Filed electronically with the Securities and Exchange Commission
on August 1, 2000
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. 40
--
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 40
--
VALUE EQUITY TRUST
------------------
(Exact Name of Registrant as Specified in Charter)
345 Park Avenue, New York, NY 10154
-----------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (617) 295-1000
--------------
John Millette
Scudder Kemper Investments, Inc.
Two International Place, Boston, MA 02110
-----------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check
appropriate box):
/ / Immediately upon filing pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a) (1)
/ / 75 days after filing pursuant to paragraph (a) (2)
/ X / On July 1, 2000 pursuant to paragraph (b)
/ / On _________ pursuant to paragraph (a) (1)
/ / On _________ pursuant to paragraph (a) (2) of Rule 485.
If Appropriate, check the following box:
/ / This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
VALUE EQUITY TRUST
Scudder Large Company Value Fund
1
<PAGE>
SCUDDER
INVESTMENTS (SM)
[LOGO]
--------------------------------------------------------------------------------
EQUITY/VALUE
--------------------------------------------------------------------------------
Class AARP and Class S Shares
Scudder Small Company
Value Fund
Scudder Large Company
Value Fund
Prospectus
October 1, 2000
As with all mutual funds, the Securities and Exchange Commission (SEC) does not
approve or disapprove these shares or determine whether the information in this
prospectus is truthful or complete. It is a criminal offense for anyone to
inform you otherwise.
<PAGE>
How the funds work
2 Scudder Small Company Value Fund
6 Scudder Large Company Value Fund
10 Other Policies and Risks
11 Who Manages and Oversees the Funds
14 Financial Highlights
How to invest in the funds
17 How to Buy, Sell and Exchange
Class AARP Shares
19 How to Buy, Sell and Exchange
Class S Shares
21 Policies You Should Know About
25 Understanding Distributions and Taxes
<PAGE>
How the funds work
On the next few pages, you'll find information about each fund's
investment goal, the main strategies it uses to pursue that goal, and
the main risks that could affect its performance.
Whether you are considering investing in a fund or are already a
shareholder, you'll probably want to look this information over
carefully. You may want to keep it on hand for reference as well.
Remember that mutual funds are investments, not bank deposits. They're
not insured or guaranteed by the FDIC or any other government agency.
Their share prices will go up and down, and you could lose money by
investing in them.
This prospectus offers two classes for each of the funds described.
Class AARP shares have been created especially for AARP members. Class
S shares are available to all investors. Unless otherwise noted, all
information in this prospectus applies to both classes.
You can find Scudder prospectuses on the Internet for Class AARP shares
at aarp.scudder.com and for Class S shares at www.scudder.com.
<PAGE>
--------------------------------------------------------------------------------
ticker symbol | Class AARP 00000 fund number | Class AARP 000
| Class S SCSUX | Class S 078
Scudder Small Company Value Fund
--------------------------------------------------------------------------------
Investment Approach
The fund seeks long-term growth of capital by investing at least 90% of
total assets in undervalued common stocks of U.S. companies. The fund
will invest in common stock companies that are similar in size to those
in the Russell 2000 Index (typically less than $2 billion in total
market value.)
The portfolio managers begin by searching for small companies, such as
those in the Russell 2000 Index, that appear to be undervalued. A
quantitative stock valuation model compares each company's stock price
to the company's earnings, book value, sales and other measures of
performance potential. The managers also look for factors that may
signal a rebound for a company, whether through a recovery in its
markets, a change in business strategy or other factors.
The managers then assemble the fund's portfolio from among the
qualifying stocks, using a portfolio optimizer. The portfolio optimizer
is a sophisticated portfolio management software that analyzes the
return and risk characteristics of each stock and the overall
portfolio.
The managers diversify the fund's investments among many industries and
among many companies (typically over 150).
The fund will normally sell a stock when it no longer qualifies as a
small company, when it is no longer considered undervalued or when the
managers believe other investments offer better opportunities.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
OTHER INVESTMENTS
While the fund invests mainly in common stocks, it may invest up to 20% of total
assets in U.S. Treasury and agency debt securities.
Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies or
securities), the managers don't intend to use them as principal investments, and
may not use them at all.
--------------------------------------------------------------------------------
2 | Scudder Small Company Value Fund
<PAGE>
--------------------------------------------------------------------------------
[ICON] This fund is designed for long-term investors who are looking for a
fund that takes a value approach to investing in small company stocks.
--------------------------------------------------------------------------------
Main Risks to Investors
There are several risk factors that could hurt the fund's performance,
cause you to lose money or make the fund perform less well than other
investments.
As with most stock funds, the most important factor with this fund is
how stock markets perform -- in this case, the small company portion of
the U.S. market. When small company stock prices fall, you should
expect the value of your investment to fall as well. Small company
stocks tend to be more volatile than stocks of larger companies, in
part because small companies tend to be less established than larger
companies and more vulnerable to competitive challenges and bad
economic news. Because a stock represents ownership in its issuer,
stock prices can be hurt by poor management, shrinking product demand
and other business risks. These may affect single companies as well as
groups of companies in which the fund invests.
To the extent that the fund invests in a given industry, any factors
affecting that industry could affect portfolio securities. For example,
a rise in unemployment could hurt manufacturers of consumer goods.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies
o derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
o value stocks may be out of favor for certain periods
Scudder Small Company Value Fund | 3
<PAGE>
--------------------------------------------------------------------------------
[ICON] While a fund's past performance isn't necessarily a sign of how it will
do in the future, it can be valuable for an investor to know. This page
looks at fund performance two different ways: year by year and over
time.
--------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how fund returns have varied from year to year,
which may give some idea of risk. The table shows average annual total
returns for the Class S shares of the fund and broad-based market
indexes (which, unlike the fund, do not have any fees or expenses). The
performance of both the fund and the indexes varies over time. All
figures on this page assume reinvestment of dividends and
distributions.
