial margin (and potential subsequent variation margin) for the resulting
futures position just as it would for any position. Futures contracts and
options thereon are generally settled by entering into an offsetting transaction
but there can be no assurance that the position can be offset prior to
settlement at an advantageous price, nor that delivery will occur.
Each Fund will not enter into a futures contract or related option (except
for closing transactions) if, immediately thereafter, the sum of the amount of
its initial margin and premiums on open futures contracts and options thereon
would exceed 5% of that Fund's total assets (taken at current value); however,
in the case of an option that is in-the-money at the time of the purchase, the
in-the-money amount may be excluded in calculating the 5% limitation. The
segregation requirements with respect to futures contracts and options thereon
are described below.
Options on Securities Indices and Other Financial Indices. Each Fund also may
purchase and sell call and put options on securities indices and other financial
indices and in so doing can achieve many of the same objectives it would achieve
through the sale or purchase of options on individual securities or other
instruments. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement, i.e., an option on an index gives the holder the right to receive,
upon exercise of the option, an amount of cash if the closing level of the index
upon which the option is based exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option (except if, in the case
of an OTC option, physical delivery is specified). This amount of cash is equal
to the excess of the closing price of the index over the exercise price of the
option, which also may be multiplied by a formula value. The seller of the
option is obligated, in return for the premium received, to make delivery of
this amount. The gain or loss on an option on an index depends on price
movements in the instruments making up the market, market segment, industry or
other composite on which the underlying index is based, rather than price
movements in individual securities, as is the case with respect to options on
securities.
Currency Transactions. Each Fund may engage in currency transactions with
Counterparties in order to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value. Currency
transactions include forward currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional difference among two
or more currencies and operates similarly to an interest rate swap, which is
described below. Each Fund may enter into currency transactions with
Counterparties which have received (or the guarantors of the obligations which
have received) a credit rating of A-1 or P-1 by S&P or Moody's, respectively, or
that have an equivalent rating from a NRSRO or are determined to be of
equivalent credit quality by the Adviser.
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Each Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will be
limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is entering into a currency transaction with
respect to specific assets or liabilities of a Fund, which will generally arise
in connection with the purchase or sale of its portfolio securities or the
receipt of income therefrom. Position hedging is entering into a currency
transaction with respect to portfolio security positions denominated or
generally quoted in that currency.
Each Fund will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended wholly or partially
to offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging or cross hedging as described below.
Each Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value
relative to other currencies to which that Fund has or in which that Fund
expects to have portfolio exposure.
To reduce the effect of currency fluctuations on the value of existing or
anticipated holdings of portfolio securities, each Fund may also engage in proxy
hedging. Proxy hedging is often used when the currency to which a Fund's
portfolio is exposed is difficult to hedge or to hedge against the dollar. Proxy
hedging entails entering into a commitment or option to sell a currency whose
changes in value are generally considered to be correlated to a currency or
currencies in which some or all of a Fund's portfolio securities are or are
expected to be denominated, in exchange for U.S. dollars. The amount of the
commitment or option would not exceed the value of that Fund's securities
denominated in correlated currencies. For example, if the Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
a Fund holds securities denominated in schillings and the Adviser believes that
the value of schillings will decline against the U.S. dollar, the Adviser may
enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to a Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that a Fund is engaging in proxy hedging. If a Fund
enters into a currency hedging transaction, that Fund will comply with the asset
segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. Each Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of a Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which
each Fund may enter are interest rate, currency and index swaps and the purchase
or sale of related caps, floors and collars. Each Fund expects to enter
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into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities a Fund anticipates purchasing at a later
date. Each Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors where it
does not own securities or other instruments providing the income stream a Fund
may be obligated to pay. Interest rate swaps involve the exchange by a Fund with
another party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal. A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain return within a predetermined range of interest
rates or values.
Each Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two payments. Inasmuch as these swaps, caps,
floors and collars are entered into for good faith hedging purposes, the Adviser
and the Funds believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Funds will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, a Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps, floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed and, accordingly, they are less
liquid than swaps.
Eurodollar Instruments. Each Fund may make investments in Eurodollar
instruments. Eurodollar instruments are U.S. dollar-denominated futures
contracts or options thereon which are linked to the London Interbank Offered
Rate ("LIBOR"), although foreign currency-denominated instruments are available
from time to time. Eurodollar futures contracts enable purchasers to obtain a
fixed rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. The Funds might use Eurodollar futures contracts and options thereon
to hedge against changes in LIBOR, to which many interest rate swaps and fixed
income instruments are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in a Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts Many Strategic Transactions, in
addition to other requirements, require that the Funds segregate 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 securities at least
equal to the current amount of the obligation must be segregated with the
custodian. The segregated assets cannot be sold or transferred unless equivalent
assets are substituted in their place or it is no longer necessary to segregate
them. For example, a call option written by a Fund will require that Fund to
hold the securities subject to the call (or securities convertible into the
needed securities without additional consideration) or to segregate cash or
liquid securities sufficient to purchase and deliver the securities if the call
is exercised. A call option sold by a Fund on an index will require that Fund to
own portfolio securities which correlate with the index or to
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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 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
securities denominated in that currency equal to that Fund's obligations or to
segregate 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 assets equal to
its accrued net obligations, as there is no requirement for payment or delivery
of amounts in excess of the net amount. These amounts will equal 100% of the
exercise price in the case of a non cash-settled put, the same as an OCC
guaranteed listed option sold by a Fund, or the in-the-money amount plus any
sell-back formula amount in the case of a cash-settled put or call. In addition,
when a Fund sells a call option on an index at a time when the in-the-money
amount exceeds the exercise price, that Fund will segregate, until the option
expires or is closed out, cash or cash equivalents equal in value to such
excess. OCC issued and exchange listed options sold by a Fund other than those
above generally settle with physical delivery, or with an election of either
physical delivery or cash settlement and that Fund will segregate an amount of
assets equal to the full value of the option. OTC options settling with physical
delivery, or with an election of either physical delivery or cash settlement
will be treated the same as other options settling with physical delivery.
In the case of a futures contract or an option thereon, a Fund must
deposit initial margin and possible daily variation margin in addition to
segregating assets sufficient to meet its obligation to purchase or provide
securities or currencies, or to pay the amount owed at the expiration of an
index-based futures contract. Such assets may consist of cash, cash equivalents,
liquid debt or equity securities or other acceptable assets.
With respect to swaps, a Fund will accrue the net amount of the excess, if
any, of its obligations over its entitlements with respect to each swap on a
daily basis and will segregate an amount of cash or liquid high grade securities
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to a Fund's net obligation, if any.
Strategic Transactions may be covered by other means when consistent with
applicable regulatory policies. Each Fund may also enter into offsetting
transactions so that its combined position, coupled with any segregated assets,
equals its net outstanding obligation in related options and Strategic
Transactions. For example, a Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by that Fund. Moreover, instead of segregating assets if a Fund held a
futures or forward contract, it could purchase a put option on the same futures
or forward contract with a strike price as high or higher than the price of the
contract held. Other Strategic Transactions may also be offset in combinations.
If the offsetting transaction terminates at the time of or after the primary
transaction no segregation is required, but if it terminates prior to such time,
assets equal to any remaining obligation would need to be segregated.
Investment Restrictions
Unless specified to the contrary, the following restrictions are
fundamental policies of each Fund and may not be changed without the approval of
a majority of the outstanding voting securities of that Fund which, under the
1940 Act and the rules thereunder and as used in this Statement of Additional
Information, means the lesser of (1) 67% or more of the shares of the Fund
present at a meeting if the holders of more than 50% of the outstanding shares
of the Fund are present in person or represented by proxy; or (2) more than 50%
of the outstanding shares of the Fund.
As a matter of fundamental policy, each Fund may not:
(1) 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;
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(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 to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's objective and policies
may be deemed to be loans.
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.
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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.
PURCHASES
(See "Purchases" and "Transaction information" in the respective Prospectus.)
Large Company Value Fund and the Scudder Shares of Value Fund 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 Directors 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.
Scudder Value Fund is properly known as the Value Fund, which is a series
of Scudder Equity Trust. Scudder Value Fund is not widely available. All shares
of Value Fund purchased before April 16, 1998, are considered Scudder Shares of
the Value Fund (also referred to as "Scudder 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 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 Scudder 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
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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.
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., and to the portfolios of Scudder Pathway
Series.
9. Registered investment advisors ("RIAs") and registered 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 Scudder Value Fund as of April
15, 1998, may open new accounts to purchase Scudder Shares, whether
or not they are listed on the account registration. Corporate
shareholders invested in Scudder 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.
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
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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 who wish to add QuickBuy to their account may do so by
completing an QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow for 15 days for this service to be available.
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 the Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Checks
A certified check is not necessary, but checks are accepted subject to
collection at full face value in U.S. funds and must be drawn on, or payable
through, a U.S. bank.
If shares are purchased by a check which proves to be uncollectible, the
Trust reserves the right to cancel the purchase immediately and the purchaser
will be responsible for any loss incurred by a Fund or the principal underwriter
by reason of such cancellation. If the purchaser is a shareholder, the Trust
will have the authority, as agent of the shareholder, to redeem shares in the
account in order to reimburse a Fund or the principal underwriter for the loss
incurred. Investors whose orders have been canceled may be prohibited from or
restricted in placing future orders in any of the Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange (normally 4 p.m. eastern time) on a selected day, your
bank must forward federal funds by wire transfer and provide the required
account information so as to be available to the Fund prior to 4 p.m.
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<PAGE>
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. See "Purchases" and
"Exchanges and redemptions" in Large Company Value Fund's prospectus.
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, 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.
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EXCHANGES AND REDEMPTIONS
(See "Exchanges and redemptions" and "Transaction information"
in the Funds' Prospectuses.)
Exchanges
Exchanges are comprised of a redemption from one Scudder fund 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.
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
20
<PAGE>
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 Capital
Growth Fund, or shares held in certain retirement accounts for both Funds.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a participant in
the Federal Reserve System, redemption proceeds must be wired through a
commercial bank which is a correspondent of the savings bank. As this may delay
receipt by the shareholder's account, it is suggested that investors wishing to
use a savings bank discuss wire procedures with their bank and submit any
special wire transfer information with the telephone redemption authorization.
If appropriate wire information is not supplied, redemption proceeds will be
mailed to the designated bank.
Each Fund employs procedures, including recording telephone calls, testing
a caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that a Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. A Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Redemption requests by telephone (technically a repurchase by agreement
between the Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Redemption By QuickSell
Shareholders, whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickSell program may sell shares of the Fund by telephone. Redemptions
must be for at least $250. Proceeds in the amount of your redemption will be
transferred to your bank checking account two or three business days following
your call. For requests received by the close of regular trading on the
Exchange, normally 4 p.m. eastern time, shares will be redeemed at the net asset
value per share calculated at the close of trading on the day of your call.
QuickSell requests received after the close of regular trading on the Exchange
will begin their processing and be redeemed at the net asset value calculated
the following business day. QuickSell transactions are not available for Scudder
IRA accounts and most other retirement plan accounts.
In order to request redemptions by QuickSell, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickSell may so indicate on the application.
Existing shareholders who wish to add QuickSell to their account may do so by
completing an QuickSell Enrollment Form. After sending in an enrollment form,
shareholders should allow for 15 days for this service to be available.
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<PAGE>
The Fund employs procedures, including recording telephone calls, testing
a caller's identity, and sending written confirmation of telephone transactions,
designed to give reasonable assurance that instructions communicated by
telephone are genuine, and to discourage fraud. To the extent that the Fund does
not follow such procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions. The Fund will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine.
Redemption by Mail or Fax
Any existing share certificates for Large Company Value Fund, formerly
known as Capital Growth Fund, representing shares being redeemed must accompany
a request for redemption and be duly endorsed or accompanied by a proper stock
assignment form with signature guaranteed as explained in that Fund's
prospectus.
In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not limited to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).
It is suggested that shareholders holding certificated shares or shares
registered in other than individual names contact the Transfer Agent prior to
redemptions to ensure that all necessary documents accompany the request. When
shares are held in the name of a corporation, trust, fiduciary agent, attorney
or partnership, the Transfer Agent requires, in addition to the stock power,
certified evidence of authority to sign. These procedures are for the protection
of shareholders and should be followed to ensure prompt payment. Redemption
requests must not be conditional as to date or price of the redemption. Proceeds
of a redemption will be sent within five business days after receipt by the
Transfer Agent of a request for redemption that complies with the above
requirements. Delays of more than seven days of payment for shares tendered for
repurchase or redemption may result but only until the purchase check has
cleared.
The requirements for IRA redemptions are different from those for regular
accounts. For more information call 1-800-225-5163.
Redemption-in-Kind
The Trust reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase order by making
payment in whole or in part in readily marketable securities chosen by a Fund
and valued as they are for purposes of computing a Fund's net asset value (a
redemption-in-kind). If payment is made in securities, a shareholder may incur
transaction expenses in converting these securities into cash. The Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act as a result of
which a Fund is obligated to redeem shares, with respect to any one shareholder
during any 90 day period, solely in cash up to the lesser of $250,000 or 1% of
the net asset value of that Fund at the beginning of the period.
Other Information
Clients, officers or employees of the Adviser or of an affiliated
organization, and members of such clients', officers' or employees' immediate
families, banks and members of the NASD may direct redemption requests to the
Trust through Scudder Investor Services, Inc. at Two International Place,
Boston, Massachusetts 02110-4103 by letter, fax, TWX, or telephone. A two-part
confirmation will be mailed out promptly after receipt of the request. A written
request in good order as described above and any certificates with a proper
original signature guarantee(s), as described in the Funds' prospectuses under
"Transaction information--Signature guarantees", should be sent with a copy of
the invoice to Scudder Service Corporation, Confirmed Processing Department, Two
International Place, Boston, Massachusetts 02110-4103. Failure to deliver shares
or required documents (see above) by the settlement date may result in
cancellation of the trade and the shareholder will be responsible for any loss
incurred by a Fund or the principal underwriter by reason of such cancellation.
The Trust shall have the authority, as agent of the shareholder, to redeem
shares in the account to reimburse a Fund or the principal underwriter for the
loss incurred. Net losses on such transactions which are not recovered from the
shareholder will be absorbed by the principal underwriter. Any net gains so
resulting will accrue to a Fund. For this group, repurchases will be carried out
at the net asset value next computed after such repurchase requests have been
received. The arrangements described in this paragraph for repurchasing shares
are discretionary and may be discontinued at any time.
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If a shareholder redeems all shares in the account after the record date
of a dividend, the shareholder will receive in addition to the net asset value
thereof, all declared but unpaid dividends thereon. The value of shares redeemed
or repurchased may be more or less than the shareholder's cost depending on the
net asset value at the time of redemption or repurchase. The Funds do not impose
a redemption or repurchase charge, although a wire charge may be applicable for
redemption proceeds wired to an investor's bank account. Redemption of shares,
including an exchange into another Scudder fund, may result in tax consequences
(gain or loss) to the shareholder and the proceeds of such redemptions may be
subject to backup withholding. (See "TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts should
contact the employer, trustee or custodian of the Plan for the requirements.
The Trust's Declaration of Trust provides that the determination of net
asset value may be suspended and a shareholder's right to redeem shares and to
receive payments may be suspended at times during which a) the Exchange is
closed, other than customary weekend and holiday closings, (b) trading on the
Exchange is restricted, (c) an emergency exists as a result of which disposal by
the Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or (d) a governmental body having jurisdiction over the Trust may, by
order, permit such a suspension for the protection of the Fund's shareholders;
provided that applicable rules and regulations of the SEC (or any succeeding
governmental authority) shall govern as to whether the conditions prescribed in
(b), (c) or (d) exist.
If transactions at any time reduce a shareholder's account balance in the
Fund to below $1,000 in value, the Trust may notify the shareholder that, unless
the account balance is brought up to at least $1,000, the Trust will redeem all
shares in the Fund and close the account by making payment to the shareholder.
The shareholder has sixty days to bring the account balance up to $1,000 before
any action will be taken by the Trust. No transfer from an existing account to a
new Scudder fund account should be for less than $1,000; otherwise the new
account may be redeemed as described above. (This policy applies to accounts of
new shareholders but does not apply to certain Special Plan Accounts.) The
Trustees have the authority to change the minimum account size.
FEATURES AND SERVICES OFFERED BY THE FUNDS
(See "Shareholder benefits" in the 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 the funds in 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.
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Because Scudder 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 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.
================================================================================
YEARS ScudderPure 8.50% Load Load Fund with No-Load Fund
No-Load(TM) Fund Fund 0.75% 12b-1 Fee with 0.25%
12b-1 Fee
- - - - - --------------------------------------------------------------------------------
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
===============================================================================
Investors are encouraged to review the fee tables on page 2 of the
respective prospectus for more specific information about the rates at which
management fees and other expenses are assessed.
Internet access
World Wide Web Site -- The address of the Scudder Funds site is
http://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. are
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 who have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions for
an account, with trade dates, type and amount of transaction, share price and
number of shares traded. For users who wish to trade shares between
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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. See "How to contact Scudder" in the Funds'
prospectuses for the address.
Reinvestment is usually made at the closing net asset value determined on
the business day following the record date. Investors may leave standing
instructions with the Transfer Agent designating their option for either
reinvestment or cash distribution of any income dividends or capital gains
distributions. If no election is made, dividends and distributions will be
invested in additional shares of a Fund.