-----------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class S
-----------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
23.84 37.01 -5.54 0
'96 '97 '98 '99
2000 Total Return as of [DATE]: __%
Best Quarter: __%, Q_ ____ Worst Quarter: __%, Q_ ____
-----------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
-----------------------------------------------------------------------
1 Year Since Inception**
-----------------------------------------------------------------------
Fund -- Class S* __ __
------------------------------------------------------------------------
Index 1 __ __
------------------------------------------------------------------------
Index 2 __ __
------------------------------------------------------------------------
Index 1: The Russell 2000 Index, an unmanaged capitalization-weighted
measure of approximately 2000 small U.S. stocks.
Index 2: The Russell 2000 Value Index, which measures the performance
of those companies in the Russell 2000 Index with lower price-to-book
ratios and lower expected growth rates.
Total returns from the date of inception through 1997 would have been
lower if operating expenses hadn't been reduced.
* Performance for Class AARP shares is not provided because this
class does not have a full calendar year of performance.
** Fund inception: 10/6/1995
4 | Scudder Small Company Value Fund
<PAGE>
How Much Investors Pay
This fund has no shareholder fees other than the
redemption/exchange fee, charged directly to your account. The fund
does have annual operating expenses, and as a shareholder of either
Class AARP or Class S shares, you pay them indirectly.
-------------------------------------------------------------------
Fee Table
-------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
-------------------------------------------------------------------
Redemption/Exchange fee, on shares owned less than a year
(as a % of amount redeemed, if applicable) 1.00%
-------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
-------------------------------------------------------------------
Management Fee 0.00%
-------------------------------------------------------------------
Distribution (12b-1) Fee None
-------------------------------------------------------------------
Other Expenses* __%
-------------------------------------------------------------------
Total Annual Operating Expenses __%
-------------------------------------------------------------------
* Includes a fixed rate administrative fee of 0.25%.
Information in the table has been restated to reflect a new
fixed rate administrative fee and a new investment management
fee rate.
-------------------------------------------------------------------
Expense Example
-------------------------------------------------------------------
This example helps you compare this fund's expenses to those of
other mutual funds. The example assumes the expenses above remain
the same. It also assumes that you invested $10,000, earned 5%
annual returns, reinvested all dividends and distributions and sold
your shares at the end of each period. This is only an example;
actual expenses will be different.
1 Year 3 Years 5 Years 10 Years
-------------------------------------------------------------------
$xx $xxx $xxx $xxxx
-------------------------------------------------------------------
Scudder Small Company Value Fund | 5
<PAGE>
--------------------------------------------------------------------------------
ticker symbol | Class AARP 00000 fund number | Class AARP 000
| Class S SCDUX | Class S 049
Scudder Large Company Value Fund
--------------------------------------------------------------------------------
Investment Approach
The fund seeks maximum long-term capital appreciation through a
value-oriented investment approach. It does this by investing at least
65% of net assets in common stocks and other equities of large U.S.
companies (those with a market value of $1 billion or more).
In choosing stocks, the portfolio managers begin by using a computer
model. Examining the companies in the Russell 1000 Index, the model
seeks those whose market values, when compared to factors such as
earnings, book value and sales, place them in the most undervalued 40%
of companies in the index.
To further narrow the pool of potential stocks, the managers use
bottom-up analysis, looking for companies that seem poised for business
improvement, whether through a rebound in their markets, a change in
business strategy or other factors. The managers assemble the fund's
portfolio from among the qualifying stocks, drawing on analysis of
economic outlooks for various industries and the potential volatility
of each stock.
The managers may favor securities from different industries and
companies at different times while still maintaining variety in terms
of the industries and companies represented.
The fund will normally sell a stock when it reaches a target price,
when the managers believe other investments offer better opportunities
or in the course of adjusting its exposure to a given industry.
THE FOLLOWING SIDEBAR TEXT APPEARS NEXT TO THE PRECEDING PARAGRAPHS.
--------------------------------------------------------------------------------
OTHER INVESTMENTS
While most of the fund's investments are common stocks, it may also invest up to
20% of assets in debt securities, including convertible bonds.
Although the managers are permitted to use various types of derivatives
(contracts whose value is based on, for example, indices, currencies or
securities), the managers don't intend to use them as principal investments, and
may not use them at all.
--------------------------------------------------------------------------------
6 | Scudder Large Company Value Fund
<PAGE>
--------------------------------------------------------------------------------
[ICON] This fund is designed for long-term investors who favor a value
investment style and want broadly diversified exposure to large company
stocks.
--------------------------------------------------------------------------------
Main Risks to Investors
There are several risk factors that could hurt the fund's performance,
cause you to lose money or make the fund perform less well than other
investments.
As with most stock funds, the most important factor with this fund is
how stock markets perform -- in this case, the large company portion of
the U.S. market. When large company stock prices fall, you should
expect the value of your investment to fall as well. Large company
stocks may be less risky than shares of smaller companies, but at times
may not perform as well. Because a stock represents ownership in its
issuer, stock prices can be hurt by poor management, shrinking product
demand and other business risks. These may affect single companies as
well as groups of companies.
To the extent that the fund invests in a given industry, any factors
affecting that industry could affect portfolio securities. For example,
a rise in unemployment could hurt manufacturers of consumer goods.
Other factors that could affect performance include:
o the managers could be wrong in their analysis of companies
o derivatives could produce disproportionate losses
o at times, market conditions might make it hard to value some
investments or to get an attractive price for them
o value stocks may be out of favor for certain periods
Scudder Large Company Value Fund | 7
<PAGE>
--------------------------------------------------------------------------------
[ICON] While a fund's past performance isn't necessarily a sign of how it will
do in the future, it can be valuable for an investor to know. This page
looks at fund performance two different ways: year by year and over
time.