Investors may also have dividends and distributions automatically
deposited in their predesignated bank account through Scudder's
DistributionsDirect Program. Shareholders who elect to participate in the
DistributionsDirect Program, and whose predesignated checking account of record
is with a member bank of the Automated Clearing House Network (ACH) can have
income and capital gain distributions automatically deposited to their personal
bank account usually within three business days after the Fund pays its
distribution. A DistributionsDirect request form can be obtained by calling
1-800-225-5163. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Investors choosing to participate in Scudder's Automatic Withdrawal Plan
must reinvest any dividends or capital gains. For most retirement plan accounts,
the reinvestment of dividends and capital gains is also required.
Diversification
Your investment in each Fund represents an interest in a large,
diversified portfolio of carefully selected securities. Diversification may
protect you against the possible risks associated with concentrating in fewer
securities.
Scudder Investor Centers
Investors may visit any of the Investor Centers maintained by the
Distributor listed in the 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 "How to contact Scudder" in the prospectuses.
Reports to Shareholders
The Trust issues shareholders unaudited semiannual financial statements
and annual financial statements audited by independent accountants, including a
list of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights. The Trust presently intends to
distribute to shareholders informal quarterly reports during the intervening
quarters, containing a statement of the investments of the Funds.
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Transaction Summaries
Annual summaries of all transactions in each Fund account are available to
shareholders. The summaries may be obtained by calling 1-800-225-5163.
THE SCUDDER FAMILY OF FUNDS
(See "Investment products and services" in the 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.
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
- - - - - --------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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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.
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.
- - - - - --------
* These funds are not available for sale in all states. For information,
contact Scudder Investor Services, Inc.
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<PAGE>
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 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.
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 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.
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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.
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 securities of small and medium-size growth companies.
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.
SCUDDER 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.
GLOBAL GROWTH
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 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.
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<PAGE>
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.
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.
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 "Scudder tax-advantaged retirement plans," "Purchases--By Automatic
Investment Plan" and "Exchanges and redemptions--By Automatic Withdrawal Plan"
in the 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.
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.
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<PAGE>
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 each Fund may be purchased as the underlying investment for an
Individual Retirement Account which meets the requirements of Section 408(a) of
the Internal Revenue Code.
A single individual who is not an active participant in an
employer-maintained retirement plan, a simplified employee pension plan, or a
tax-deferred annuity program (a "qualified plan"), and a married individual who
is not an active participant in a qualified plan and whose spouse is also not an
active participant in a qualified plan, are eligible to make tax deductible
contributions of up to $2,000 to an IRA prior to the year such individual
attains age 70 1/2. In addition, certain individuals who are active participants
in qualified plans (or who have spouses who are active participants) are also
eligible to make tax-deductible contributions to an IRA; the annual amount, if
any, of the contribution which such an individual will be eligible to deduct
will be determined by the amount of his, her, or their adjusted gross income for
the year. Whenever the adjusted gross income limitation prohibits an individual
from contributing what would otherwise be the maximum tax-deductible
contribution he or she could make, the individual will be eligible to contribute
the difference to an IRA in the form of nondeductible contributions.
An eligible individual may contribute as much as $2,000 of qualified
income (earned income or, under certain circumstances, alimony) to an IRA each
year (up to $2,000 per individual for married couples if only one spouse has
earned income). All income and capital gains derived from IRA investments are
reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
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.)
Value of IRA at Age 65
Assuming $2,000 Deductible Annual Contribution
- - - - - -------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------
Contributions 5% 10% 15%
- - - - - -------------------------------------------------------------------------
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
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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
- - - - - -------------------------------------------------------------------------
Starting Annual Rate of Return
Age of ------------------------------------------------------
Contributions 5% 10% 15%
- - - - - -------------------------------------------------------------------------
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
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 education
expenses.
An individual with an income of less than $100,000 (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the Fund may also be purchased as the underlying investment for
tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
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Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s) as
described under "Transaction information--Redeeming shares--Signature
guarantees" in the respective Prospectus. Any such requests must be received by
the Fund's transfer agent ten days prior to the date of the first automatic
withdrawal. An Automatic Withdrawal Plan may be terminated at any time by the
shareholder, the Trust or its agent on written notice, and will be terminated
when all shares of the Fund under the Plan have been liquidated or upon receipt
by the Trust of notice of death of the shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163.
Group or Salary Deduction Plan
An investor may join a Group or Salary Deduction Plan where satisfactory
arrangements have been made with Scudder Investor Services, Inc. for forwarding
regular investments through a single source. The minimum annual investment is
$240 per investor which may be made in monthly, quarterly, semiannual or annual
payments. The minimum monthly deposit per investor is $20. Except for trustees
or custodian fees for certain retirement plans, at present there is no separate
charge for maintaining group or salary deduction plans; however, the Trust and
its agents reserve the right to establish a maintenance charge in the future
depending on the services required by the investor.
The Trust reserves the right, after notice has been given to the
shareholder, to redeem and close a shareholder's account in the event that the
shareholder ceases participating in the group plan prior to investment of $1,000
per individual or in the event of a redemption which occurs prior to the
accumulation of that amount or which reduces the account value to less than
$1,000 and the account value is not increased to $1,000 within a reasonable time
after notification. An investor in a plan who has not purchased shares for six
months shall be presumed to have stopped making payments under the plan.
Automatic Investment Plan
Shareholders may arrange to make periodic investments through automatic
deductions from checking accounts by completing the appropriate form and
providing the necessary documentation to establish this service. The minimum
investment is $50.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
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<PAGE>
The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
(See "Distribution and performance information--Dividends and capital
gains distributions" in the 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 "Distribution and performance information--Performance information"
in the 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
Value Shares of the Fund. The performance information set forth below reflects
the performance of the Fund prior to such redesignation. These performance
figures are calculated separately for each class of shares of the 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 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):
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<PAGE>
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
One year Five years Ten years
-------- ---------- ---------
Large Company 43.06% 19.95% 14.08%
Value Fund *
One year Life of Fund (1)
-------- ----------------
Value Fund ** 45.80% 20.23%
(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 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 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 will vary based on changes in market conditions and the
level of a Fund's expenses.
In connection with communicating its average annual total return to
current or prospective shareholders, the Fund also may compare these figures to
the performance of other mutual funds tracked by mutual fund rating services or
to unmanaged indices which may assume reinvestment of dividends but generally do
not reflect deductions for administrative and management costs.
Cumulative Total Return
Cumulative total return is the cumulative rate of return on a hypothetical
initial investment of $1,000 for a specified period. Cumulative total return
quotations reflect changes in the price of the Funds' shares and assume that all
dividends and capital gains distributions during the period were reinvested in
Fund shares. Cumulative total return is calculated by computing the cumulative
rates of return of a hypothetical investment over such periods, according to the
following formula (cumulative total return is then expressed as a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value: ERV is the value, at the end
of the applicable period, of a hypothetical $1,000
investment made at the beginning of the applicable
period.
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Cumulative Total Return for the periods ended September 30, 1997
One year Five years Ten years
-------- ---------- ---------
Large Company 43.06% 148.31% 273.39%
Value Fund *
One year Life of Fund (1)
-------- ----------------
Value Fund ** 45.80% 139.93%
(1) For the period beginning December 31, 1992 (commencement of operations).
* The Adviser maintained Fund expenses for the period December 31, 1992
through September 30, 1993 and for the 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 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 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' 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 the 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, the Fund also may compare these figures to the performance of
unmanaged indices which may assume reinvestment of dividends or interest but
generally do not reflect deductions for administrative and management costs.
Examples include, but are not limited to the Dow Jones Industrial Average, the
Consumer Price Index, Standard & Poor's Corporation 500 Composite Stock 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.
From time to time, in advertising and marketing literature, this Fund's
performance may be compared to the performance of broad groups of mutual funds
with similar investment goals, as tracked by independent organizations 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
36
<PAGE>
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, the Fund's portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
Fund. In addition, the amount of assets that the Adviser has under management in
various geographical areas may be quoted in advertising and marketing materials.
The Fund may be advertised as an investment choice in Scudder's college
planning program. 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 the Fund to
other Scudder funds or broad categories of funds, such as money market, bond or
equity funds, in terms of potential risks and returns. Money market funds are
designed to maintain a constant $1.00 share price and have a fluctuating yield.
Share price, yield and total return of a bond fund will fluctuate. The share
price and return of an equity fund also will fluctuate. The description may also
compare the Fund to bank products, such as certificates of deposit. Unlike
mutual funds, certificates of deposit are insured up to $100,000 by the U.S.
government and offer a fixed rate of return.
Because bank products guarantee the principal value of an investment and
money market funds seek stability of principal, these investments are considered
to be less risky than investments in either bond or equity funds, which may
involve the loss of principal. However, all long-term investments, including
investments in bank products, may be subject to inflation risk, which is the
risk of erosion of the value of an investment as prices increase over a long
time period. The risks/returns associated with an investment in bond or equity
funds depend upon many factors. For bond funds these factors include, but are
not limited to, a fund's overall investment objective, the average portfolio
maturity, credit quality of the securities held, and interest rate movements.
For equity funds, factors include a fund's overall investment objective, the
types of equity securities held and the financial position of the issuers of the
securities. The risks/returns associated with an investment in international
bond or equity funds also will depend upon currency exchange rate fluctuation.
A risk/return spectrum generally will position the various investment
categories in the following order: bank products, money market funds, bond funds
and equity funds. Shorter-term bond funds generally are considered less risky
and offer the potential for less return than longer-term bond funds. The same is
true of domestic bond funds relative to international bond funds, and bond funds
that purchase higher quality securities relative to bond funds that purchase
lower quality securities. Growth and income equity funds are generally
considered to be less risky and offer the potential for less return than growth
funds. In addition, international equity funds usually are considered more risky
than domestic equity funds but generally offer the potential for greater return.
Risk/return spectrums also may depict funds that invest in both domestic
and foreign securities or a combination of bond and equity securities.
Evaluation of Fund performance or other relevant statistical information
made by independent sources may also be used in advertisements concerning the
Fund, including reprints of, or selections from, editorials or articles about
this Fund. Sources for Fund performance information and articles about the Fund
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.
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<PAGE>
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.
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.
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<PAGE>
Mutual Fund Values, a biweekly Morningstar, Inc. publication that provides
ratings of mutual funds based on fund performance, risk and portfolio
characteristics.
The New York Times, a nationally distributed newspaper which regularly covers
financial news.
The No-Load Fund Investor, a monthly newsletter, published by Sheldon Jacobs,
that includes mutual fund performance data and recommendations for the mutual
fund investor.
No-Load Fund*X, a monthly newsletter, published by DAL Investment Company, Inc.,
that reports on mutual fund performance, rates funds and discusses investment
strategies for the mutual fund investor.
Personal Investing News, a monthly news publication that often reports on
investment opportunities and market conditions.
Personal Investor, a monthly investment advisory publication that includes a
"Mutual Funds Outlook" section reporting on mutual fund performance measures,
yields, indices and portfolio holdings.
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.
ORGANIZATION OF THE FUNDS
(See "Fund organization" in the respective Prospectuses.)
The Funds are separate series of Scudder Equity Trust. Scudder Equity
Trust, formerly Scudder Capital Growth Fund, is a Massachusetts business trust
established under a Declaration of Trust dated October 16, 1985, as amended. The
Trust's authorized capital consists of an unlimited number of shares of
beneficial interest, par value $0.01 per share. The Trustees have the authority
to issue additional series of shares. If more than one series of shares were
issued and a series were unable to meet its obligations, the remaining series
might have to assume the unsatisfied obligations of that series.
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<PAGE>
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 Value Shares and Kemper Value
Fund 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 the Funds' prospectuses.
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
the Prospectuses 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 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.
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 of the Trust 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 Trust's Declaration of Trust. As
used in the Prospectuses 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 Corporation'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.
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Each share of a Fund of the Trust 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 Trust's Board of
Trustees. In the event of the liquidation or dissolution of the Trust, 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.
Currently, the assets of Scudder Equity Trust received for the issue or
sale of the shares of each series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are to be
charged with the liabilities in respect to such series and with a proportionate
share of the general liabilities of Scudder Equity Trust. If a series were
unable to meet its obligations, the assets of all other series may in some
circumstances be available to creditors for that purpose, in which case the
assets of such other series could be used to meet liabilities which are not
otherwise properly chargeable to them. Expenses with respect to any two or more
series are to be allocated in proportion to the asset value of the respective
series except where allocations of direct expenses can otherwise be fairly made.
The officers of Scudder Equity Trust, subject to the general supervision of the
Trustees, have the power to determine which liabilities are allocable to a given
series, or which are general or allocable to two or more series. In the event of
the dissolution or liquidation of Scudder Equity Trust, the holders of the
shares of any series are entitled to receive as a class the underlying assets of
such shares available for distribution to shareholders.
The Trust's predecessor was organized in 1966 as a Delaware corporation
under the name "Scudder Duo-Vest Inc." as a closed-end, diversified dual-purpose
investment company. Effective April 1, 1982, its original dual-purpose nature
was terminated and it became an open-end investment company with only one class
of shares outstanding. At a Special Meeting of Shareholders held May 18, 1982,
the shareholders voted to amend the investment objective to seek to maximize
long-term growth of capital and to change the name of the corporation to
"Scudder Capital Growth Fund, Inc." ("SCGF, Inc."). The fiscal year end of SCGF,
Inc. was changed from March 31 to September 30 by action of its Directors on May
18, 1982. Effective as of September 30, 1982, Scudder Special Fund, Inc. was
merged into SCGF, Inc. In October 1985, the Fund's form of organization was
changed to a Massachusetts business trust upon approval of the shareholders.
Shares of Scudder Equity Trust entitle their holders to one vote per
share; however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to the other
series.
The Trust has a Declaration of Trust which provides that obligations of a
Fund are not binding upon the Trustees individually but only upon the property
of that Fund, that the Trustees and officers will not be liable for errors of
judgment or mistakes of fact or law, and that a Fund involved will indemnify the
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, except if it is determined in the manner provided in the Declaration of
Trust that they have not acted in good faith in the reasonable belief that their
actions were in the best interests of the Fund involved. 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.
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INVESTMENT ADVISER
(See "Fund organization--Investment adviser" in the Funds' prospectuses.)
Scudder Kemper Investments, Inc. (the "Adviser"), an investment counsel
firm, acts as investment adviser to the Fund. This organization, the predecessor
of which is Scudder, Stevens & Clark, Inc., is one of the most experienced
investment counsel firms in the U. S. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. In 1928 it introduced the first no-load mutual fund to
the public. In 1953 the Adviser introduced Scudder International Fund, Inc., the
first mutual fund available in the U.S. investing internationally in securities
of issuers in several foreign countries. The predecessor firm reorganized from a
partnership to a corporation on June 28, 1985. On June 26, 1997, Scudder,
Stevens & Clark, Inc. ("Scudder") entered into an agreement with Zurich
Insurance Company ("Zurich") pursuant to which Scudder and Zurich agreed to form
an alliance. On December 31, 1997, Zurich acquired a majority interest in
Scudder, and Zurich Kemper Investments, Inc., a Zurich subsidiary, became part
of Scudder. Scudder's name has been changed to Scudder Kemper Investments, Inc.
Founded in 1872, Zurich is a multinational, public corporation organized
under the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world.
The principal source of the Adviser's income is professional fees received
from providing continuous investment advice, and the firm derives no income from
brokerage or underwriting of securities. Today, it provides investment counsel
for many individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations. In addition,
it manages Montgomery Street Income Securities, Inc., Scudder California Tax
Free Trust, Scudder Cash Investment Trust, Scudder Equity Trust, Scudder Fund,
Inc., Scudder Funds Trust, Scudder Global Fund, Inc., Scudder Global High Income
Fund, Inc., Scudder GNMA Fund, Scudder Portfolio Trust, Scudder Institutional
Fund, Inc., Scudder International Fund, Inc., Scudder Investment Trust, Scudder
Municipal Trust, Scudder Mutual Funds, Inc., Scudder New Asia Fund, Inc.,
Scudder New Europe Fund, Inc., Scudder Pathway Series, Scudder Securities Trust,
Scudder State Tax Free Trust, Scudder Tax Free Money Fund, Scudder Tax Free
Trust, Scudder U.S. Treasury Money Fund, Scudder Variable Life Investment Fund,
The Argentina Fund, Inc., The Brazil Fund, Inc., The Korea Fund, Inc., The Japan
Fund, Inc. and Scudder Spain and Portugal Fund, Inc. Some of the foregoing
companies or trusts have two or more series.
The Adviser also provides investment advisory services to the mutual funds
which comprise the AARP Investment Program from Scudder. The AARP Investment
Program from Scudder has assets over $13 billion and includes the AARP Growth
Trust, AARP Income Trust, AARP Tax Free Income Trust, AARP Managed Investment
Portfolios Trust and AARP Cash Investment Funds.
Pursuant to an Agreement between Scudder, Stevens & Clark, Inc. 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 InvestmentLinkSM
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 InvestmentLinkSM Program will be a customer of the
Adviser (or of a subsidiary thereof) and not the AMA or AMA Solutions, Inc. AMA
InvestmentLinkSM 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 the Fund and other clients of the
Adviser, but conclusions are based primarily on investigations and critical
analyses by its own research specialists.
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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.
An investment management agreement between the Trust, on behalf of Large
Company Value, and Scudder was last approved by the Trustees on September 4,
1996 and by the Fund's shareholders on December 13, 1990. 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
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 new investment management agreements. The new investment
management agreements (the "Agreements") became effective as of December 31,
1997 and will be in effect for an initial term ending on September 30, 1998. The
Agreements are in all material respects on the same terms as the previous
investment management agreement which they supersede. The Agreements incorporate
conforming changes which promote consistency among all of the funds advised by
the Adviser and which permit ease of administration. The Large Company Value
Agreement and the Value Fund Agreement (collectively, the Agreements) will
continue in effect from year to year thereafter only if their continuance is
approved annually by the vote of a majority of those Trustees who are not
parties to such Agreements or interested persons of the Adviser or the Trust,
cast in person at a meeting called for the purpose of voting on such approval,
and either by vote of the Trustees or by a majority of the outstanding voting
securities of that Fund. The Agreements may be terminated at any time without
payment of penalty by either party on sixty days' written notice and
automatically terminates in the event of their assignment.
Under each Agreement, the Adviser regularly provides a Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objective, policies and restrictions and determines which
securities shall be purchased for the portfolio of that Fund, which portfolio
securities shall be held or sold by the Fund, and what portion of the Fund's
assets shall be held uninvested, subject always to the provisions of the
Declaration of Trust and By-Laws, of the 1940 Act and the Code, and to the
Fund's investment objective, policies and restrictions, and subject, further, to
such policies and instructions as the Trustees may from time to time establish.
The Adviser also advises and assists the officers of a Fund in taking such steps
as are necessary or appropriate to carry out the decisions of its Trustees and
the appropriate committees of the Trustees regarding the conduct of the business
of a Fund.
The Adviser 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.
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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, and 0.55% of 1% of such net assets in excess of
$1,500,000,000, 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, 1995, 1996 and 1997, Large
Company Value Fund incurred aggregate fees pursuant to its then effective
investment advisory agreement of $9,118,015, $10,505,409 and $12,187,280,
respectively.
For the Adviser's services, Value Fund pays the Adviser an annual fee
equal to 0.70% of average daily net assets, payable monthly, provided the Fund
will make such interim payments as may be requested by the Adviser not to exceed
75% of the amount of the fee then accrued on the books of the Fund and unpaid.
For the fiscal years ended September 30, 1995, 1996 and 1997, the Adviser did
not impose a portion of its management fees amounting to $95,355, $43,951, and
$59,309, respectively and the amounts imposed amounted to $112,125 $508,822, and
$1,073,855, 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
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.
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<PAGE>
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,
Name Position Principal Scudder Investor
and Address with Trust Occupation** Services, Inc.
- - - - - ----------- ---------- ------------ --------------
<S> <C> <C> <C>
Daniel Pierce (63)*#+ President and Managing Director of Vice President,
Trustee Scudder Kemper Assistant Treasurer
Investments, Inc. and Director
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
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
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trust Occupation** Services, Inc.
- - - - - ----------- ---------- ------------ --------------
<S> <C> <C> <C>
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 Vice President
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 Vice President,
Scudder Kemper Director,
Investments, Inc. Treasurer, and
Assistant Clerk
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.
John R. Hebble (39)+ Assistant Senior Vice President --
Treasurer
</TABLE>
* 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.
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<PAGE>
+ Address: Two International Place, Boston, Massachusetts
++ Address: 345 Park Avenue, New York, New York
@ Address: 333 South Hope Street, Los Angeles, California
As of March 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) 1,038,433 shares, or 1.27% of the shares of
Large Company Value Fund.
As of March 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)337,698 shares, or 1.67% of the shares of
the Scudder Shares of Value Fund.
Certain accounts for which the Adviser acts as investment adviser owned
1,497,121 shares in the aggregate of Value Fund, or 1.82% of the outstanding
shares on March 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 March 31, 1998, 2,686,233 shares in the aggregate, 13.32% 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 March 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: 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 Adviser or any affiliate
of the Adviser; $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 Adviser. These funds differ broadly in type and complexity
and in some cases have substantially different Trustee fee schedules. The
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<PAGE>
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, $15,100 $156,922 (20 funds)
Trustee
Sheryle J. Bolton, $17,500 $86,213 (20 funds)
Trustee
William T. Burgin, $11,682 $85,950 (20 funds)
Trustee
Thomas J. Devine, $17,800 $187,348 (21 funds)
Trustee
Keith R. Fox, $18,700 $134,390 (18 funds)
Trustee
William H. Luers, $2,534 $117,729 (20 funds)
Trustee
Wilson Nolen, $16,400 $189,548 (21 funds)
Trustee
* Scudder Equity Trust consists of two funds: Scudder Large Company Value
Fund and Scudder Value Fund.
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. (the "Distributor"), a Massachusetts
corporation, which is a subsidiary of the Adviser. This underwriting agreement
dated May 1, 1987 will remain in effect until September 30, 1998 and from year
to year thereafter only if its continuance is approved annually by a majority of
the Trustees who are not parties to such agreement or interested persons of any
such party and either by vote of a majority of the Trustees or a majority of the
outstanding voting securities of the Trust. The underwriting agreement was last
approved by the Trustees on September 10, 1997.
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
48
<PAGE>
underwriting agreement and a Fund or a third party will pay those fees and
expenses not specifically allocated to the Distributor in the underwriting
agreement.
As agent, the Distributor currently offers shares of a Fund on a
continuous basis to investors in all states. The underwriting agreement provides
that the Distributor accepts orders for shares at net asset value as no sales
commission or load is charged the investor. The Distributor has made no firm
commitment to acquire shares of a Fund.
TAXES
(See "Distribution and performance information--Dividends and capital
gains distributions" and "Transaction information--Tax information and Tax
identification number" in the Funds' Prospectuses.)
Each Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code or a predecessor statute and has qualified as
such from its inception. Each Fund intends to continue to qualify for such
treatment. Such qualification does not involve governmental supervision of
management or investment practices or policies.
A regulated investment company qualifying under Subchapter M of the Code
is required to distribute to its shareholders at least 90% of its investment
company taxable income (including net short-term capital gain in excess of net
long-term capital loss) and generally is not subject to federal income tax to
the extent that it distributes annually its investment company taxable income
and net realized capital gains in the manner required under the Code.
Investment company taxable income generally is made up of dividends,
interest, and net short-term capital gains in excess of net long-term capital
losses, less expenses. Net capital gains (the excess of net long-term capital
gain over net short-term capital loss) are computed by taking into account any
capital loss carryforward of a Fund. Presently, each Fund has no capital loss
carryforward.
Each Fund is subject to a 4% nondeductible excise tax on amounts required
to be but not distributed under a prescribed formula. The formula requires
payment to shareholders during a calendar year of distributions at least equal
to the sum of 98% of a Fund's ordinary income for the calendar year, at least
98% of the excess of its capital gains over capital losses (adjusted for certain
ordinary losses as prescribed in the Code) realized during the one-year period
ending October 31 during such year, and all ordinary income and capital gains
for prior years that were not previously distributed.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are expected to comprise a
substantial part of each Fund's gross income. To the extent that such dividends
constitute a portion of each Fund's gross income, a portion of the income
distributions of a Fund may be eligible for the dividends received deduction for
corporations. Shareholders will be informed of the portion of dividends which so
qualify. The dividends-received deduction is reduced to the extent the shares
with respect to which the dividends are received are treated as debt-financed
under the federal income tax law and is eliminated if the shares are deemed to
have been held for less than 46 days.
Distributions of net capital gains are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of a Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as long-term capital
gain distributions during such six-month period.
If any net capital gains are retained by a Fund for reinvestment,
requiring federal income taxes to be paid thereon by that Fund, each Fund
intends to elect to treat such capital gains as having been distributed to
shareholders. As a result, each shareholder will report such capital gains as
long-term capital gains, will be able to claim a relative share of the federal
income taxes paid by a Fund on such gains as a credit against personal federal
income tax liabilities, and will be entitled to increase the adjusted tax basis
on Fund shares by the difference between a pro-rata share of such gains and the
individual tax credit. However, retention of such gains by a Fund may cause the
Fund to be liable for an excise tax on all or a portion of those gains.
49
<PAGE>
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether made in shares or in
cash. Shareholders electing to receive distributions in the form of additional
shares will have a cost basis for federal income tax purposes in each share so
received equal to the net asset value of a share on the reinvestment date.
All distributions of investment company taxable income and net realized
capital gains, whether received in shares or cash, must be reported by each
shareholder on his or her federal income tax return. Dividends declared in
October, November or December with a record date in such a month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
An individual may make a deductible IRA contribution for any taxable year
only if (i) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,250 to IRAs for an individual and his or her nonearning spouse) for that
year. There are special rules for determining how withdrawals are to be taxed if
an IRA contains both deductible and nondeductible amounts. In general, a
proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, contributions may be made to a spousal
IRA even if the spouse has earnings in a given year, if the spouse elects to be
treated as having no earnings (for IRA contribution purposes) for the year.
Distributions by a Fund result in a reduction in the net asset value of
that Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares just prior to a distribution. The price of shares purchased at
that time includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a partial return of capital upon
the distribution, which will nevertheless be taxable to them.
If a Fund invests in stock of certain foreign investment companies, that
Fund may be subject to U.S. federal income taxation on a portion of any "excess
distribution" with respect to, or gain from the disposition of, such stock. The
tax would be determined by allocating such distribution or gain ratably to each
day of the Fund's holding period for the stock. The distribution or gain so
allocated to any taxable year of the Fund, other than the taxable year of the
excess distribution or disposition, would be taxed to the Fund at the highest
ordinary income rate in effect for such year, and the tax would be further
increased by an interest charge to reflect the value of the tax deferral deemed
to have resulted from the ownership of the foreign company's stock. Any amount
of distribution or gain allocated to the taxable year of the distribution or
disposition would be included in the Fund's investment company taxable income
and, accordingly, would not be taxable to the Fund to the extent distributed by
the Fund as a dividend to its shareholders.
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
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<PAGE>
will be recognized by a Fund upon payment of a premium in connection with the
purchase of a put or call option. The character of any gain or loss recognized
(i.e. long-term or short-term) will generally depend, in the case of a lapse or
sale of the option, on a Fund's holding period for the option, and in the case
of the exercise of a put option, on a Fund's holding period for the underlying
property. The purchase of a put option may constitute a short sale for federal
income tax purposes, causing an adjustment in the holding period of the
underlying security or a substantially identical security in a Fund's portfolio.
If a Fund writes a covered call option on portfolio stock, no gain is
recognized upon its receipt of a premium. If the option lapses or is closed out,
any gain or loss is treated as short-term capital gain or loss. If the option is
exercised, the character of the gain or loss depends on the holding period of
the underlying stock.
Positions of a Fund which consist of at least one stock and at least one
stock option or other position with respect to a related security which
substantially diminishes a Fund's risk of loss with respect to such stock could
be treated as a "straddle" which is governed by Section 1092 of the Code, the
operation of which may cause deferral of losses, adjustments in the holding
periods of stocks or securities and conversion of short-term capital losses into
long-term capital losses. An exception to these straddle rules exists for
certain "qualified covered call options" on stock written by a Fund.
Many or all futures and forward contracts entered into by a Fund and many
or all listed nonequity options written or purchased by a Fund (including
options on debt securities, options on futures contracts, options on foreign
currencies and options on securities indices) will be governed by Section 1256
of the Code. Absent a tax election to the contrary, gain or loss attributable to
the lapse, exercise or closing out of any such position generally will be
treated as 60% long-term and 40% short-term capital gain or loss, and on the
last day of the Funds' fiscal year (as well as on October 31 for purposes of the
4% excise tax), all outstanding Section 1256 positions will be marked to market
(i.e. treated as if such positions were sold at their closing price on such
day), with any resulting gain or loss recognized as 60% long-term and 40%
short-term capital gain or loss. Under Section 988 of the Code, discussed below,
foreign currency gain or loss from foreign currency-related forward contracts,
certain futures and options, and similar financial instruments entered into or
acquired by the Fund will be treated as ordinary income. Under certain
circumstances, entry into a futures contract to sell a security may constitute a
short sale for federal income tax purposes, causing an adjustment in the holding
period of the underlying security or a substantially identical security in the
relevant Fund's portfolio.
Positions of a Fund which consist of at least one position not governed by
Section 1256 and at least one futures or forward contract or nonequity option or
other position governed by Section 1256 which substantially diminishes a Fund's
risk of loss with respect to such other position may be treated as a "mixed
straddle." 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
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<PAGE>
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 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. Each distribution
is accompanied by a brief explanation of the form and character of the
distribution. By January 31 of each year the Fund issues to each shareholder a
statement of the federal income tax status of all distributions.
The Trust is organized as a Massachusetts business trust. Neither the
Trust nor a Fund is expected to be liable for any income or franchise tax in the
Commonwealth of Massachusetts, provided that each Fund qualifies as a regulated
investment company under the Code.
The foregoing discussion of U.S. federal income tax law relates solely to
the application of that law to U.S. persons, i.e., U.S. citizens and residents
and U.S. corporations, partnerships, trusts and estates. Each shareholder who is
not a U.S. person should consider the U.S. and foreign tax consequences of
ownership of shares of the Fund, including the possibility that such a
shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a
lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this statement of additional information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for a Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
52
<PAGE>
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by a Fund to reported commissions paid by others.
The Adviser reviews on a routine basis commission rates, execution and
settlement services performed, making internal and external comparisons.
The Funds' purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by a Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply 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 not all such information is used by
the Adviser in connection with a Fund. Conversely, such information provided to
the Adviser by broker/dealers through whom other clients of the Adviser effect
securities transactions may be useful to the Adviser in providing services to a
Fund.
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.
In the fiscal years ended September 30, 1995, 1996 and 1997, Large
Company Value Fund paid brokerage commissions of $5,222,945, $5,768,334 and
$2,188,295, respectively. In the fiscal year ended September 30, 1997, the Fund
paid brokerage commissions of $2,020,615 (92.3% of the total brokerage
commissions), resulting from orders placed, consistent with the policy of
seeking to obtain the most favorable net results, for transactions placed with
brokers and dealers who provided supplementary research, market and statistical
information to the Trust or Adviser. The amount of such transactions aggregated
$1,705,406,348 (90.9% of all brokerage transactions). The balance of such
brokerage was not allocated to any particular broker or dealer or with regard to
the above-mentioned or any other special factors.
For the fiscal years ended September 30, 1995, 1996 and 1997, Value Fund
paid brokerage commissions of $165,577, $181,652 and $273,545, respectively.
For the fiscal year ended September 30, 1997, the Fund paid brokerage
commissions of $254,512 (93.7% 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
53
<PAGE>
supplementary research, market and statistical information to the Trust or
Adviser. The amount of such transactions aggregated $429,882,869 (54% of all
brokerage transactions). The balance of such brokerage was not allocated to any
particular broker or dealer or with regard to the above-mentioned or any other
special factors.
The Trustees review from time to time whether the recapture for the
benefit of a Fund of some portion of the brokerage commissions or similar fees
paid by a Fund on portfolio transactions is legally permissible and advisable.
To date no such recapture has been effected.
Portfolio Turnover
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, 1995, 1996 and 1997 was 153.6%, 150.7% and
43.02%, respectively. For the fiscal years ended September 30, 1995, 1996 and
1997, Value Fund had an annualized portfolio turnover rate of 98.2%, 90.8% and
47.4%, respectively. Higher levels of activity by the Funds result in higher
transaction costs and may also result in taxes on realized capital gains to be
borne by the Funds' shareholders. Purchases and sales are made for a Fund
whenever necessary, in management's opinion, to meet the Funds' objectives.
NET ASSET VALUE
The net asset value of shares of each Fund is computed as of the close of
regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Dr. Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas. 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. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("Nasdaq") system is
valued at its most recent sale price. Lacking any sales, the security is valued
at the high or "inside" bid quotation. The value of an equity security not
quoted on the Nasdaq System, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures and
other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
54
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If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Trust's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by a Fund is determined
in a manner which, in the discretion of the Valuation Committee most fairly
reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in terms
of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The Financial Highlights of each Fund included in the respective
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 Coopers & Lybrand, L.L.P., One Post
Office Square, Boston, Massachusetts 02109, independent accountants, and given
on the authority of that firm as experts in accounting and auditing.
Shareholder Indemnification
The Trust is an organization of the type commonly known as a
"Massachusetts business trust". Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with a Fund's property or the
acts, obligations or affairs of a Fund. The Declaration of Trust also provides
for indemnification out of a Fund's property of any shareholder of a Fund held
personally liable for the claims and liabilities to which a shareholder may
become subject by reason of being or having been a shareholder of a Fund. Thus,
the risk of a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which a Fund itself would be unable to
meet its obligations.
Other Information
Many of the investment changes in a Fund will be made at prices different
from those prevailing at the time they may be reflected in regular reports to
shareholders of a Fund. These transactions will reflect investment decisions
made by the Adviser in light of the objectives and policies of a Fund, and other
factors, such as its other portfolio holdings and tax considerations should not
be construed as recommendations for similar action by other investors.