--------------------------------------------------------------------------------
The Fund's Track Record
The bar chart shows how fund returns have varied from year to year,
which may give some idea of risk. The table shows average annual total
returns for the Class S shares of the fund and a broad-based market
index (which, unlike the fund, does not have any fees or expenses). The
performance of both the fund and the index varies over time. All
figures on this page assume reinvestment of dividends and
distributions.
-----------------------------------------------------------------------
Annual Total Returns (%) as of 12/31 each year Class S
-----------------------------------------------------------------------
THE ORIGINAL DOCUMENT CONTAINS A BAR CHART HERE
BAR CHART DATA:
-16.98 42.96 7.09 20.07 -9.87 31.64 19.55 32.54 9.50 0
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99
2000 Total Return as of June 30: __%
Best Quarter: __%, Q_ ____ Worst Quarter: __%, Q_ ____
-----------------------------------------------------------------------
Average Annual Total Returns (%) as of 12/31/1999
-----------------------------------------------------------------------
1 Year 5 Years 10 Years
-----------------------------------------------------------------------
Fund -- Class S* __ __ __
-----------------------------------------------------------------------
Index __ __ __
-----------------------------------------------------------------------
Index: The Russell 1000 Value Index, which consists of those stocks in
the Russell 1000 Index that have a less-than-average growth
orientation.
* Performance for Class AARP shares is not provided because this
class does not have a full calendar year of performance.
8 | Scudder Large Company Value Fund
<PAGE>
How Much Investors Pay
This fund has no sales charge or other shareholder fees. The fund does
have annual operating expenses, and as a shareholder of either Class
AARP or Class S shares, you pay them indirectly.
-----------------------------------------------------------------------
Fee Table
-----------------------------------------------------------------------
Shareholder Fees (paid directly from your investment) None
-----------------------------------------------------------------------
Annual Operating Expenses (deducted from fund assets)
-----------------------------------------------------------------------
Management Fee 0.00%
-----------------------------------------------------------------------
Distribution (12b-1) Fee None
-----------------------------------------------------------------------
Other Expenses* __%
-----------------------------------------------------------------------
Total Annual Operating Expenses __%
-----------------------------------------------------------------------
* Includes a fixed rate administrative fee of 0.25%.
Information in the table has been restated to reflect a new fixed rate
administrative fee and a new investment management fee rate.
-------------------------------------------------------------------
Expense Example
-------------------------------------------------------------------
This example helps you compare this fund's expenses to those of other
mutual funds. The example assumes the expenses above remain the same.
It also assumes that you invested $10,000, earned 5% annual returns,
reinvested all dividends and distributions and sold your shares at the
end of each period. This is only an example; actual expenses will be
different.
1 Year 3 Years 5 Years 10 Years
------------------------------------------------------------------
$xx $xxx $xxx $xxxx
------------------------------------------------------------------
Scudder Large Company Value Fund | 9
<PAGE>
Other Policies and Risks
While the fund-by-fund sections on the previous pages describe the main
points of each fund's strategy and risks, there are a few other issues
to know about:
o Although major changes tend to be infrequent, a fund's Board
could change that fund's investment goal without seeking
shareholder approval.
o As a temporary defensive measure, each fund could shift up to
100% of its assets into investments such as money market
securities. This could prevent losses, but would mean that the
fund was not pursuing its goals.
For More Information
This prospectus doesn't tell you about every policy or risk of
investing in the funds.
If you want more information on the funds' allowable securities and
investment practices and the characteristics and risks of each one, you
may want to request a copy of the Statement of Additional Information
(the back cover tells you how to do this).
Keep in mind that there is no assurance that any mutual fund will
achieve its goal.
10 | Other Policies and Risks
<PAGE>
--------------------------------------------------------------------------------
[ICON] Scudder Kemper, the company with overall responsibility for managing
the funds, takes a team approach to asset management.
--------------------------------------------------------------------------------
Who Manages and Oversees the Funds
The investment adviser
The funds' investment adviser is Scudder Kemper Investments, Inc., 345
Park Avenue, New York, NY. Scudder Kemper has more than 80 years of
experience managing mutual funds, and currently has more than $290
billion in assets under management.
Scudder Kemper's asset management teams include investment
professionals, economists, research analysts, traders and other
investment specialists, located in offices across the United States and
around the world.
As payment for serving as investment adviser, Scudder Kemper receives a
management fee from each fund. Below are the actual rates paid by each
fund for the 12 months through the most recent fiscal year end, as a
percentage of each fund's average daily net assets.
Fund Name Fee Paid
-----------------------------------------------------------------------
Scudder Small Company Value Fund %
-----------------------------------------------------------------------
Scudder Large Company Value Fund %
-----------------------------------------------------------------------
The portfolio managers
The following people handle the day-to-day management of each fund in
this prospectus.
Scudder Small Company Scudder Large Company
Value Fund Value Fund
James M. Eysenbach Lois Friedman Roman
Lead Portfolio Manager Lead Portfolio Manager
o Began investment career o Began investment career
in 1984 in 1988
o Joined the adviser in 1991 o Joined the adviser in 1994
o Joined the fund team in 1995 o Joined the fund team in 1995
Calvin S. Young Jonathan Lee
o Began investment career o Began investment career
in 1987 in 1990
o Joined the adviser in 1990 o Joined the adviser in 1999
o Joined the fund team in 1998 o Joined the fund team in 1999
11 | Who Manages and Oversees the Funds
<PAGE>
Each fund has entered into a new investment management agreement with Scudder
Kemper. This table describes the fee rates for each fund and the effective date
of these agreements.