The name "Scudder Equity Trust" is the designation of the Trustees for the
time being under a Declaration of Trust dated October 16, 1985, as amended, and
all persons dealing with a Fund must look solely to the property of a Fund for
the enforcement of any claims against a Fund as neither the Trustees, officers,
agents, shareholders nor other series of the Trust assumes any personal
liability for obligations entered into on behalf of a Fund. Upon the initial
purchase of shares of a Fund, the shareholder agrees to be bound by the Trust's
Declaration of Trust, as amended from time to time. The Declaration of Trust is
on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts. All persons dealing with the Fund must look only to the assets of
the Fund for the enforcement of any claims against a Fund as no other series of
the Trust assumes any liabilities for obligations entered into on behalf of a
Fund.
The CUSIP number of 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.
55
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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, 1997, Large Company Value Fund and Value Fund
incurred annual fees of $157,173 and $50,128, respectively, of which $13,819 and
$5,562, respectively, are unpaid at September 30, 1996.
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, 1997,
Large Company Value Fund and Value Fund incurred annual fees of $2,505,046 and
$445,397, respectively, of which $206,660 and $56,017, respectively, are unpaid
at September 30, 1997.
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,
1997, Large Company Value Fund and Value Fund incurred fees of $1,562,194 and
$80,120, respectively, of which $133,227 and $12,885, respectively, are unpaid
at September 30, 1997.
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, 1997, and are hereby deemed to be part of this Statement of
Additional Information.
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Value Fund
The financial statements, including the investment portfolio of Value Fund
- - - - - -- Scudder Value Fund 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, 1997, and are hereby deemed to be
part of this Statement of Additional Information.
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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>
Table of Contents
Summary _
Summary of Expenses -
Investmen Objective, _
Policies and Risk Factors
Investment Adviser and _
Underwriter
Dividends, Distributions and _
Taxes
Net Asset Value _
Purchase of Shares -
Redemption or Repurchase of _
Shares
Special Features _
Performance _
Capital Structure _
--------------------------------------
This prospectus contains concisely the information about the Class A, B and C
shares (the "Kemper Shares" or "Shares") of Value Fund (the "Fund"), that a
prospective investor should know before investing and should be retained for
future reference. A Statement of Additional Information, which contains
additional information about the Fund, dated April 16, 1998, has been filed
with the Securities and Exchange Commission (the "SEC") and is incorporated
herein by reference. It is available upon request without charge from the Fund
at the address or telephone number on this cover or the firm from which this
prospectus was received. It is also available along with other related materials
on the SEC's Internet Web Site (http://www.sec.gov).
The Fund's shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, nor are they federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board or any other agency. Investment in the
Fund's shares involves risk, including the possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[KEMPER FUNDS LOGO]
KEMPER VALUE FUND
PROSPECTUS DATED APRIL 16, 1998
KEMPER VALUE FUND
222 South Riverside Plaza, Chicago, Illinois 60606
1-800-621-1048
The investment objective of the Fund is to provide long-term growth of capital
through investment in undervalued equity securities. The Fund invests in the
securities of companies that, in the opinion of its investment adviser, Scudder
Kemper Investments, Inc. (the "Adviser"), are undervalued in the marketplace in
relation to current and estimated future earnings and dividends.
There is no assurance that the Fund's objective will be achieved.
SUMMARY
<PAGE>
Investment Objective. The Fund's investment objective is to seek long-term
growth of capital through investment in undervalued equity securities. There is
no assurance that the Fund's objective will be achieved. The Fund invests in the
securities of companies that, in the opinion of the Adviser, are undervalued in
the marketplace in relation to current and estimated future earnings and
dividends. These companies generally sell at price-earnings ratios below the
market average, as defined by the Standard & Poor's Corporation 500 Composite
Price Index.
Risk Factors. The Fund's risks are determined by the nature of the securities
held in the Fund and the portfolio management strategies used by the Adviser.
The Fund is appropriate for investors who understand the risks of stock market
investing. Although the Fund emphasizes securities of companies the Adviser
believes are undervalued, movements of the stock market will affect the Fund's
share price. The following are descriptions of certain risks related to the
investments and techniques that the Fund may use from time to time. For a more
complete discussion of risks involved in an investment in the Fund, please see
"Special Risk Factors."
The Fund invests at least 80% of its assets in equity securities, which consist
of common stocks, preferred stocks, securities convertible into common stocks,
rights and warrants. 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. Foreign investments by the Fund involve risk and opportunity
considerations not typically associated with investing in U.S. companies. The
U.S. Dollar value of a foreign security tends to decrease when the value of the
U.S. Dollar rises against the foreign currency in which the security is
denominated and tends to increase when the value of the U.S. Dollar falls
against such currency. Thus, the U.S. Dollar value of foreign securities in the
Fund's portfolio, and the Fund's net asset value, may change in response to
changes in currency exchange rates even though the value of the foreign
securities in local currency terms may not have changed. A portion of the assets
of the Fund may be invested in lower rated or unrated high yield bonds, which
entail greater risk of loss of principal and interest than higher rated
fixed-income securities. In addition, the Fund may invest in illiquid
securities. Disposing of illiquid securities may involve time-consuming
negotiation and legal expense, and it may be difficult or impossible for the
Fund to sell them promptly at an acceptable price. The Fund may also engage in
options and financial futures transactions ("Strategic Transactions") and may
also invest to a limited extent in illiquid and restricted securities. There are
special risks associated with options, financial futures and foreign currency
transactions and other derivatives and there is no assurance that use of those
investment techniques will be successful. See "Investment Objective, Policies
and Risk Factors."
Purchases and Redemptions. The Fund provides investors with the option
of purchasing Shares in the following ways:
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
redeemed within one year of purchase and a 0.50% contingent
deferred sales charge if redeemed within the second year of
purchase.
2
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Class B Shares Offered at net asset value, subject to a Rule 12b-1
distribution fee and a contingent deferred sales charge
applied to the value of shares redeemed within six years of
purchase. The contingent deferred sales charge is computed at
the following rates:
Year of Redemption Contingent Deferred
After Purchase Sales Changes
First 4%
Second 3%
Third 3%
Fourth 2%
Fifth 2%
Sixth 1%
Class B Shares convert to Class A shares six years after issuance.
Class C Shares Offered at net asset value without an initial sales charge,
but subject to a 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 any
other class.
Each class of shares represents interests in the same portfolio of investments
of the Fund. The minimum initial investment for each class is $1,000 and
investments thereafter must be for at least $100. Shares are redeemable at net
asset value, which may be more or less than original cost, subject to any
applicable contingent deferred sales charge. See "Purchase of Shares" and
"Redemption or Repurchase of Shares."
Investment Adviser and Underwriter. Scudder Kemper Investments, Inc. serves as
the Fund's investment adviser. The Fund pays the Adviser an annual fee of .70%
of the Fund's average daily net assets. Kemper Distributors, Inc. ("KDI"), a
subsidiary of the Adviser, is principal underwriter and administrator for the
Class A, B and C shares of Kemper Value Fund. For each of Class B and Class C
shares, KDI receives a Rule 12b-1 distribution fee of .75% of average daily net
assets of each such class. KDI also receives the amount of any contingent
deferred sales charges paid on the redemption of shares. Administrative services
are provided to shareholders under an administrative services agreement with
KDI. The Fund pays an administrative services fee at an annual rate of up to
.25% of average daily net assets of each of Class A, B and C shares of the Fund,
which KDI pays to financial services firms. See "Investment Adviser and
Underwriter."
Dividends. The Fund normally distributes dividends of net investment income and
any net realized short-term and long-term capital gains at least annually.
Income and capital gain dividends of the Fund are automatically reinvested in
additional Shares of the Fund, without a sales charge, unless the investor makes
an election otherwise. See "Dividends and Taxes."
3
<PAGE>
SUMMARY OF EXPENSES
Shareholder Transaction Expenses (1) Class A Class B Class C
------------------------------------ ------- ------- -------
Maximum Sales Charge on Purchases
(as a percentage of offering
price)............................... 5.75%(2) None None
Maximum Sales Charge on
Reinvested Dividends................. None None None
Redemption Fees....................... None None None
Exchange Fee.......................... None None None
Maximum Contingent Deferred Sales
Charge (as a percentage of
redemption proceeds)................. None(3) 4%(4) 1%(5)
- - - - - ----------
(1) Investment dealers and other firms may independently charge additional
fees for shareholder transactions or for advisory services; please see
their materials for details. The table does not include the $9.00
quarterly small account fee. See "Redemption or Repurchase of Shares."
(2) Reduced sales charges apply to purchases of $50,000 or more. See "Purchase
of Shares-- Initial Sales Charge Alternative-- Class A Shares."
(3) 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 0.50% during the
second year. See "Purchase of Shares-- Initial Sales Charge Alternative
Class A Shares."
(4) The maximum Contingent Deferred Sales Charge on Class B Shares applies to
redemptions during the first year. The charge is 4% during the first year,
3% during the second and third years, 2% during the fourth and fifth years
and 1% in the sixth year.
(5) The Contingent Deferred Sales Charge of 1% on Class C Shares applies to
redemptions during the first year after purchase.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Class Class B Class C
A Shares Shares Shares
Management Fees 0.70% 0.70% 0.70%
12b-1 Fees (6) (7) None 0.75% 0.75%
Other Expenses 0.71% 0.84% 0.81%
---- ---- ----
Total Fund Operating Expenses 1.41% 2.29% 2.26%
==== ==== ====
4
<PAGE>
- - - - - ----------
(6) Long-term Class B shareholders of the Fund may, as a result of the Fund's
Rule 12b-1 fees, pay more than the economic equivalent of the maximum
initial sales charges permitted by the National Association of Securities
Dealers, Inc., although KDI believes that this is unlikely because of the
automatic conversion feature described under "Purchase of Shares --
Deferred Sales Charge Alternative -- Class B Shares."
(7) As a result of the accrual of Rule 12b-1 fees, long-term Class C
shareholders of the Fund may pay more than the economic equivalent of the
maximum initial sales charges permitted by the National Association of
Securities Dealers, Inc.
Example
The following example assumes reinvestment of all dividends and distributions
and that the percentage amounts under "Total Fund Operating Expenses" remain the
same each year.
1 year 3 year 5 year 10 years
------- ------ ------ --------
Class A Shares (8)
Based on the level of total $ 71 $100 $130 $217
operating expenses listed
above, you would pay the
following expenses on a
$1,000 investment, assuming a
5% annual return and
redemption at the end of each
time period:
Class B Shares (9)
Based on the level of $ 63 $102 $142 N/A(11)
total operating expenses
listed above, you would pay
the following expenses on a
$1,000 investment, assuming a
5% annual return and
redemption at the end of each
time period:
You would pay the following
expenses on the same investment,
assuming no redemption: $ 23 $ 72 $121 N/A(11)
Class C Shares (10)
Based on the level of total operating $ 33 $ 71 $119 $240
expenses listed above, you would pay the
following expenses on a $1,000 investment,
assuming a 5% annual return and redemption
at the end of each time period:
You would pay the following expenses on $ 23 $ 71 $119 $240
the same investment, assuming no redemption
5
<PAGE>
- - - - - ----------
(8) Assumes deduction of the maximum 5.75% initial sales charge at the time of
purchase and no deduction of a Contingent Deferred Sales Charge at the
time of redemption.
(9) Assumes that the shareholder was the owner on the first day of the first
year and the contingent deferred sales charge was applied as follows: 1
year (4%), 3 years (3%), 5 years (2%) and 10 years (0%).
(10) Assumes that the shareholder was the owner on the first day of the first
year and the contingent deferred sales charge of 1.00 % was applied during
the first year.
(11) Class B Shares convert to Class A Shares six years after issuance.
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. See "Investment Adviser and Underwriter" for more information.
The Fund commenced operations on December 31, 1992. The inception date for the
Fund's Class A, B and C shares is April 16, 1998. Accordingly, the expense
ratios shown above are estimates based on amounts incurred by the Fund during
the fiscal year ended September 30, 1997, prior to the creation of multiple
classes of the Fund.
Each Example assumes a 5% annual rate of return pursuant to requirements of the
SEC and assumes reinvestment of all dividends and distributions. This
hypothetical rate of return is not intended to be representative of past or
future performance of the Fund. The Examples should not be considered to be a
representation of past or future expenses. Actual expenses may be greater or
less than those shown.
The Fund also offers one other class of shares which has different fees and
expenses (which may affect performance), has different minimum investment
requirements and is entitled to different services.
FINANCIAL HIGHLIGHTS. The inception date for the Fund's Kemper Shares is April
16, 1998. Accordingly, no financial information for these Shares is presented
herein. Financial highlights for the Fund's class of shares in existence prior
to April 16, 1998 are contained in a separate prospectus dated April 16, 1998.
The Fund's Annual Report is incorporated by reference into the Kemper Shares'
Statement of Additional Information.
INVESTMENT OBJECTIVE, POLICIES AND RISK FACTORS
The following information sets forth the Fund's investment objective, policies
and risk factors. The Fund's returns and net asset value will fluctuate, and
there is no assurance that the Fund will achieve its objective.
The Fund seeks long-term growth of capital through investment in undervalued
equity securities. The Fund invests in the securities of companies that, in the
opinion of the Adviser, are undervalued in the marketplace in relation to
current and estimated future earnings and dividends. These companies generally
sell at price-earnings ratios below the market average, as defined by the
Standard & Poor's 500 Composite Price Index. The Fund invests at least 80% of
its assets in equity securities, which consist of common stocks, preferred
stocks and securities convertible into common stocks, rights and warrants. The
Fund changes its portfolio securities for long-term investment considerations
and not for trading purposes.
6
<PAGE>
Except as otherwise indicated, the Fund's investment objective and policies are
not fundamental and may be changed without a vote of shareholders. If there is a
change in investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their then current financial
position and needs.
The Fund provides investors with convenient, low-cost access to a diversified
portfolio of stocks believed by the Adviser to be undervalued. The Fund invests
predominantly in the equity securities of financially sound, medium- to
large-sized U.S. companies with annual revenues or market capitalization of at
least $600 million. These companies tend to have below-market price-earnings
ratios yet, in the opinion of the Adviser, will reward investors with
above-average appreciation over time.
The Fund is distinctive in the manner in which it combines systematic valuation
techniques with intensive, traditional fundamental research. The Adviser's
proprietary computer-based valuation model was developed and tested over several
years before being first implemented in 1987. In addition to identifying
undervalued securities, the quantitative model also provides the discipline
required to sell appreciated securities as their prices rise to reflect their
earnings potential. The model relies on the Adviser's independent equity
research effort for estimates of future earnings and dividend growth and
proprietary quality ratings. The Adviser maintains one of the largest equity
research departments in the industry and has done so for more than 60 years. The
Adviser oversees in excess of $400 million in institutional assets using this
price-sensitive approach.
The Fund is appropriate for investors who understand the risks of stock market
investing. Although the Fund emphasizes securities of companies the Adviser
believes are undervalued, movements of the stock market will affect the Fund's
share price.
While the Fund may invest in a broad range of industries, it is not, by itself,
a complete investment program. Nonetheless, it can serve as a core component of
an investment program that includes money market, bond and specialized equity
investments. Moreover, growth portfolios and value portfolios generally do not
move in tandem, so adding the Fund to an investor's portfolio of growth stocks
or growth mutual funds may increase diversification and reduce investment risk.
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
prices of the Fund's investments.
INVESTMENT PROCESS
The Adviser uses in-depth fundamental research and a proprietary computerized
quantitative model to identify companies that are currently undervalued in
relation to current and estimated future earnings and dividends. The investment
process also involves an assessment of business risk, including the Adviser's
analysis of the strength of a company's balance sheet, the accounting practices
a company follows, the volatility of a company's earnings over time, and the
vulnerability of earnings to changes in external factors, such as the general
economy, the competitive environment, governmental action and technological
change.
The current share price or other valuation measures of these companies may not
reflect their business potential because investors may perform incomplete
analyses, have limited time horizons or allow emotions to influence their
investment decisions. Other similar factors can also influence short-term market
behavior. The Adviser's quantitative approach is designed to help avoid these
pitfalls.
While a broad range of investments 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.
7
<PAGE>
While the Fund emphasizes U.S. investments, it can invest its assets in
securities of foreign companies which meet the same criteria applicable to
domestic investments. The Fund may invest up to 20% of its total assets in debt
obligations, including zero coupon securities and commercial paper, and may
enter into repurchase agreements and reverse repurchase agreements. In addition,
the Fund may engage in strategic transactions and invest in illiquid and
restricted securities.
For temporary defensive purposes, the Fund may invest without limit in cash and
cash equivalents when the Adviser deems such a position advisable in light of
economic or market conditions. It is impossible to predict accurately how long
such alternate strategies may be utilized.
SPECIAL RISK FACTORS. The Fund's risks are determined by the nature of the
securities held and the portfolio management strategies used by the Adviser. The
following are descriptions of certain risks related to the investments and
techniques that the Fund may use from time to time.
Common stocks. Under normal circumstances, the Fund invests primarily in common
stocks. Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore, the
Fund participates in the success or failure of any company in which it holds
stock. The market values of common stock can fluctuate significantly, reflecting
the business performance of the issuing company, investor perception and general
economic or financial market movements. Smaller companies are especially
sensitive to these factors and may even become valueless. Despite the risk of
price volatility, however, common stocks also offer the greatest potential for
gain on investment, compared to other classes of financial assets such as bonds
or cash equivalents.
Debt securities. The Fund may purchase investment -grade debt securities, which
are those rated Aaa, Aa, A or Baa by Moody's Investor Services, Inc.
("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 Adviser. The Fund may
also purchase debt securities which are rated below investment-grade. The Fund
may invest up to 20% of its assets in debt securities, including securities
which are rated below investment-grade or, if unrated, are considered by the
Adviser to be equivalent to below investment-grade debt securities (commonly
referred to as "junk bonds"). The lower the ratings of such debt securities, the
greater their risks render them like equity securities. The Fund will invest no
more than 10% of its assets in securities rated B or lower by Moody's or S&P,
and may not invest more than 5% of its net assets in securities rated C by
Moody's or D by S&P, which may be in default with respect to payment of
principal or interest. Also, longer-maturity bonds tend to fluctuate more in
price as interest rates change than do short-term bonds, providing both
opportunity and risk.
Repurchase agreements. As a means of earning income for periods as short as
overnight, the Fund may enter into repurchase agreements with selected banks and
broker/dealers. Under a repurchase agreement, the Fund acquires securities,
subject to the seller's agreement to repurchase at a specified time and price.
If a seller under a repurchase agreement becomes insolvent, the Fund's right to
dispose of the securities may be restricted. In the event of the commencement of
bankruptcy or insolvency proceedings with respect to the seller of the
securities before repurchase of the securities under a repurchase agreement, the
Fund may encounter delay and incur costs, including a decline in the value of
the securities, before being able to sell the securities.
Convertible securities. The Fund may invest in convertible securities (bonds,
notes, debentures, preferred stocks and other securities convertible into common
stocks) which may offer higher income than the common stocks into which they are
convertible. The convertible securities in which the Fund may invest include
fixed-income or zero coupon debt securities, which may be converted or exchanged
at a stated or determinable exchange ratio into underlying shares of common
stock. Prior to their conversion, convertible securities may have
characteristics similar to nonconvertible debt securities. While convertible
securities generally offer lower yields than nonconvertible debt securities of
similar quality, their prices
8
<PAGE>
may reflect changes in the value of the underlying common stock. Convertible
securities entail less credit risk than the issuer's common stock.
Foreign securities. While the Fund generally emphasizes investments in companies
domiciled in the U.S., it may invest in listed and unlisted foreign securities
that meet the same criteria as the Fund's domestic holdings. The Fund may invest
in foreign securities when the anticipated performance of foreign securities is
believed by the Adviser to offer more return potential than domestic
alternatives in keeping with the investment objective of the Fund.
Investments in foreign securities involve special considerations, due to more
limited information, higher brokerage costs and different accounting standards.
They may also entail certain risks, such as possible imposition of dividend or
interest withholding or confiscatory taxes, possible currency blockages or
transfer restrictions, expropriation, nationalization or other adverse political
or economic developments and the difficulty of enforcing obligations in other
countries. Foreign securities may be less liquid and more volatile than
comparable domestic securities, and there is less government regulation of stock
exchanges, brokers, listed companies and banks than in the U.S. Purchases of
foreign securities are usually made in foreign currencies and, as a result, the
Fund may incur currency conversion costs and may be affected favorably or
unfavorably by changes in the value of foreign currencies against the U.S.
dollar.
Illiquid securities. The Fund may invest in securities for which there is not an
active trading market, or which have resale restrictions. These types of
securities generally offer a higher return than more readily marketable
securities, but carry the risk that the Fund may not be able to dispose of them
at an advantageous time or price. The absence of a trading market can make it
difficult to ascertain a market value for these 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.
Strategic Transactions and derivatives. The Fund may, but is not required to,
utilize various other investment strategies as described below to hedge various
market risks (such as interest rates, currency exchange rates, and broad or
specific equity or fixed-income market movements), to manage the effective
maturity or duration of fixed-income securities in the Fund's portfolio or to
enhance potential gain. These strategies may be executed through the use of
derivative contracts. Such strategies are generally accepted as a part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments may change over time as new
instruments and strategies are developed or regulatory changes occur. In the
course of pursuing these investment strategies, the Fund may purchase and sell
exchange-listed and over-the-counter put and call options on securities, equity
and fixed-income indices and other financial instruments, purchase and sell
financial futures contracts and options thereon, enter into various interest
rate transactions such as swaps, caps, floors or collars, and enter into various
currency transactions such as currency forward contracts, currency futures
contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used without limit to attempt to protect against
possible changes in the market value of securities held in or to be purchased
for the Fund's portfolio resulting from securities markets or currency exchange
rate fluctuations, to protect the Fund's unrealized gains in the value of its
portfolio securities, to facilitate the sale of such securities for investment
purposes, to manage the effective maturity or duration of fixed-income
securities in the Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. Some Strategic Transactions may also be used to enhance
potential gain although no more than 5% of the Fund's assets will be committed
to Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to
9
<PAGE>
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. The Fund
will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not to create leveraged exposure in the Fund.
Strategic Transactions, including derivative contracts, have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. Use of put and call options
may result in losses to the Fund, force the sale or purchase of portfolio
securities at inopportune times or for prices higher than (in the case of put
options) or lower than (in the case of call options) current market values,
limit the amount of appreciation the Fund can realize on its investments or
cause the Fund to hold a security it might otherwise sell. The use of currency
transactions can result in the Fund incurring losses as a result of a number of
factors including the imposition of exchange controls, suspension of settlements
or the inability to deliver or receive a specified currency. The use of options
and futures transactions entails certain other risks. In particular, the
variable degree of correlation between price movements of futures contracts and
price movements in the related portfolio position of the Fund creates the
possibility that losses on the hedging instrument may be greater than gains in
the value of the Fund's position. In addition, futures and options markets may
not be liquid in all circumstances and certain over-the-counter options may have
no markets.
As a result, in certain markets, the Fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures contracts and options transactions for hedging should tend to minimize
the risk of loss due to a decline in the value of the hedged position, at the
same time they tend to limit any potential gain which might result from an
increase in value of such position. Finally, the daily variation margin
requirements for futures contracts would create a greater ongoing potential
financial risk than would purchases of options, where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value, and possibly income, and such losses
can be greater than if the Strategic Transactions had not been utilized. The
Strategic Transactions that the Fund may use and some of their risks are
described more fully in the Shares' Statement of Additional Information. See
"Investment Policies and Techniques" in the Shares' Statement of Additional
Information.
ADDITIONAL INVESTMENT INFORMATION. The Fund has certain investment restrictions
which are designed to reduce the Fund's investment risk. Fundamental investment
restrictions may not be changed without a vote of shareholders; non-fundamental
investment restrictions may be changed by a vote of the Trust's Board of
Trustees.
As a matter of fundamental policy, the Fund may not borrow money, except as
permitted under Federal law. Further, as a matter of non-fundamental policy, the
Fund may not borrow money in an amount greater than 5% of total assets, except
for temporary or emergency purposes, although the Fund may engage up to 5% of
total assets in reverse repurchase agreements or dollar rolls.
As a matter of fundamental policy, the Fund may not make loans except through
the lending of portfolio securities, the purchase of debt securities or
interests in indebtedness or through repurchase agreements. The Fund has adopted
a non-fundamental policy restricting the lending of portfolio securities to no
more than 5% of total assets.
A complete description of these and other policies and restrictions is contained
in "Investment Restrictions" in the Shares' Statement of Additional Information.
10
<PAGE>
INVESTMENT ADVISER AND UNDERWRITER
INVESTMENT ADVISER. The Fund retains the investment management firm of Scudder
Kemper Investments, Inc. (the "Adviser"), a Delaware corporation, to manage the
Fund's daily investment and business affairs subject to the policies established
by the Trust's Board of Trustees. The Trustees have overall responsibility for
the management of the Fund under Massachusetts law.
Scudder Kemper Investments, Inc., an investment counsel firm, acts as investment
manager to the Fund. This organization, which resulted from the combination of
the businesses of Scudder, Stevens & Clark, Inc. ("Scudder") and Zurich Kemper
Investments, Inc., ("Kemper"), is one of the largest and most experienced
investment counsel firms in the United States. Scudder was established as a
partnership in 1919 and reorganized into a corporation in 1985. Since launching
its first fund in 1948, Kemper had grown into one of the industry's leading
mutual fund companies. On December 31, 1997, Kemper's parent company, Zurich
Insurance Company ("Zurich"), acquired a majority interest in Scudder and
combined the businesses of the two organizations to create a single global
money-management firm, Scudder Kemper Investments, Inc., which has more than
$200 billion under management.
The Adviser is located at 345 Park Avenue, New York, New York.
Under the Investment Management Agreement with the Adviser, dated December 31,
1997, the Fund is responsible for all of its expenses, including fees and
expenses incurred in connection with membership in investment company
organizations; fees and expenses of the Fund's accounting agent; brokers'
commissions; legal, auditing and accounting expenses; taxes and governmental
fees; the fees and expenses of the transfer agent; the expenses of and the fees
for registering or qualifying securities for sale; the fees and expenses of
Trustees, officers and employees of the Trust who are not affiliated with the
Adviser; the cost of printing and distributing reports and notices to
shareholders; and the fees and disbursements of custodians.
The Fund pays the Adviser an annual fee of 0.70% of the Fund's average daily net
assets. The fee is payable monthly, provided that the Fund will make such
interim payments as may be requested by the Adviser not to exceed 75% of the
amount of the fee then accrued on the books of the Fund and unpaid.
The Adviser agreed to maintain the annualized expenses of the Fund at not more
than 1.25% of the average daily net assets of the Fund until July 31, 1997. As a
result of this waiver the Adviser received an investment management fee of 0.66%
of the Fund's average daily net assets for the fiscal period ended September 30,
1997.
Founded in 1872, Zurich is a multinational, public corporation organized under
the laws of Switzerland. Its home office is located at Mythenquai 2, 8002
Zurich, Switzerland. Historically, Zurich's earnings have resulted from its
operations as an insurer as well as from its ownership of its subsidiaries and
affiliated companies (the "Zurich Insurance Group"). Zurich and the Zurich
Insurance Group provide an extensive range of insurance products and services
and have branch offices and subsidiaries in more than 40 countries throughout
the world. Zurich owns approximately 70% of the Adviser with the balance owned
by the Adviser's officers and employees.
The Fund is managed by a team of investment professionals, each of whom 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 Adviser's large staff of economists, research
analysts, traders and other investment specialists who work in the Adviser's
offices across the United States and abroad. The Adviser believes its team
approach benefits Fund investors by bringing together many disciplines and
leveraging its extensive resources.
11
<PAGE>
Lead Portfolio Manager Donald E. Hall has had responsibility for the Fund's
day-to-day management since its inception in 1992. Mr. Hall, who has 15 years of
experience in the value style of investing, joined the Adviser in 1982. William
J. Wallace, Portfolio Manager, has been a member of the Fund's team since 1992
and has 17 years of investment experience.
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 Adviser, 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 Fund's business and
operations. The Adviser 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.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement") with the Fund, Kemper Distributors, Inc.
("KDI"), 222 South Riverside Plaza, Chicago, Illinois, 60606, a subsidiary of
the Adviser, is the principal underwriter and distributor of the Kemper Shares
and acts as agent of the Fund in the sale of its Shares. KDI bears all of its
expenses of providing services pursuant to the distribution agreement, including
the payment of any commissions. KDI provides for the preparation of advertising
or sales literature and bears the cost of printing and mailing prospectuses to
persons other than shareholders. KDI may enter into related selling group
agreements with various broker-dealers, including affiliates of KDI, that
provide distribution services to investors. KDI also may provide some of the
distribution services.
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.
CLASS B SHARES. For its services under the distribution agreement, 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 distribution agreement, 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 distribution agreement 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
12
<PAGE>
regulates the manner in which an investment company may, directly or indirectly,
bear the expenses of distributing its shares.
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.)
ADMINISTRATIVE SERVICES. KDI also provides information and administrative
services for shareholders of the Kemper Shares pursuant to an administrative
services agreement ("administrative agreement"). KDI may enter into related
arrangements with 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. Such administrative services and assistance may
include, but are not limited to, establishing and maintaining shareholder
accounts and records, processing purchase and redemption transactions, answering
routine inquiries regarding the Fund and its special features, and such other
administrative services as may be agreed upon from time to time and permitted by
applicable statute, rule or regulation. KDI bears all of its expenses of
providing services pursuant to the administrative agreement, including the
payment of any service fees. For services under the administrative agreement,
the Fund pays KDI a fee, payable monthly, at the annual rate of up to 0.25% of
average daily net assets of each of Class A, B and C shares of such Fund. KDI
then pays each firm a service fee, normally payable quarterly, at an annual rate
of up to 0.25% of net assets of each of Class A, B and C shares maintained and
serviced by the firm. Firms to which service fees may be paid include affiliates
of KDI.
CLASS A SHARES. For Class A shares, a firm becomes eligible for the service fee
based upon assets in the Fund accounts maintained and serviced by the firm
commencing in the month following the month of purchase and the fee continues
until terminated by KDI or the Fund. The fees are calculated monthly and paid
quarterly.
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 each of Class B
and Class C shares of the Fund. 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 normally paid quarterly) of the net assets attributable to each of Class B
and Class C shares maintained and serviced by the firm during such period. After
the first year, a firm becomes eligible for the quarterly service fee and the
fee continues until terminated by KDI or the Fund.
KDI also may provide some of the above services and may retain any portion of
the fee under the administrative agreements 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 and it is intended
that KDI will pay all of 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 provides administrative services. In addition, KDI
may, from time to time, from its own resources pay certain firms additional
amounts for ongoing administrative services and assistance provided to their
customers and clients who are shareholders of the Fund.
CUSTODIAN, TRANSFER AGENT AND SHAREHOLDER SERVICE AGENT. State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, as custodian,
has custody of all securities and cash of the Fund. Kemper Service Company
("Shareholder Service Agent"), an affiliate of the Adviser, serves as transfer
agent and dividend-paying agent for the Kemper Shares of the Fund. For a
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<PAGE>
description of the transfer agency fees payable to Kemper Service Company, see
"Investment Manager and Underwriter" in the Statement of Additional Information.
FUND ACCOUNTING AGENT. Scudder Fund Accounting Corporation, Two International
Place, Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes
net asset value for the Fund. The Fund pays Scudder Fund Accounting Corporation
an annual fee.
PORTFOLIO TRANSACTIONS. The Adviser places all orders for purchases and sales of
the Fund's securities. Subject to seeking the best execution of orders, the
Adviser may consider sales of shares of the Fund and other funds managed by the
Adviser or its affiliates as a factor in selecting broker-dealers. See
"Portfolio Transactions" in the Statement of Additional Information.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS. The Fund normally distributes dividends of
net investment income, and any net realized short-term and long-term capital
gains at least annually. The Fund intends to distribute any dividends from net
investment income and any net realized capital gains after utilization of
capital loss carryforwards, if any, in December to prevent application of
federal excise tax. Additional distributions 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 a month and paid during the following
January will be treated by shareholders for federal income tax purposes as if
received on December 31 of the calendar year declared. According to preference,
shareholders may receive distributions in cash or have them reinvested in
additional shares of the same class of shares of the Fund. If an investment is
in the form of a retirement plan, all dividends and capital gains distributions
must be reinvested in the shareholder's account.
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.
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<PAGE>
TAXES. The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Code and, if so qualified, generally will not be
liable for federal income taxes to the extent its earnings are distributed. To
so qualify, the Fund must satisfy certain income, asset diversification and
distribution requirements annually. Dividends derived from net investment income
and net short-term capital gains are taxable to shareholders as ordinary income
and properly designated net long-term capital gain dividends are taxable to
individual shareholders as long-term capital gains regardless of how long the
shares have been held and whether received in cash or shares. Long-term capital
gain dividends received by individual shareholders are taxed at a maximum rate
of 20% on gains realized by a Fund from securities held more than 18 months and
at a maximum rate of 28% on gains realized by a Fund from securities held more
than 12 months but not more than 18 months. Dividends declared in October,
November or December to shareholders of record as of a date in one of those
months and paid during the following January are treated as paid on December 31
of the calendar year declared. A portion of the dividends paid by the Fund may
qualify for the dividends received deduction available to corporate
shareholders.
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.
A sale or exchange of shares is a taxable event that may result in gain or loss
that will be a capital gain or loss if held by the shareholder as a capital
asset, and may qualify for reduced tax rates applicable to certain capital
gains, depending upon the shareholder's holding period for the shares. Further
information relating to tax consequences is contained in the Statement of
Additional Information. Shareholders of the Fund may be subject to state, local
and foreign taxes on Fund distributions and dispositions of Fund shares.
Shareholders should consult their own tax advisors regarding the particular tax
consequences of an investment in the Fund.
The Fund is required by law to withhold 31% of taxable dividends and redemption
proceeds paid to certain shareholders who do not furnish a correct taxpayer
identification number (in the case of individuals, a social security number) and
in certain other circumstances. Any amounts so withheld are not an additional
tax, and may be applied against the affected shareholder's U.S. federal income
tax liability. Trustees of qualified retirement plans and 403(b)(7) accounts are
required by law to withhold 20% of the taxable portion of any distribution that
is eligible to be "rolled over." The 20% withholding requirement does not apply
to distributions from Individual Retirement Accounts ("IRAs") or any part of a
distribution that is transferred directly to another qualified retirement plan,
403(b)(7) account, or IRA. Shareholders should consult with their tax advisors
regarding the 20% withholding requirement.