------------------------------------------------------------------------
New Investment Management Fee
------------------------------------------------------------------------
Average Daily Net Assets Fee Rate
------------------------------------------------------------------------
Scudder Small Company Value Fund (as of _______)
------------------------------------------------------------------------
all assets 0.75%
------------------------------------------------------------------------
Scudder Large Company Value Fund (as of_______)
------------------------------------------------------------------------
first $1.5 billion 0.600%
------------------------------------------------------------------------
next $500 million 0.575%
------------------------------------------------------------------------
next $1 billion 0.550%
------------------------------------------------------------------------
next $1 billion 0.525%
------------------------------------------------------------------------
next $1 billion 0.500%
------------------------------------------------------------------------
more than $5 billion 0.475%
------------------------------------------------------------------------
Scudder Kemper has agreed to pay a fee to AARP and/or its affiliates in return
for services relating to investments by AARP members in AARP Class shares of
each fund. This fee is calculated on a daily basis as a percentage of the
combined net assets of the AARP Classes of all funds managed by Scudder Kemper.
The fee rates, which decrease as the aggregate net assets of the AARP Classes
become larger, are as follows: 0.07% for the first $6 billion in net assets,
0.06% for the next $10 billion and 0.05% thereafter.
12 | Who Manages and Oversees the Funds
<PAGE>
The Board
A mutual fund's Board is responsible for the general oversight of the fund's
business. A majority of the Board is not affiliated with Scudder Kemper. The
independent members have primary responsibility for assuring that each fund is
managed in the best interests of its shareholders. The following people comprise
each fund's Board.
Linda C. Coughlin Joan E. Spero
o Managing Director, Scudder o President, Doris Duke
Kemper Investments, Inc. Charitable Foundation
o President of each fund
Jean Gleason Stromberg
Henry P. Becton, Jr. o Consultant
o President, WGBH Educational
Foundation Jean C. Tempel
o Managing Director, First
Dawn-Marie Driscoll Light Capital (venture
o Executive Fellow, Center for capital firm)
Business Ethics, Bentley College
o President, Driscoll Associates Steven Zaleznick
(consulting firm) o President and Chief
Executive Officer, AARP
Edgar Fiedler Services, Inc.
o Senior Fellow and Economic
Counsellor, The Conference
Board, Inc.
Keith R. Fox
o Private equity investor
o President, Exeter Capital
Management Corporation
Who Manages and Oversees the Funds | 13
<PAGE>
Financial Highlights
These tables are designed to help you understand each fund's financial
performance. The figures in the first part of each table are for a single share.
The total return figures represent the percentage that an investor in a
particular fund would have earned (or lost), assuming all dividends and
distributions were reinvested. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with each fund's financial
statements, is included in that fund's annual report (see "Shareholder reports"
on the back cover).
Because Class AARP Shares were not available before October 2, 2000, there is no
financial data for these shares as of the date of this prospectus.
Scudder Small Company Value Fund
[TABLE TO BE INSERTED]
14 | Fiancial Highlights
<PAGE>
Scudder Large Company Value Fund
[TABLE TO BE INSERTED]
Fiancial Highlights | 15
<PAGE>
How to invest in the funds
The following pages tell you how to invest in these funds and what to
expect as a shareholder. If you're investing directly with Scudder, all
of this information applies to you.
If you're investing through a "third party provider" -- for example, a
workplace retirement plan, financial supermarket or financial adviser
-- your provider may have its own policies or instructions, and you
should follow those.
As noted earlier, there are two classes of shares of each fund
available through this prospectus. The instructions for buying and
selling each class are slightly different.
Instructions for buying and selling Class AARP shares, which have been
created especially for AARP members, are found on the next two pages.
These are followed by instructions for buying and selling Class S
shares. Be sure to use the appropriate table when placing any orders to
buy, exchange or sell shares in your account.
<PAGE>
How to Buy, Sell and Exchange Class AARP Shares
Buying Shares Use these instructions to invest directly. Make out your check to
"The AARP Investment Program."
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Class AARP First investment Additional investments
-----------------------------------------------------------------------------------
<S> <C> <C>
$1,000 or more for regular $50 or more with an Automatic
accounts Investment Plan
$500 or more for IRAs
-----------------------------------------------------------------------------------
By mail o For enrollment forms, call Send a personalized investment
1-800-253-2277 slip or short note that
includes:
o Fill out and sign an
enrollment form o fund and class name
o Send it to us at the o account number
appropriate address, along
with an investment check o check payable to "The AARP
Investment Program"
-----------------------------------------------------------------------------------
By wire o Call 1-800-253-2277 for o Call 1-800-253-2277 for
instructions instructions
-----------------------------------------------------------------------------------
By phone -- o Call 1-800-253-2277 for
instructions
-----------------------------------------------------------------------------------
With an o Fill in the information o To set up regular investments
automatic required on your enrollment from a bank checking account,
investment plan form and include a voided call 1-800-253-2277
check
-----------------------------------------------------------------------------------
Payroll o Select either of these o Once you specify a dollar
Deduction options on your enrollment amount (minimum $50),
or Direct form and submit it. You will investments are automatic.
Deposit receive further instructions
by mail.
-----------------------------------------------------------------------------------
Using QuickBuy -- o Call 1-800-253-2277
-----------------------------------------------------------------------------------
On the Internet o Go to "services and forms - o Call 1-800-253-2277 to ensure
How to Open an Account" at you have electronic services
aarp.scudder.com
o Register at aarp.scudder.com
o Print out a prospectus and an
enrollment form o Follow the instructions for
buying shares with money from
o Complete and return the your bank account
enrollment form with your
check
-----------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
[ICON] Regular mail:
AARP Investment Program, PO Box 2540, Boston, MA 02208-2540
Express, registered or certified mail:
AARP Investment Program, 66 Brooks Drive, Braintree, 02184-3839
Fax number: 1-800-821-6234 (for exchanging and selling only)
--------------------------------------------------------------------------------
How to Buy, Sell and Exchange Class AARP Shares | 17
<PAGE>
Exchanging or Selling Shares Use these instructions to exchange or sell shares
in an account opened directly with Scudder.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Class AARP Exchanging into another fund Selling shares
-----------------------------------------------------------------------------------
<S> <C> <C>
$1,000 or more to open a new Some transactions, including
account ($500 or more for IRAs) most for over $100,000, can
only be ordered in writing; if
you're in doubt, see page 23
-----------------------------------------------------------------------------------
By phone o Call 1-800-253-2277 for o Call 1-800-253-2277 for
instructions instructions
-----------------------------------------------------------------------------------
Using Easy-Access o Call 1-800- 631-4636 and o Call 1-800-631-4636 and
Line follow the instructions follow the instructions
-----------------------------------------------------------------------------------
By mail or fax Your instructions should Your instructions should
(see previous include: include:
page)
o your account number o your account number
o names of the funds, class and o names of the funds, class and
number of shares or dollar number of shares or dollar
amount you want to exchange amount you want to redeem
-----------------------------------------------------------------------------------
With an automatic -- o To set up regular cash
withdrawal plan payments from an account,
call 1-800-253-2277
-----------------------------------------------------------------------------------
Using QuickSell -- o Call 1-800-253-2277
-----------------------------------------------------------------------------------
On the Internet o Register at aarp.scudder.com --
o Go to "services and forms"
o Follow the instructions for
making on-line exchanges
-----------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Services For Class AARP Investors
----------------------------------------------------------------------------------------
To reach us: o Web site aarp.scudder.com
o Program representatives 1-800-253-2277, M-F, 8 a.m. - 8 p.m. EST
o Confidential fax line 1-800-821-6234, always open
o TDD line 1-800-634-9454, M-F, 9 a.m. - 5 p.m. EST
Services for o AARP Lump Sum Service For planning and setting up a lump
participants: sum distribution.
o AARP Legacy Service For organizing financial documents and
planning the orderly transfer of assets to heirs.
o AARP Goal Setting and Asset Allocation Service For
allocating assets and measuring investment progress.
o For more information, please call 1-800-253-2277.
---------------------------------------------------------------------------------------
</TABLE>
18 | How to Buy, Sell and Exchange Class AARP Shares
<PAGE>
How to Buy, Sell and Exchange Class S Shares
Buying Shares Use these instructions to invest directly. Make out your check to
"The Scudder Funds."
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Class S First investment Additional investments
--------------------------------------------------------------------------------------
<S> <C> <C>
$2,500 or more for regular $100 or more for regular
accounts accounts
$1,000 or more for IRAs $50 or more for IRAs
$50 or more with an Automatic
Investment Plan
--------------------------------------------------------------------------------------
By mail or o Fill out and sign an Send a Scudder investment slip
express application or short note that includes:
(see below)
o Send it to us at the o fund and class name
appropriate address, along
with an investment check o account number
o check payable to "The Scudder
Funds"
--------------------------------------------------------------------------------------
By wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
--------------------------------------------------------------------------------------
By phone -- o Call 1-800-SCUDDER for
instructions
--------------------------------------------------------------------------------------
With an automatic o Fill in the information on o To set up regular investments
investment plan your application and include from a bank checking account,
a voided check call 1-800-SCUDDER
--------------------------------------------------------------------------------------
Using QuickBuy -- o Call 1-800-SCUDDER
--------------------------------------------------------------------------------------
On the Internet o Go to "funds and prices" at o Call 1-800-SCUDDER to ensure
www.scudder.com you have electronic services
o Print out a prospectus and a o Register at www.scudder.com
new account application
o Follow the instructions for
o Complete and return the buying shares with money from
application with your check your bank account
--------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
[ICON] Regular mail:
The Scudder Funds, PO Box 2291, Boston, MA 02107-2291
Express, registered or certified mail:
The Scudder Funds, 66 Brooks Drive, Braintree, MA 02184-3839
Fax number: 1-800-821-6234 (for exchanging and selling only)
--------------------------------------------------------------------------------
How to Buy, Sell and Exchange Class AARP Shares | 19
<PAGE>
Exchanging or Selling Shares Use these instructions to exchange or sell shares
in an account opened directly with Scudder.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Class S Exchanging into another fund Selling shares
------------------------------------------------------------------------------------
<S> <C> <C>
$2,500 or more to open a new Some transactions, including
account ($1,000 or more for most for over $100,000, can
IRAs) only be ordered in writing; if
you're in doubt, see page 23
$100 or more for exchanges
between existing accounts
------------------------------------------------------------------------------------
By phone or wire o Call 1-800-SCUDDER for o Call 1-800-SCUDDER for
instructions instructions
------------------------------------------------------------------------------------
Using SAIL(TM) o Call 1-800-343-2890 and o Call 1-800-343-2890 and
follow the instructions follow the instructions
------------------------------------------------------------------------------------
By mail, Your instructions should Your instructions should
express or fax include: include:
(see previous
page) o the fund, class, and account o the fund, class and account
number you're exchanging number from which you want to
out of sell shares
o the dollar amount or number o the dollar amount or number
of shares you want to exchange of shares you want to sell
o the name and class of the o your name(s), signature(s)
fund you want to exchange into and address, as they appear
on your account
o your name(s), signature(s),
and address, as they appear o a daytime telephone number
on your account
o a daytime telephone number
------------------------------------------------------------------------------------
With an automatic -- o To set up regular cash
withdrawal plan payments from a Scudder
account, call 1-800-SCUDDER
------------------------------------------------------------------------------------
Using QuickSell -- o Call 1-800-SCUDDER
------------------------------------------------------------------------------------
On the Internet o Register at www.scudder.com --
o Follow the instructions for
making on-line exchanges
------------------------------------------------------------------------------------
</TABLE>
20 | How to Buy, Sell and Exchange Class S Shares
<PAGE>
--------------------------------------------------------------------------------
[ICON] Questions? You can speak to a Scudder representative between 8 a.m. and
8 p.m. Eastern time on any fund business day by calling 1-800-253-2277
(Class AARP) or 1-800-SCUDDER (Class S).