The Fund's investment income derived from foreign securities may be subject to
foreign income taxes withheld at the source. 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.
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
15
<PAGE>
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.
NET ASSET VALUE
The net asset value per share of the Fund is the value of one share and 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 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. All other securities may be valued at fair value as
determined in good faith by or under the direction of the Board of Trustees.
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 of None Initial sales charge
5.75% of the public offering price waived or reduced for
certain purchases (1)
Class B Maximum contingent deferred sales 0.75% Shares convert to
charge of 4% of redemption Class A shares six
proceeds; declines to zero after years after issuance
six years
Class C Contingent deferred sales charge of 0.75% No conversion feature
1% of redemption proceeds for
redemptions made during first year
after purchase
</TABLE>
- - - - - ----------
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<PAGE>
(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).
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 Percentage of As a Percentage of as a Percentage of
Amount of Purchase Offering Price Net Asset Value* Offering 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
17
<PAGE>
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.
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
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<PAGE>
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 described in the prospectuses of
such trusts that have such programs. Class A shares of the Fund may be sold at
net asset value through certain investment advisers 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 adviser 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.
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
19
<PAGE>
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."
WHICH ARRANGEMENT IS BEST FOR YOU? The decision as to which class of shares
provides a more suitable investment for an investor depends on a number of
factors, including the amount and intended length of the investment. Investors
making investments 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. Orders for Class B
shares or Class C shares for $500,000 or more will be declined. Orders for Class
B shares or Class C shares by employer sponsored employee benefit plans using
the subaccount record keeping system made available through the Shareholder
Service Agent will be invested instead in Class A shares at net asset value
where the combined subaccount value in the Fund or other Kemper Funds listed
under "Special Features--Class A Shares--Combined Purchases" is in excess of $5
million including purchases pursuant to the "Combined Purchases," "Letter of
Intent" and "Cumulative Discount" features described under "Special Features."
For more information about the three sales arrangements, consult your financial
representative or the Shareholder Service Agent. Financial services firms may
receive different compensation depending upon which class of shares they sell.
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.
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
20
<PAGE>
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 and Redemption of
Shares" in the Statement of Additional Information.
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 prospectus 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 prospectus 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.
SPECIAL PROMOTION. From April 16, 1998 until June 30, 1998 ("Special Offering
Period"), KDI, the principal underwriter for the Fund, intends to re-allow to
dealers the full applicable sales charge with respect to Class A shares of the
Fund purchased during the Special Offering Period (not including shares
purchased at net asset value). KDI also intends to pay to firms an additional
commission of .50% with respect to Class B shares of the Fund purchased during
the Special Offering Period, not including exchanges or other transactions for
which commissions are not paid.
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
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<PAGE>
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 prospectus.
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
22
<PAGE>
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 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
23
<PAGE>
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) 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
Sales
Year of Redemption After Purchase 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
24
<PAGE>
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.
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
25
<PAGE>
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 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
26
<PAGE>
"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 the applicable prospectus, 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 the applicable prospectus. 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.
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
27
<PAGE>
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.
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,"
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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 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
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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.
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.
Average annual total return and total return figures measure both the net
investment income generated by, and the effect of any realized and unrealized
appreciation or depreciation of, the underlying investments in a particular
class of the Fund's portfolio for the period referenced, assuming the
reinvestment of all dividends. Thus, these figures reflect the change in the
value of an investment in a particular class of the Fund during a specified
period. Average annual total return will be quoted for at least the one, five
and ten year periods ending on a recent calendar quarter (or if any such period
has not yet elapsed, at the end of a shorter period corresponding to the life of
the Fund for performance purposes). Average annual total return figures
represent the average annual percentage change over the period in question.
Total return figures represent the aggregate percentage or dollar value change
over the period in question.
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
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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 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.
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.
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
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<PAGE>
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.
FUND ORGANIZATION AND CAPITAL STRUCTURE
The Fund is a diversified series of Scudder 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.
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.
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<PAGE>
KEMPER VALUE FUND
CROSS-REFERENCE SHEET
Item Number Location in Statement of
of Form N-1A Additional Information
------------ ----------------------
10. Cover Page Cover Page
11. Table of Contents.............. Table of Contents
12. General Information and History Inapplicable
13. Investment Objectives and Investment Restrictions;
Policies....................... Investment Policies and Techniques
14. Management of the Fund......... Investment Manager and
Underwriter; Officers and Trustees
15. Control Persons and Principal
Holders of Securities.......... Officers and Trustees
16. Investment Advisory and Other Investment Manager and
Services....................... Underwriter; Officers and Trustees
17. Brokerage Allocation and Other Portfolio Transactions
Practices......................
18. Capital Stock and Other Dividends, Distributions and
Securities..................... Taxes; Shareholder Rights
19. Purchase, Redemption and
Pricing of Securities Being Purchase and Redemption of Shares
Offered........................
20. Tax Status..................... Dividends and Taxes
21. Underwriters................... Investment Manager and Underwriter
22. Calculation of Performance Data Performance
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
April 16, 1998
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 prospectus of the Kemper Shares dated April 16,
1998 regarding the Kemper Shares. 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 and Redemption of Shares ....................... ____
Performance ............................................. ____
Officers and Trustees ................................... ____
Shareholder Rights ...................................... ____
Scudder Kemper Investments, Inc. (the "Adviser") serves as the Fund's investment
manager.
KEUF-13 4/97 (RECYCLED LOGO) printed on recycled paper
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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 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 to other persons, except (i) loans of portfolio
securities, and (ii) to the extent that entry into repurchase
agreements and the purchase of debt instruments or interests in
indebtedness in accordance with the Fund's objective and policies
may be deemed to be loans.
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 be deemed to
constitute selling securities short, and (v) that the Fund may
obtain such short-term credits as may be necessary for the clearance
of securities transactions;
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(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. At special meetings of shareholders, a majority of
the shareholders of each Fund approved a proposal which gives the Trust's Board
of Trustees 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 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
securities in which the Fund may invest are described under "Investment
objective and policies" in the Fund's prospectus.
The Fund invests at least 80% of its assets in equity securities
consisting of common stocks, preferred stocks and securities convertible into
common stocks. The Fund changes its portfolio securities for long-term
investment considerations and not for trading purposes.
The Fund invests primarily in the equity securities of medium-to-large
size domestic companies with annual revenues or market 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,
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<PAGE>
including the Adviser's analysis of the strength of a company's balance sheet,
the accounting practices a company follows, the volatility of a company's
earnings over time, and the vulnerability of earnings to changes in external
factors, such as the general economy, the competitive environment, governmental
action and technological change.
While a broad range of investments are considered, only those that, in the
Adviser's opinion, are selling at comparatively large discounts to intrinsic
value will be purchased for the Fund. It is anticipated that the prices of the
Fund's investments will rise as a result of both earnings growth and rising
price-earnings ratios over time.
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.
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 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 Adviser 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 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
5
<PAGE>
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 Adviser, 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 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.
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 Adviser.
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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 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 the 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
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, 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.
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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 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 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.
Repurchase Agreements. The Fund may enter into repurchase agreements with any
member bank of the Federal Reserve System and any broker/dealer which is
recognized as a reporting government securities dealer if the creditworthiness
of the bank or broker/dealer has been determined by the Adviser to be at least
as high as that of other obligations the Fund may purchase or to be at least
equal to that of issuers of commercial paper rated within the two highest grades
assigned by Moody's 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
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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 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 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.
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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
Adviser. 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 although no more than 5% of the Fund's assets will be committed to
Strategic Transactions entered into for non-hedging purposes. Any or all of
these investment techniques may be used at any time and in any combination, and
there is no particular strategy that dictates the use of one technique rather
than another, as use of any Strategic Transaction is a function of numerous
variables including market conditions. The ability of the Fund to utilize these
Strategic Transactions successfully will depend on the Adviser's ability to
predict pertinent market movements, which cannot be assured. The Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions involving
financial futures and options thereon will be purchased, sold or entered into
only for bona fide hedging, risk management or portfolio management purposes and
not to create leveraged exposure in the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they
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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 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
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exist, although outstanding options on that exchange would generally continue to
be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. The
Fund expects generally to enter into OTC options that have cash settlement
provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make or take delivery of the security, currency or other instrument underlying
an OTC option it has entered into with the Fund or fails to make a cash
settlement payment due in accordance with the terms of that option, the Fund
will lose any premium it paid for the option as well as any anticipated benefit
of the transaction. Accordingly, the Adviser must assess the creditworthiness of
each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. The Fund will engage in OTC option transactions only
with U.S. government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers" or broker/dealers, domestic or foreign banks or
other financial institutions which have received (or the guarantors of the
obligation of which have received) a short-term credit rating of A-1 from S&P or
P-1 from Moody's or an equivalent rating from any nationally recognized
statistical rating organization ("NRSRO") or, in the case of OTC currency
transactions, are determined to be of equivalent credit quality by the Adviser.
The staff of the SEC currently takes the position that OTC options purchased by
the Fund, and portfolio securities "covering" the amount of the Fund's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any) are illiquid, and are subject to the Fund's
limitation on investing no more than 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 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.
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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, 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 Adviser.
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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 Adviser considers that
the Austrian schilling is correlated to the German deutschemark (the "D-mark"),
the Fund holds securities denominated in schillings and the Adviser believes
that the value of schillings will decline against the U.S. dollar, the Adviser
may enter into a commitment or option to sell D-marks and buy dollars. Currency
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the Fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived
correlation between various currencies may not be present or may not be present
during the particular time that the Fund is engaging in proxy hedging. If the
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 issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. The Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions and any combination of futures, options, currency and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the Adviser, it is in the best interests of the Fund to do so. A combined
transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered
into based on the Adviser's judgment that the combined strategies will reduce
risk or otherwise more effectively achieve the desired portfolio management
goal, it is possible that the combination will instead increase such risks or
hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
Fund may enter are interest rate, currency and index swaps and the purchase or
sale of related caps, floors and collars. The Fund expects to enter into
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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 Adviser
and the Fund believe such obligations do not constitute senior securities under
the 1940 Act and, accordingly, will not treat them as being subject to its
borrowing restrictions. The Fund will not enter into any swap, cap, floor or
collar transaction unless, at the time of entering into such transaction, the
unsecured long-term debt of the Counterparty, combined with any credit
enhancements, is rated at least A by S&P or Moody's or has an equivalent rating
from a NRSRO or is determined to be of equivalent credit quality by the Adviser.
If there is a default by the Counterparty, the Fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
Eurodollar Instruments. The Fund may make investments in Eurodollar instruments.
Eurodollar instruments are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the U.S. When conducted outside the
U.S., Strategic Transactions may not be regulated as rigorously as in the U.S.,
may not involve a clearing mechanism and related guarantees, and are subject to
the risk of governmental actions affecting trading in, or the prices of, foreign
securities, currencies and other instruments. The value of such positions also
could be adversely affected by: (i) other complex foreign political, legal and
economic factors, (ii) lesser availability than in the U.S. of data on which to
make trading decisions, (iii) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the U.S., (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S., and (v) lower trading volume and
liquidity.
Use of Segregated and Other Special Accounts. Many Strategic Transactions, in
addition to other requirements, require that the Fund segregate cash or liquid
assets with its custodian to the extent Fund obligations are not otherwise
"covered" through ownership of the underlying security, financial instrument or
currency. In general, either the full amount of any obligation by the Fund to
pay or deliver securities or assets must be covered at all times by the
securities, instruments or currency required to be delivered, or, subject to any
regulatory restrictions, an amount of cash or liquid 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
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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 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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
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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.
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.
Dividends will be reinvested in Shares of the same class of the Fund
unless shareholders indicate in writing that they wish to receive them in cash
or in Shares of other Kemper Funds as provided in the prospectus.
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 a Fund on such gains as a credit against personal federal income tax
liabilities, and will be entitled to increase the adjusted tax basis on Fund
shares by the
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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.
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) neither the individual nor his or her spouse (unless filing separate
returns) is an active participant in an employer's retirement plan, or (ii) the
individual (and his or her spouse, if applicable) has an adjusted gross income
below a certain level ($40,050 for married individuals filing a joint return,
with a phase-out of the deduction for adjusted gross income between $40,050 and
$50,000; $25,050 for a single individual, with a phase-out for adjusted gross
income between $25,050 and $35,000). However, an individual not permitted to
make a deductible contribution to an IRA for any such taxable year may
nonetheless make nondeductible contributions up to $2,000 to an IRA (up to
$2,250 to IRAs for an individual and his or her nonearning spouse) for that
year. There are special rules for determining how withdrawals are to be taxed if
an IRA contains both deductible and nondeductible amounts. In general, a
proportionate amount of each withdrawal will be deemed to be made from
nondeductible contributions; amounts treated as a return of nondeductible
contributions will not be taxable. Also, contributions may be made to a spousal
IRA even if the spouse has earnings in a given year, if the spouse elects to be
treated as having no earnings (for IRA contribution purposes) for the year.
Distributions by 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.
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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 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
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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 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.
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.
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.
INVESTMENT MANAGER AND UNDERWRITER
INVESTMENT MANAGER. Scudder Kemper Investments, Inc. (the "Adviser"), an
investment counsel firm, 345 Park Avenue, New York, New York, is the Fund's
investment manager. This organization is one of the most experienced investment
management firms in the United States. It was established as a partnership in
1919 and pioneered the practice of providing investment counsel to individual
clients on a fee basis. The predecessor firm reorganized from a partnership to a
corporation on June 28, 1985. On June 26, 1997, the Adviser's predecessor,
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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 made its subsidiary Zurich Kemper Investments, Inc., a part of the
predecessor organization. The predecessor's name has been changed to Scudder
Kemper Investments, Inc. Founded in 1872, Zurich is a multinational, public
corporation organized under the laws of Switzerland. Its home office is located
at Mythenquai 2, 8002 Zurich, Switzerland. Historically, Zurich's earnings have
resulted from its operations as an insurer as well as from its ownership of its
subsidiaries and affiliated companies (the "Zurich Insurance Group"). Zurich and
the Zurich Insurance Group provide an extensive range of insurance products and
services and have branch offices and subsidiaries in more than 40 countries
throughout the world.
The Adviser maintains a large research department, which conducts ongoing
studies of the factors that affect the position of various industries, companies
and individual securities. In this work, the Adviser utilizes certain reports
and statistics from a wide variety of sources, including brokers and dealers who
may execute portfolio transactions for the Fund and for 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 the Fund and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view toward achieving their respective investment
objectives and after consideration of such factors as their current holdings,
availability of cash for investment and the size of their investments generally.
Frequently, a particular security may be bought or sold for only one client or
in different amounts and at different times for more than one but less than all
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In addition, purchases
or sales of the same security may be made for two or more clients on the same
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 the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Adviser in the interest of achieving
the most favorable net results to the Fund.
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 Adviser 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 Adviser 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 Adviser or the Trust, cast in person at a
meeting called for the purpose of voting on such approval, and either by vote of
the Trustees or by a majority of the outstanding voting securities of the Fund.
The Agreement may be terminated at any time without payment of penalty by either
party on sixty days' written notice and automatically terminates in the event of
their assignment.
Under the Agreement, the Adviser regularly provides the Fund with
continuing investment management for the Fund's portfolio consistent with the
Fund's investment objective, policies and restrictions and determines 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 the Fund.
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The Adviser renders significant administrative services (not otherwise
provided by third parties) necessary for the Fund's operations as an open-end
investment company including, but not limited to, preparing reports and notices
to the Trustees and shareholders; supervising, negotiating contractual
arrangements with, and monitoring various third-party service providers to the
Fund (such as the Fund's transfer 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 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 Fund,
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, the Fund pays the Adviser an annual fee equal
to 0.70% of average daily net assets, payable monthly, provided the Fund will
make such interim payments as may be requested by the Adviser not to exceed 75%
of the amount of the fee then accrued on the books of the Fund and unpaid. For
the fiscal years ended September 30, 1994, 1995 and 1996, the Adviser did not
impose a portion of its management fees amounting to $29,834, $95,355 and
$43,951, respectively and the amounts imposed amounted to $17,827, $112,125 and
$508,822, 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 the 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 Agents; 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 Fund is 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. The Agreement expressly provides that the Adviser
shall not be required to pay a pricing agent of the 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 the Agreement and in discussions with the
Adviser concerning the Agreement, Trustees who are not "interested persons" of
the Trust are represented by independent counsel at the Fund's expense.
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<PAGE>
The Agreement provides that the Adviser shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with matters to which the Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser in
the performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions were not
influenced by existing or potential custodial or other Fund relationships.
The Adviser may serve as adviser to other funds with investment objectives
and policies similar to those of the Fund that may have different distribution
arrangements or expenses, which may affect performance.
None of the officers or Trustees of the Trust may have dealings with the
Fund as principals in the purchase or sale of securities, except as individual
subscribers or holders of shares of the Fund.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
PRINCIPAL UNDERWRITER. Pursuant to an underwriting and distribution services
agreement ("distribution agreement"), Kemper Distributors, Inc. ("KDI"), an
affiliate of the Adviser, 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 ____, 19__ was initially approved by the
Trustees on ___, 19__ and by the sole shareholder of the Shares on ___________,
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 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.
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.
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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 ___% 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 ___% 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 ___%
(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.