--------------------------------------------------------------------------------
Policies You Should Know About
Along with the instructions on the previous pages, the policies below
may affect you as a shareholder. Some of this information, such as the
section on dividends and taxes, applies to all investors, including
those investing through investment providers.
If you are investing through an investment provider, check the
materials you got from them. As a general rule, you should follow the
information in those materials wherever it contradicts the information
given here. Please note that an investment provider may charge its own
fees.
Policies about transactions
The funds are open for business each day the New York Stock Exchange is
open. Each fund calculates its share price every business day, as of
the close of regular trading on the Exchange (typically 4 p.m. eastern
time, but sometimes earlier, as in the case of scheduled half-day
trading or unscheduled suspensions of trading).
You can place an order to buy or sell shares at any time. Once your
order is received by Scudder Service Corporation, and they have
determined that it is a "good order," it will be processed at the next
share price calculated.
Because orders placed through investment providers must be forwarded to
Scudder Service Corporation before they can be processed, you'll need
to allow extra time. A representative of your investment provider
should be able to tell you when your order will be processed.
Policies You Should Know About | 21
<PAGE>
--------------------------------------------------------------------------------
[ICON] The Scudder Web site can be a valuable resource for shareholders with
Internet access. To get up-to-date information, review balances or even
place orders for exchanges, go to aarp.scudder.com (Class AARP) or
www.scudder.com (Class S).
--------------------------------------------------------------------------------
Automated phone information is available 24 hours a day. You can use
your automated phone services to get information on Scudder funds
generally and on accounts held directly at Scudder. If you signed up
for telephone services, you can also use this service to make exchanges
and sell shares.
For Class AARP shares
-----------------------------------------------------------------------
Call Easy-Access Line, the AARP Investment Program Automated
Information Line, at 1-800-631-4636
-----------------------------------------------------------------------
For Class S shares
-----------------------------------------------------------------------
Call SAIL(TM), the Scudder Automated Information Line, at
1-800-343-2890
-----------------------------------------------------------------------
QuickBuy and QuickSell let you set up a link between a Scudder account
and a bank account. Once this link is in place, you can move money
between the two with a phone call. You'll need to make sure your bank
has Automated Clearing House (ACH) services. To set up QuickBuy or
QuickSell on a new account, see the account application; to add it to
an existing account, call 1-800-253-2277 (Class AARP) or 1-800-SCUDDER
(Class S).
When you call us to sell shares, we may record the call, ask you for
certain information, or take other steps designed to prevent fraudulent
orders. It's important to understand that as long as we take reasonable
steps to ensure that an order appears genuine, we are not responsible
for any losses that may occur.
When you ask us to send or receive a wire, please note that while we
don't charge a fee to receive wires, we will deduct a $5 fee from all
wires sent from us to your bank. Your bank may charge its own fees for
handling wires. The fund[s] can only accept wires of $100 or more.
Exchanges are a shareholder privilege, not a right: we may reject any
exchange order, particularly when there appears to be a pattern of
"market timing" or other frequent purchases and sales. We may also
reject purchase orders, for these or other reasons.
22 | Policies You Should Know About
<PAGE>
When you want to sell more than $100,000 worth of shares, you'll
usually need to place your order in writing and include a signature
guarantee. The only exception is if you want money wired to a bank
account that is already on file with us; in that case, you don't need a
signature guarantee. Also, you don't need a signature guarantee for an
exchange, although we may require one in certain other circumstances.
A signature guarantee is simply a certification of your signature -- a
valuable safeguard against fraud. You can get a signature guarantee
from most brokers, banks, savings institutions and credit unions. Note
that you can't get a signature guarantee from a notary public.
Money from shares you sell is normally sent out within one business day
of when your order is processed (not when it is received), although it
could be delayed for up to seven days. There are also two circumstances
when it could be longer: when you are selling shares you bought
recently by check and that check hasn't cleared yet (maximum delay: 15
days) or when unusual circumstances prompt the SEC to allow further
delays.
How the funds calculate share prices
The price at which you buy shares is the net asset value per share, or
NAV. To calculate NAV, each share class of each fund uses the following
equation:
TOTAL ASSETS - TOTAL LIABILITIES
---------------------------------- = NAV
TOTAL NUMBER OF SHARES OUTSTANDING
We typically use market prices to value securities. However, when a
market price isn't available, or when we have reason to believe it
doesn't represent market realities, we may use fair value methods
approved by a fund's Board. In such a case, the fund's value for a
security is likely to be different from quoted market prices.
The price at which you sell shares of each fund is also that fund's
NAV, minus a 1.00% redemption/exchange fee on shares owned less than
one year. You won't be charged this fee if you're investing in an
employer-sponsored retirement plan that is set up directly with
Scudder. If your employer-sponsored retirement plan is through a
third-party investment provider, or if you are investing through an IRA
or other individual retirement account, the fee will apply. Certain
other types of accounts may also be eligible for this waiver.
Policies You Should Know About | 23
<PAGE>
--------------------------------------------------------------------------------
[ICON] If you ever have difficulty placing an order by phone or fax, you can
always send us your order in writing.
--------------------------------------------------------------------------------
Other rights we reserve
For each fund in this prospectus, you should be aware that we may do
any of the following:
o withhold 31% of your distributions as federal income tax if
you have been notified by the IRS that you are subject to
backup withholding, or if you fail to provide us with a
correct taxpayer ID number or certification that you are
exempt from backup withholding
o for Class AARP and Class S shareholders, close your account
and send you the proceeds if your balance falls below $1,000;
for Class S shareholders, charge you $10 a year if your
account balance falls below $2,500; in either case, we will
give you 60 days notice so you can either increase your
balance or close your account (these policies don't apply to
retirement accounts, to investors with $100,000 or more in
Scudder fund shares or in any case where a fall in share price
created the low balance)
o reject a new account application if you don't provide a
correct Social Security or other tax ID number; if the account
has already been opened, we may give you 30 days' notice to
provide the correct number
o pay you for shares you sell by "redeeming in kind," that is,
by giving you marketable securities (which typically will
involve brokerage costs for you to liquidate) rather than
cash; the fund generally won't make a redemption in kind
unless your requests over a 90-day period total more than
$250,000 or 1% of the value of the fund's net assets,
whichever is less
o change, add or withdraw various services, fees and account
policies (for example, we may change or terminate the exchange
privilege at any time)
24 | Policies You Should Know About
<PAGE>
--------------------------------------------------------------------------------
[ICON] Because each shareholder's tax situation is unique, it's always a good
idea to ask your tax professional about the tax consequences of your
investments, including any state and local tax consequences.
--------------------------------------------------------------------------------
Understanding Distributions and Taxes
By law, a mutual fund is required to pass through to its shareholders
virtually all of its net earnings. A fund can earn money in two ways:
by receiving interest, dividends or other income from securities it
holds, and by selling securities for more than it paid for them. (A
fund's earnings are separate from any gains or losses stemming from
your own purchase of shares.) A fund may not always pay a distribution
for a given period.
Each fund intends to pay dividends and distributions to their
shareholders in December, and if necessary may do so at other times as
well.
You can choose how to receive your dividends and distributions. You can
have them all automatically reinvested in fund shares or all sent to
you by check. Tell us your preference on your application. If you don't
indicate a preference, your dividends and distributions will all be
reinvested. For retirement plans, reinvestment is the only option.
Buying and selling fund shares will usually have tax consequences for
you (except in an IRA or other tax-advantaged account). Your sales of
shares may result in a capital gain or loss for you; whether long-term
or short-term depends on how long you owned the shares. For tax
purposes, an exchange is the same as a sale.
Understanding Distributions and Taxes | 25
<PAGE>
The tax status of the fund earnings you receive, and your own fund
transactions, generally depends on their type:
Generally taxed at ordinary income rates
-----------------------------------------------------------------------
o short-term capital gains from selling fund shares
-----------------------------------------------------------------------
o taxable income dividends you receive from a fund
-----------------------------------------------------------------------
o short-term capital gains distributions you receive from a fund
-----------------------------------------------------------------------
Generally taxed at capital gains rates
-----------------------------------------------------------------------
o long-term capital gains from selling fund shares
-----------------------------------------------------------------------
o long-term capital gains distributions you receive from a fund
-----------------------------------------------------------------------
Your fund will send you detailed tax information every January. These
statements tell you the amount and the tax category of any dividends or
distributions you received. They also have certain details on your
purchases and sales of shares. The tax status of dividends and
distributions is the same whether you reinvest them or not. Dividends
or distributions declared in the last quarter of a given year are taxed
in that year, even though you may not receive the money until the
following January.
If you invest right before a fund pays a dividend, you'll be getting
some of your investment back as a taxable dividend. You can avoid this,
if you want, by investing after the fund declares a dividend. In
tax-advantaged retirement accounts you don't need to worry about this.
Corporations may be able to take a dividends-received deduction for a
portion of income dividends they receive.
26 | Understanding Distributions and Taxes
<PAGE>
To Get More Information
Shareholder reports -- These include commentary from each fund's
management team about recent market conditions and the effects of a
fund's strategies on its performance. For each fund, they also have
detailed performance figures, a list of everything the fund owns, and
the fund's financial statements. Shareholders get these reports
automatically. To reduce costs, we mail one copy per household. For
more copies, call 1-800-253-2277 (Class AARP) or 1-800-SCUDDER (Class
S).
Statement of Additional Information (SAI) -- This tells you more about
each fund's features and policies, including additional risk
information. The SAI is incorporated by reference into this document
(meaning that it's legally part of this prospectus).
If you'd like to ask for copies of these documents, please contact
Scudder or the SEC. If you're a shareholder and have questions, please
contact Scudder (see below). Materials you get from Scudder are free;
those from the SEC involve a copying fee. If you like, you can look
over these materials at the SEC's Public Reference Room in Washington,
DC or request them electronically at [email protected].
AARP Investment Program
from Scudder Scudder Funds SEC
PO Box 2540 PO Box 2291 450 Fifth Street,
Boston, MA Boston, MA N.W. Washington, D.C.
02208-2540 02107-2291 20549-6009
1-800-253-2277 1-800-SCUDDER 1-202-942-8090
aarp.scudder.com www.scudder.com www.sec.gov
Fund SEC File Number
-----------------------------------------------------------------------
Scudder Small Company Value Fund 811-2021
-----------------------------------------------------------------------
Scudder Large Company Value Fund 811-1444
-----------------------------------------------------------------------
<PAGE>
SCUDDER LARGE COMPANY VALUE FUND
A Series of Value Equity Trust
A Diversified Mutual Fund which Seeks Maximum
Long-Term Capital Appreciation Through a Value-Oriented
Investment Approach
SCUDDER SMALL COMPANY VALUE FUND
A Series of Scudder Securities Trust
A Diversified Mutual Fund Which Invests for
Long-Term Growth of Capital by Seeking out Undervalued
Stocks of Small U.S. Companies
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
October 1, 2000
--------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus, and
should be read in conjunction with the combined prospectus of Scudder Small
Company Value Fund and Scudder Large Company Value Fund dated October 1, 2000,
as amended from time to time, a copy of which may be obtained without charge by
writing to Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103.