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 Adviser 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 Adviser, computes
net asset values for the Fund. The Fund pays Scudder Fund Accounting Corporation
an annual fee equal to 0.025% of the first $150 million of average daily net
assets, 0.0075% of such assets in excess of $150 million and 0.0045% of such
assets in excess of $1 billion, plus holding and transaction charges for this
service. For the 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 Adviser, is also transfer agent
for the Kemper Shares, shareholder service agent and dividend paying agent.
Pursuant to a services agreement with Zurich, KSVC receives as transfer agent
annual account fees of $__ 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.
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 Coopers &
Lybrand, L.L.P., One Post Office Square, Boston, Massachusetts 02109,
independent accountants, and given on the authority of that firm as experts in
accounting and auditing.
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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.
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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, 1995, 1996 and 1997, Value Fund
paid brokerage commissions of $165,577, $181,652 and $_________, respectively.
For the fiscal year ended September 30, 1997, the Fund paid brokerage
commissions of $157,582 (87% of the total brokerage commissions), resulting from
orders placed consistent with the policy of seeking to obtain the most favorable
net results for transactions placed with brokers and dealers who provided
supplementary research, market and statistical information to the Trust or
Adviser. The amount of such transactions aggregated $__________ (___% 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, 1995, 1996 and 1997, Value Fund
had an annualized portfolio turnover rate of 98.2%, 90.8% and 47.4%,
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 of shares of the Fund is computed as of the close of
regular trading on the Exchange on each day the Exchange is open for trading.
The Exchange is scheduled to be closed on the following holidays: New Year's
Day, Dr. Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas. 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 those shares, by the total number of outstanding shares of that
class.
An exchange-traded equity security is valued at its most recent sale
price. Lacking any sales, the security is valued at the calculated mean between
the most recent bid quotation and the most recent asked quotation (the
"Calculated Mean"). Lacking a Calculated Mean, the security is valued at the
most recent bid quotation. An equity security which is traded on the National
Association of Securities Dealers Automated Quotation ("Nasdaq") system is
valued at its most recent sale price. Lacking any sales, the security is valued
at the high or "inside" bid quotation. The value of an equity security not
quoted on the Nasdaq System, but traded in another over-the-counter market, is
its most recent sale price. Lacking any sales, the security is valued at the
Calculated Mean. Lacking a Calculated Mean, the security is valued at the most
recent bid quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less are valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures and
other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
26
<PAGE>
If, in the opinion of the Trust's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by a Fund is determined
in a manner which, in the discretion of the Valuation Committee most fairly
reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in terms
of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
PURCHASE AND REDEMPTION OF SHARES
As described in the Shares' prospectus, 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. See the prospectus for certain
exceptions to these minimums. The Fund may waive the minimum for purchases by
trustees, directors, officers or employees of the Fund or the Adviser 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 in the Kemper Shares Fund's prospectus.
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 in the prospectus are
provided because of anticipated economies of scale in sales and sales-related
efforts.
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.
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.
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
27
<PAGE>
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 in the prospectus.
PERFORMANCE
[TO BE UPDATED]
As described in the Fund's Kemper Shares Prospectus, 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.
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
28
<PAGE>
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. 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.
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.
OFFICERS AND TRUSTEES
The officers and trustees of the Trust, their ages, their principal occupations
and other affiliations, if any, with the Adviser and Kemper Distributors, Inc.
are as follows:
<TABLE>
<CAPTION>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trust Occupation** Services, Inc.
- - - - - ----------- ---------- ------------ --------------
<S> <C> <C> <C>
Daniel Pierce (63)*#+ President and Managing Director of --
Trustee Scudder Kemper
Investments, Inc.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trust Occupation** Services, Inc.
- - - - - ----------- ---------- ------------ --------------
<S> <C> <C> <C>
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
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.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Position with
Underwriter,
Name Position Principal Scudder Investor
and Address with Trust Occupation** Services, Inc.
- - - - - ----------- ---------- ------------ --------------
<S> <C> <C> <C>
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.
John R. Hebble (39)+ Assistant Senior Vice President --
Treasurer
</TABLE>
* 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
As of March 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) 1,039,433 shares, or 1.27% of the Scudder
Shares of Value Fund.
As of March 31, 1998, 2,686,233 shares in the aggregate, 13.32% 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 March 31, 1998 no person
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
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
31
<PAGE>
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: 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 Adviser or any affiliate
of the Adviser; $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 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.
Name Scudder Equity Trust* All Scudder Funds
---- --------------------- -----------------
Paul Bancroft III, $15,100 $156,922 (20 funds)
Trustee
Sheryle J. Bolton, $17,500 $86,213 (20 funds)
Trustee
William T. Burgin, $11,682 $85,950 (20 funds)
Trustee
Thomas J. Devine, $17,800 $187,348 (21 funds)
Trustee
Keith R. Fox, $18,700 $134,390 (18 funds)
Trustee
William H. Luers, $2,534 $117,729 (20 funds)
Trustee
Wilson Nolen, $16,400 $189,548 (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 series of Scudder Equity Trust, a Massachusetts business
trust established under a Declaration of Trust dated October 16, 1985.
The Fund generally is not required to hold meetings of its shareholders.
Under the Agreement and Declaration of Trust of the Fund ("Declaration of
Trust"), however, 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
32
<PAGE>
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 considered by the Adviser 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
33
<PAGE>
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 Adviser 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 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.
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, 1997, 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 has 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 are 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.
34
<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>
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 amendment to its Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this amendment to its 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 14th day of April, 1998.
SCUDDER EQUITY TRUST
By /s/ Thomas F. McDonough
--------------------------------
Thomas F. McDonough, Vice President,
Secretary and Treasurer
(Principal Accounting Officer)
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 April 14, 1998
Officer) and Trustee
/s/ Paul Bancroft III
- - - - - -------------------------------------
Paul Bancroft III.* Trustee April 14, 1998
/s/ Sheryle J. Bolton
- - - - - -------------------------------------
Sheryle J. Bolton* Trustee April 14, 1998
/s/ William T. Burgin
- - - - - -------------------------------------
William T. Burgin* Trustee April 14, 1998
/s/ Thomas J. Devine
- - - - - -------------------------------------
Thomas J. Devine* Trustee April 14, 1998
/s/ Keith R. Fox
- - - - - -------------------------------------
Keith R. Fox* Trustee April 14, 1998
/s/ William H. Luers
- - - - - -------------------------------------
William H. Luers* Trustee April 14, 1998
<PAGE>
SIGNATURE TITLE DATE
- - - - - --------- ----- ----
/s/ Wilson Nolen
- - - - - -------------------------------------
Wilson Nolen* Trustee April 14. 1998
/s/ Kathryn L. Quirk
- - - - - -------------------------------------
Kathryn L. Quirk* Trustee, Vice President and April 14, 1998
Assistant Secretary
</TABLE>
- - - - - -------------------------------------
*By: /s/ Thomas F. McDonough
--------------------------------
Thomas F. McDonough**
** Attorney-in-fact pursuant to a power of attorney
contained in the signature page of Post-Effective
Amendment No. 61 to the Registration Statement
filed April 22, 1991 and pursuant to a power of
attorney contained in the signature page of
Post-Effective Amendment No. 72 to the Registration
Statement filed April 28, 1995 and pursuant to a
power of attorney contained in the signature page
of Post-Effective Amendment No. 79 filed February
26, 1997 and pursuant to a power of attorney
contained in the signature page of Post-Effective
Amendment No. 85 filed October 31, 1997.
2
<PAGE>
SCUDDER EQUITY TRUST
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
a. Financial Statements
Included in Part A of this Registration Statement:
For Scudder Large Company Value Fund:
Financial Highlights for the ten fiscal years ended
September 30, 1997.
(Incorporated by reference to Post-Effective Amendment No.
27 to the Registration Statement.)
For Scudder Value Fund:
Financial Highlights for the period December 31, 1992
(commencement of operations) to September 30, 1993 and for
the four fiscal years ended September 30, 1997.
(Incorporated by reference to Post-Effective Amendment No.
27 to the Registration Statement.)
Included in Part B of this Registration Statement:
For Scudder Large Company Value Fund:
Investment Portfolio as of September 30, 1997
Statement of Assets and Liabilities as of September 30, 1997
Statement of Operations for the fiscal year ended September
30, 1997
Statements of Changes in Net Assets for the two fiscal
years ended September 30, 1997
Financial Highlights for the ten fiscal years ended
September 30, 1997
Notes to Financial Statements
Report of Independent Accountants
(Incorporated by reference to Post-Effective Amendment No.
27 to the Registration Statement.)
For Scudder Value Fund:
Investment Portfolio as of September 30, 1997
Statement of Assets and Liabilities as of September 30, 1997
Statement of Operations for the fiscal year ended
September 30, 1997
Statements of Changes in Net Assets for the two fiscal
years ended September 30, 1997
Financial Highlights for the period December 31, 1992
(commencement of operations) to September 30, 1993 and for
the four fiscal years ended September 30, 1997
Notes to Financial Statements
Report of Independent Accountants
(Incorporated by reference to Post-Effective Amendment No.
27 to the Registration Statement.)
Statements, schedules and historical information other than those listed
above have been omitted since they are either not applicable or are not
required.
Part C - Page 1
<PAGE>
b. Exhibits:
1. (a) Amended and Restated Declaration of Trust
dated March 17, 1988.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(b) Establishment and Designation of Series
dated December 15, 1986.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(c) Amended Establishment and Designation of
Series dated May 4, 1987.
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration
Statement.)
(d) Certificate of Amendment dated December 13,
1990. (Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(e) Establishment and Designation of Series dated
October 6, 1992.
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration
Statement.)
(f) Redesignation of Series by the Registrant on
behalf of Scudder Capital Growth Fund, dated
December 2, 1996.
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration
Statement.)
(g) Establishment and Designation of Classes of
Shares of Beneficial Interest, $0.01 Par
Value - Kemper A, B & C Shares, and Scudder
Shares is filed herein.
(h) Redesignation of Series, Scudder Value
Fund to Value Fund, is filed herein.
2. (a) By-Laws as of October 16, 1985.
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration
Statement.)
(b) Amendment to the By-Laws of Registrant as
amended through December 9, 1985.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(c) Amendment to the Registrant's By-Laws dated
December 12, 1991.
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration
Statement.)
(d) Amendment to the Registrant's By-Laws dated
September 17, 1992. (Incorporated by
reference to Post-Effective Amendment No. 25
to the Registration Statement.)
3. Inapplicable.
Part C - Page 2
<PAGE>
4. Specimen certificate representing shares of
beneficial interest ($.01 par value).
(Incorporated by reference to Exhibit 4 to
Post-Effective Amendment No. 12 to this
Registration Statement.)
5. (a) 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 Post-Effective
Amendment No. 25 to the Registration
Statement.).
(b) 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
Post-Effective Amendment No. 25 to the
Registration Statement.)
(c) Investment Management Agreement between
Scudder Capital Growth Fund and Scudder,
Stevens & Clark, Inc. Dated December 14,
1990.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(d) 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 Post-Effective
Amendment No. 25 to the Registration
Statement.)
(e) Investment Management Agreement between the
Registrant (on behalf of Scudder Value Fund)
and Scudder Kemper Investments, Inc. dated
December 31, 1997.
(Incorporated by reference to Post-Effective
Amendment No. 27 to the Registration
Statement.)
(f) Investment Management Agreement between
the Registrant (on behalf of Scudder
Large Company Value Fund) and Scudder
Kemper Investments, Inc. dated December
31, 1997.
(Incorporated by reference to
Post-Effective Amendment No. 27 to the
Registration Statement.)
6. (a) Underwriting Agreement between the
Registrant and Scudder Fund Distributors,
Inc. dated May 1, 1987.
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration
Statement.)
(b) Form of Underwriting Agreement and
Distribution Services Agreement between
the Registrant on behalf of Value Fund
and Kemper Distributors, Inc. dated April
1998, is filed herein.
7. Inapplicable.
Part C - Page 3
<PAGE>
8. (a)(1) Custodian Agreement between the
Registrant and State Street Bank and Trust
Company dated October 1, 1982.
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration
Statement.)
(a)(2) Fee schedule for Exhibit 8(a)(l).
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(a)(3) Amendment to Custodian Contract dated
March 31, 1986.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(a)(4) Amendment to Custodian Contract dated
October 1, 1982.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(a)(5) Amendment to Custodian Contract dated
September 16, 1988.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(a)(6) Amendment to Custodian Contract dated
December 13, 1990.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(a)(7) Fee schedule for Exhibit 8(a)(1) dated
August 1, 1994.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(b)(1) 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
Post-Effective Amendment No. 25 to the
Registration Statement.)
(c)(1) Subcustody Agreement between State Street
Bank and the Chase Manhattan Bank, N.A.
dated September 1, 1986.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
9. (a)(1) Transfer Agency and Service Agreement
between the Registrant and Scudder Service
Corporation dated October 2, 1989.
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration
Statement.)
(a)(2) Fee schedule for Exhibit 9(a)(1).
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(a)(3) Form of revised fee schedule for Exhibit
9(a)(1) is filed herein.
(Incorporated by reference to Exhibit
9(a)(3) to Post-Effective Amendment No.
23 to this Registration Statement.)
(a)(4) Form of Agency Agreement between the
Registrant on behalf of Value Fund and Kemper
Service Company dated April 1998, is filed
herein.
Part C - Page 4
<PAGE>
(b)(1) Compass Service Agreement between the
Registrant and Scudder Trust Company
dated January 1, 1990.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(b)(2) Fee Schedule for Exhibit 9(b)(1).
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(b)(3) COMPASS Service Agreement between Scudder
Trust Company and the Registrant dated
October 1, 1995.
(Incorporated by reference to
Post-Effective Amendment No. 24 to this
Registration Statement.)
(c) Shareholder Services Agreement between the
Registrant and Charles Schwab & Co., Inc.
dated June 1, 1990. (Incorporated by
reference to Post-Effective Amendment No. 25
to the Registration Statement.)
(c)(1) 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.)
(d) Inapplicable.
(e)(1) 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
Post-Effective Amendment No. 25 to the
Registration Statement.)
(e)(2) 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
Post-Effective Amendment No. 25 to the
Registration Statement.)
(f) 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
Post-Effective Amendment No. 25 to the
Registration Statement.)
(g) Form of Administrative Services Agreement
between the Registrant and Kemper
Distributors, Inc. dated April, 1998.
10. Inapplicable.
11. Inapplicable.
12. Inapplicable.
13. Inapplicable.
Part C - Page 5
<PAGE>
14. (a) Scudder Flexi-Plan for Corporations and
Self-Employed Individuals.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(b) Scudder Individual Retirement Plan.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(c) SEP-IRA.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(d) Scudder Funds 403(b) Plan.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
(e) Scudder Cash or Deferred Profit Sharing Plan
under Section 401(k).
(Incorporated by reference to Post-Effective
Amendment No. 25 to the Registration
Statement.)
(f) Scudder Roth IRA Plan is filed herein.
(Incorporated by reference to Post-Effective
Amendment No. 27 to the Registration
Statement.)
15. Form of Underwriting Agreement and
Distribution Services Agreement between the
Registrant on behalf of Value Fund and Kemper
Distributors, Inc. dated April 1998, is filed
herein as Exhibit 6(b).
16. Schedule for Computation of Performance
Quotation.
(Incorporated by reference to
Post-Effective Amendment No. 25 to the
Registration Statement.)
17. Financial Data Schedules are filed herein.
18. Mutual Funds Multi-Distribution System Plan -
Rule 18f-3 Plan is filed herein.
Item 25. Persons Controlled by or Under Common Control with Registrant.
None
Item 26. Number of Holders of Securities (as of January 27, 1998).
(1) (2)
Title of Class Number of Record Shareholders
-------------- -----------------------------
Scudder Large Company Value Fund 137,581
shares of beneficial interest
($.01 par value)
Scudder Value Fund 29,517
shares of beneficial interest
($.01 par value)
Part C - Page 6
<PAGE>
Item 27. Indemnification.
A policy of insurance covering Scudder, Stevens & Clark, Inc., its
affiliates including Scudder Investor Services, Inc., and all of the
registered investment companies advised by Scudder, Stevens & Clark, 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
states 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 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;
Part C - Page 7
<PAGE>
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) or (b)(ii)
resulting in a payment by a Trustee or officer, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office:
(A) by the court or other body approving the settlement or other
disposition; or
(B) based upon a review of readily available facts (as opposed to a
full trial-type inquiry) by (x) vote of a majority of the Disinterested
Trustees acting on the matter (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 28. 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 28.
Part C - Page 8
<PAGE>
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
<S> <C>
Stephen R. Beckwith Treasurer and Chief Financial Officer, Scudder Kemper Investments,
Inc.**
Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director, Scudder Stevens & Clark Corporation**
Director and Chairman, Scudder Defined Contribution Services, Inc.**
Director and President, Scudder Capital Asset Corporation**
Director and President, Scudder Capital Stock Corporation**
Director and President, Scudder Capital Planning Corporation**
Director and President, SS&C Investment Corporation**
Director and President, SIS Investment Corporation**
Director and President, SRV Investment Corporation**
Lynn S. Birdsong Director and Vice President, Scudder Kemper Investments, Inc.**
Director, Scudder, Stevens & Clark (Luxembourg) S.A.#
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of
Switzerland##
Director, ZKI Holding Corporation xx
Steven Gluckstern Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of
Switzerland##
Director, Zurich Holding Company of America(o)
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 Director, 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.+
</TABLE>
Part C - Page 9
<PAGE>
<TABLE>
<S> <C>
Markus Rohrbasser Director, Scudder Kemper Investments, Inc.**
Member Corporate Executive Board, Zurich Insurance Company of
Switzerland##
President, Director, Chairman of the Board, ZKI Holding Corporation xx
Cornelia M. Small Vice President, Scudder Kemper Investments, Inc.**
Edmond D. Villani Director, President and Chief Executive Officer, Scudder Kemper
Investments, Inc.**
Director, Scudder, Stevens & Clark Japan, Inc.###
President and Director, Scudder, Stevens & Clark Overseas Corporation(oo)
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc.x
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy
of Luxembourg
</TABLE>
* Two International Place, Boston, MA
x 333 South Hope Street, Los Angeles, CA
** 345 Park Avenue, New York, NY
# Societe Anonyme, 47, Boulevard Royal, L-2449 Luxembourg, R.C.
Luxembourg B 34.564
*** Toronto, Ontario, Canada
xxx Grand Cayman, Cayman Islands, British West Indies
oo 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
o Zurich Towers, 1400 American Ln., Schaumburg, IL
+ P.O. Box 309, Upland House, S. Church St., Grand Cayman,
British West Indies
## Mythenquai-2, P.O. Box CH-8022, Zurich, Switzerland
Item 29. Principal Underwriters.
(a)
Scudder Investor Services, Inc. acts as principal underwriter of the
Registrant's Scudder Shares and also acts as principal underwriter for
other funds managed by Scudder Kemper Investments, Inc.
Kemper Distributors, Inc. acts as principal underwriter of the
Registrant's Kemper Shares Class A, B and C and acts as principal
underwriter of the Kemper Funds, Investors Fund Series and Kemper
International Bond Fund.
(b)
Scudder Investor Services, Inc. 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 29.
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C>
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
</TABLE>
Part C - Page 10
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C>
Mary Elizabeth Beams Vice President None
Two International Place
Boston, MA 02110
Mark S. Casady Director, President and Assistant None
Two International Place Treasurer
Boston, MA 02110
Linda Coughlin Director and Senior Vice President None
Two International Place
Boston, MA 02110
Richard W. Desmond Vice President None
345 Park Avenue
New York, NY 10154
Paul J. Elmlinger Senior Vice President and Assistant None
345 Park Avenue Clerk
New York, NY 10154
Philip S. Fortuna Vice President 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,
Two International Place Secretary and
Boston, MA 02110 Assistant Treasurer
Daniel Pierce Director, Vice President President and Trustee
Two International Place and Assistant Treasurer
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President and Trustee, Vice
345 Park Avenue Assistant Clerk President and
New York, NY 10154 Assistant Secretary
</TABLE>
Part C - Page 11
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Position and Offices with Positions and
Business Address Scudder Investor Services, Inc. Offices with Registrant
---------------- ------------------------------- -----------------------
<S> <C> <C>
Robert A. Rudell Vice President None
Two International Place
Boston, MA 02110
William M. Thomas Vice President None
Two International Place
Boston, MA 02110
Benjamin Thorndike Vice President None
Two International Place
Boston, MA 02110
Sydney S. Tucker Vice President None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President None
Two International Place
Boston, MA 02110
</TABLE>
(b) Information on the officers and directors of Kemper Distributors,
Inc., principal underwriter for the Class A, B and C Shares of
the Registrant is set forth below. The principal business address
is 222 South Riverside Plaza, Chicago, Illinois 60606.
<TABLE>
<CAPTION>
(1) (2) (3)
Name and Principal Position and Offices with Positions and
Business Address Underwriter Offices with Registrant
---------------- ----------- -----------------------
<S> <C> <C>
James L. Greenawalt Director, President None
Patrick H. Dudasik Financial Principal, Treasurer and None
Chief Financial officer
Michael E. Harrington Executive Vice President None
Philip D. Hausken Vice President None
Elizabeth C. Werth Vice President Assistant Secretary
Marc L. Hecht Assistant Secretary None
Diane E. Ratekin Assistant Secretary None
</TABLE>
(c)
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Net Underwriting Compensation on
Name of Principal Discounts and Redemptions Brokerage Other
Underwriter Commissions and Repurchases Commissions Compensation
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Scudder Investor None None None None
Services, Inc.
Kemper Distributors, Inc. None None None None
</TABLE>
Part C - Page 12
<PAGE>
Item 30. 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, Stevens & Clark,
Inc., Two International Place, Boston, Massachusetts 02110. 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 31. Management Services.
Inapplicable.
Item 32. Undertakings.
Inapplicable.
Part C - Page 13
<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. 29
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 29
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
SCUDDER EQUITY TRUST
<PAGE>
SCUDDER EQUITY TRUST
EXHIBIT INDEX
Exhibit (b) (1) (g)
Exhibit (b) (1) (h)
Exhibit 6 (b)
Exhibit 9 (a) (4)
Exhibit 9 (g)
Exhibit 11
Exhibit 18
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.
- - - - - -------------------------------------
Paul Bancroft III, as Trustee
- - - - - -------------------------------------
Sheryle J. Bolton, as Trustee
- - - - - -------------------------------------
William T. Burgin, as Trustee
- - - - - -------------------------------------
Thomas J. Devine, as Trustee
- - - - - -------------------------------------
Keith R. Fox, as Trustee
- - - - - -------------------------------------
William H. Luers, as Trustee
<PAGE>
- - - - - -------------------------------------
Wilson Nolen, as Trustee
- - - - - -------------------------------------
Daniel Pierce, as Trustee
- - - - - -------------------------------------
Kathryn L. Quirk, as Trustee
Dated: April __, 1998
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.
- - - - - ---------------------------------------
Paul Bancroft III, as Trustee
- - - - - ---------------------------------------
Sheryl J. Bolton, as Trustee
- - - - - ---------------------------------------
William T. Burgin, as Trustee
- - - - - ---------------------------------------
Thomas J. Devine, as Trustee
- - - - - ---------------------------------------
Keith R. Fox, as Trustee
- - - - - ---------------------------------------
William H. Luers, as Trustee
2
<PAGE>
- - - - - ---------------------------------------
Wilson Nolen, as Trustee
- - - - - ---------------------------------------
Daniel Pierce, as Trustee
- - - - - ---------------------------------------
Kathryn L. Quirk, as Trustee
Dated: April __, 1998
3
UNDERWRITING AND DISTRIBUTION SERVICES AGREEMENT
AGREEMENT made this __ 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:______________________
Title: President
ATTEST:
__________________________
Title:___________________
KEMPER DISTRIBUTORS, INC.
By:______________________
Title:___________________
ATTEST:
__________________________
Title:____________________
8
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.
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<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.
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<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.
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<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.
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<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 _______________________________________
Title: President
ATTEST:
_________________________________
Title:
KEMPER SERVICE COMPANY
By _______________________________________
Title:
ATTEST:
_________________________________
Title:
16
<PAGE>
EXHIBIT A
FEE SCHEDULE (MULTIPLE CLASSES OF SHARES)
FEE PAYABLE BY FUND
TRANSFER AGENCY FUNCTION CLASS A and C CLASS B
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 $6.00 $6.00
fee (per year per account).
3. Establishment of new shareholder $4.00 $4.00
account (per new account).*
4. Transaction Based Fees (per transaction):
a. Dividend transaction fee (per $ .40 $ .40
dividend per account).
b. Automated transaction fee (per $ .50 $ .50
transaction).**
c. Purchase or redemption of shares $1.25 $1.25
transaction fee.
d. Audio Response fee. $0.15 $0.15
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: By:____________________________
Title: President Title:_________________________
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: By:____________________________
Title: President Title:_________________________
Dated: Apri ___, 1998
4
Coopers
& Lybrand
Consent of Independent Accountants
To the Trustees of Scudder Equity Trust:
We consent to the incorporation by reference in Post-Effective Amendment No. 29
to the Registration Statement of Scudder Equity Trust on Form N-1A, of our
report dated November 5, 1997 on our audit of the financial statements and
financial highlights of Scudder Value Fund, which report is included in the
Annual Report to Shareholders for the period ended September 30, 1997 which is
incorporated by reference in the Post-Effective Amendment to the Registration
Statement.
We also consent to the reference to our Firm under the caption, "Experts."
Boston, Massachusetts Coopers & Lybrand L.L.P.
April 15, 1998
MUTUAL FUNDS
MULTI-DISTRIBUTION SYSTEM PLAN
WHEREAS, each investment company adopting this Multi-Distribution System
Plan (each a "Fund" and collectively the "Funds") is an open-end management
investment company registered under the Investment Company Act of 1940 (the
"1940 Act");
WHEREAS, Scudder Kemper Investments, Inc. serves as investment adviser and
Kemper Distributors, Inc. or Scudder Investor Services, Inc. serves as principal
underwriter for each Fund;
WHEREAS, each Fund has a non-Rule 12b-1 administrative services agreement
providing for a service fee at an annual rate of up to .25% of average daily net
assets;
WHEREAS, each Fund has established a Multi-Distribution System with
respect to certain series of its shares enabling each such series, as more fully
reflected in its prospectus, to offer investors the option of purchasing shares
(a) with a front-end sales load (which may vary among Funds) and a service fee
("Class A shares"); (b) without a front-end sales load, but subject to a
Contingent Deferred Sales Charge ("CDSC") (which may vary among Funds), a Rule
12b-1 plan providing for a distribution fee, and a service fee ("Class B
shares"); (c) without a front-end sales load, but subject to a CDSC which may
vary among Funds), a Rule 12b-1 Plan providing for a distribution fee, and a
service fee ("Class C shares"); and (d) for certain Funds, without a front-end
load, a CDSC, a distribution fee or a service fee ("Class S shares"); and
WHEREAS, Rule 18f-3 under the 1940 Act permits open-end management
investment companies to issue multiple classes of voting stock representing
interests in the same portfolio notwithstanding Sections 18(f)(1) and 18(i)
under the 1940 Act if, among other things, such investment companies adopt a
written plan setting forth the separate arrangement and expense allocation,
attached hereto as Schedule A, of each class and any related conversion features
or exchange privileges;
NOW, THEREFORE, each Fund, wishing to be governed by Rule 18f-3 under the
1940 Act, hereby adopts this Multi-Distribution System Plan with respect to all
or certain series of its shares, as follows:
1. Each class of shares will represent interests in the same portfolio of
investments of the Fund (or series), and be identical in all respects to each
other class, except as set forth below. The only differences among the various
classes of shares of the Fund (or series) will relate solely to: (a) different
distribution fee payments associated with any Rule 12b-1 Plan for a particular
class of shares and any other costs relating to implementing or amending such
Rule 12b-1 Plan (including obtaining shareholder approval of such Rule 12b-1
Plan or any amendment thereto), which will be borne solely by shareholders of
such classes; (b) different service fees; (c) different shareholder servicing
fees; (d) different class expenses, which will be limited to the following
expenses determined by the Fund board to be attributable to a specific class of
shares: (i) printing and postage expenses related to preparing and distributing
materials such as shareholder reports, prospectuses, and proxy statements to
current shareholders of a specific class and related matters
<PAGE>
that differ between classes; (ii) Securities and Exchange Commission
registration fees incurred by a specific class; (iii) litigation or other legal
expenses relating to a specific class; (iv) board member fees or expenses
incurred as a result of issues relating to a specific class; and (v) accounting
expenses relating to a specific class; and (vi) transfer agency fees
attributable to a certain class; (e) the voting rights related to any Rule 12b-1
Plan affecting a specific class of shares; (f) conversion features; (g) exchange
privileges; and (h) class names or designations. Any additional incremental
expenses not specifically identified above that are subsequently identified and
determined to be properly applied to one class of shares of the Fund (or a
series) shall be so applied upon approval by a majority of the members of the
Fund's board, including a majority of the board members who are not interested
persons of the Fund.
2. Under the Multi-Distribution System, certain expenses may be
attributable to the Fund, but not to a particular series or class thereof. All
such expenses will be borne by each class on the basis of the relative aggregate
net assets of the classes, except that, if the Fund has series, expenses will
first be allocated among series, based upon their relative aggregate net assets.
Expenses that are attributable to a particular series, but not to a particular
class thereof, will be borne by each class of that series on the basis of the
relative aggregate net assets of the classes. Notwithstanding the foregoing, the
underwriter, the investment manager or other provider of services to the Fund
may waive or reimburse the expenses of a specific class or classes to the extent
permitted under Rule 18f-3 under the 1940 Act.
A class of shares may be permitted to bear expenses that are directly
attributable to that class including: (a) any distribution fees associated with
any Rule 12b-1 Plan for a particular class and any other costs relating to
implementing or amending such Rule 12b-1 Plan (including obtaining shareholder
approval of such Rule 12b-1 Plan or any amendment thereto); (b) any service fees
attributable to such class; (c) any shareholder servicing fees attributable to
such class; and (d) any class expenses determined by the Fund board to be
attributable to such class.
3. After a shareholder's Class B shares have been outstanding for six
years, they will automatically convert to Class A shares of the Fund (or series)
at the relative net asset values of the two classes and will thereafter not be
subject to a Rule 12b-1 Plan; provided, however, that any Class B Shares issued
in exchange for shares originally classified as Initial Shares of Kemper
Portfolios, formerly known as Kemper Investment Portfolios (KP), whether in
connection with a reorganization with a series of KP or otherwise, shall convert
to Class A shares seven years after issuance of such Initial Shares if such
Initial Shares were issued prior to February 1, 1991. Class B shares issued upon
reinvestment of income and capital gain dividends and other distributions will
be converted to Class A shares on a pro rata basis with the Class B shares.
4. Any conversion of shares of one class to shares of another class is
subject to the continuing availability of a ruling of the Internal Revenue
Service or an opinion of counsel to the effect that the conversion of shares
does not constitute a taxable event under federal income tax law. Any such
conversion may be suspended if such a ruling or opinion is no longer available.
5. To the extent exchanges are permitted, shares of any class of the Fund
(or series) will be exchangeable with shares of the same class of another Fund
(or series), or with money
2
<PAGE>
market fund shares as described in the applicable prospectus. Exchanges will
comply with all applicable provisions of Rule 11a-3 under the 1940 Act. For
purposes of calculating the time period remaining on the conversion of Class B
shares to Class A shares, Class B shares received on exchange retain their
original purchase date.
6. Dividends paid by the Fund (or series) as to each class of its shares,
to the extent any dividends are paid, will be calculated in the same manner, at
the same time, on the same day, and will be in the same amount; except that any
distribution fees, service fees, shareholder servicing fees and class expenses
allocated to a class will be borne exclusively by that class.
7. Any distribution arrangement of the Fund, including distribution fees,
front-end sales loads and CDSCs, will comply with Section 2830 of the Conduct
Rules of the National Association of Securities Dealers, Inc.
8. All material amendments to this Plan must be approved by a majority of
the members of the Fund's board, including a majority of the board members who
are not interested persons, as defined in the 1940 Act, of the Fund.
Any open-end investment company may establish a Multi-Distribution System
and adopt this Multi-Distribution System Plan by approval of a majority of the
members of any such company's governing board, including a majority of the board
members who are not interested persons of such company.
For use on or after: April __, 1998
3
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from the
Value Fund Annual Report for the fiscal year ended September 30, 1997 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER>2
<NAME> Scuder Value Fund
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 260,401,690
<INVESTMENTS-AT-VALUE> 308,680,173
<RECEIVABLES> 2,549,719
<ASSETS-OTHER> 8,742
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 311,238,634
<PAYABLE-FOR-SECURITIES> 12,153,104
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,105,751
<TOTAL-LIABILITIES> 13,258,855
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 229,053,714
<SHARES-COMMON-STOCK> 12,664,615
<SHARES-COMMON-PRIOR> 5,071,691
<ACCUMULATED-NII-CURRENT> 2,399,604
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 16,989,838
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 49,536,623
<NET-ASSETS> 297,979,779
<DIVIDEND-INCOME> 2,912,147
<INTEREST-INCOME> 1,811,635
<OTHER-INCOME> 0
<EXPENSES-NET> 2,014,432
<NET-INVESTMENT-INCOME> 2,709,350
<REALIZED-GAINS-CURRENT> 17,587,309
<APPREC-INCREASE-CURRENT> 39,472,281
<NET-CHANGE-FROM-OPS> 59,768,940
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (370,246)
<DISTRIBUTIONS-OF-GAINS> (7,822,998)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,534,988
<NUMBER-OF-SHARES-REDEEMED> (3,388,834)
<SHARES-REINVESTED> 446,770
<NET-CHANGE-IN-ASSETS> 209,105,487
<ACCUMULATED-NII-PRIOR> 960,593
<ACCUMULATED-GAINS-PRIOR> 7,225,434
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,133,164
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,073,741
<AVERAGE-NET-ASSETS> 162,213,958
<PER-SHARE-NAV-BEGIN> 1,752.00
<PER-SHARE-NII> 0.34
<PER-SHARE-GAIN-APPREC> 7.22
<PER-SHARE-DIVIDEND> (7.00)
<PER-SHARE-DISTRIBUTIONS> (148.00)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 2,353.00
<EXPENSE-RATIO> 1.24
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