The Annual Report to Shareholders of each Fund dated July 31, 2000 is
incorporated by reference and is hereby deemed to be part of this Statement of
Additional Information. This may also be obtained without charge by calling
1-800-SCUDDER.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES.........................................................................1
General Investment Objective and Policies....................................................................1
General Investment Objective and Policies of
Scudder Large Company Value Fund.............................................................................2
Master/feeder structure......................................................................................3
Investments and Investment Techniques........................................................................4
Investment Restrictions.....................................................................................17
PURCHASES............................................................................................................18
Additional Information About Opening An Account.............................................................18
Minimum balances............................................................................................19
Additional Information About Making Subsequent
Investments.................................................................................................19
Additional Information About Making Subsequent
Investments by QuickBuy.....................................................................................19
Checks......................................................................................................20
Wire Transfer of Federal Funds..............................................................................21
Share Price.................................................................................................21
Share Certificates..........................................................................................21
Other Information...........................................................................................21
EXCHANGES AND REDEMPTIONS............................................................................................22
Exchanges...................................................................................................22
Special Redemption and Exchange Information.................................................................23
Redemption by Telephone.....................................................................................23
Redemption by QuickSell.....................................................................................24
Redemption by Mail or Fax...................................................................................24
Redemption-In-Kind..........................................................................................25
Other Information...........................................................................................25
FEATURES AND SERVICES OFFERED BY THE FUNDS...........................................................................25
The No-Load Concept.........................................................................................25
Internet access.............................................................................................26
Dividends and Capital Gains Distribution Options............................................................26
Reports to Shareholders.....................................................................................27
Transaction Summaries.......................................................................................27
THE SCUDDER FAMILY OF FUNDS..........................................................................................27
SPECIAL PLAN ACCOUNTS................................................................................................29
Scudder Retirement Plans: Profit-Sharing and
Money Purchase Pension Plans for Corporations and Self-Employed Individuals...............................29
Scudder 401(k): Cash or Deferred Profit-Sharing
Plan for Corporations and Self-Employed
Individuals.................................................................................................30
Scudder IRA: Individual Retirement Account.................................................................30
Scudder Roth IRA: Individual Retirement Account............................................................30
Scudder 403(b) Plan.........................................................................................31
Group or Salary Deduction Plan..............................................................................31
Uniform Transfers/Gifts to Minors Act.......................................................................32
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS............................................................................34
PERFORMANCE INFORMATION..............................................................................................34
Average Annual Total Return.................................................................................35
Cumulative Total Return.....................................................................................35
Total Return................................................................................................36
Comparison of Fund Performance..............................................................................36
INVESTMENT ADVISER...................................................................................................40
AMA InvestmentLink(SM) Program..............................................................................43
Personal Investments by Employees of the Adviser............................................................44
i
<PAGE>
TABLE OF CONTENTS (continued)
Page
TRUSTEES AND OFFICERS................................................................................................44
REMUNERATION.........................................................................................................44
Responsibilities of the Board -- Board and Committee Meetings...............................................44
Compensation of Officers and Trustees.......................................................................45
DISTRIBUTOR..........................................................................................................47
TAXES ............................................................................................................48
PORTFOLIO TRANSACTIONS...............................................................................................52
Brokerage Commissions.......................................................................................52
Portfolio Turnover..........................................................................................53
NET ASSET VALUE......................................................................................................53
ADDITIONAL INFORMATION...............................................................................................54
Experts.....................................................................................................54
Shareholder Indemnification.................................................................................55
Other Information...........................................................................................55
Other Information for Small Company Value Fund..............................................................55
Other Information for Large Company Value Fund..............................................................56
FINANCIAL STATEMENTS.................................................................................................57
</TABLE>
ii
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
The combined prospectus and this Statement of Additional Information
for Scudder Small Company Value Fund and for Scudder Large Company Value Fund
each offer two classes of shares to provide investors with different purchase
options. The two classes are: the Class S and the Class AARP. Each class has its
own important features and policies. On October 2, 2000, shares of Scudder Small
Company Value Fund and Scudder Large Company Value Fund were redesignated Class
S shares of their respective funds. Shares of the AARP class are specially
designed for members of the American Association of Retired Persons ("AARP").
Scudder Small Company Value Fund (the "Small Company Value Fund") is a
diversified series of Scudder Securities Trust. Scudder Large Company Value Fund
(the "Large Company Value Fund"), is a diversified series of Value Equity Trust
(together, the "Trusts"). Each is an open-end management company which
continuously offers and redeems shares at net asset value. Each is a company of
the type commonly known as a mutual fund.
Descriptions in this Statement of Additional Information of a
particular investment practice or technique in which a Fund may engage (such as
hedging, etc.) or a financial instrument which a Fund may purchase (such as
options, forward foreign currency contracts, etc.) are meant to describe the
spectrum of investments that Scudder Kemper Investments, Inc. ("the Adviser"),
in its discretion, might, but is not required to, use in managing each Fund's
portfolio assets. The Adviser may, in its discretion, at any time employ such
practice, technique or instrument for one or more funds but not for all funds
advised by it. Furthermore, it is possible that certain types of financial
instruments or investment techniques described herein may not be available,
permissible, economically feasible or effective for their intended purposes in
all markets. Certain practices, techniques, or instruments may not be principal
activities of a Fund, but, to the extent employed, could from time to time have
a material impact on a Fund's performance.
Except as otherwise indicated, each 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 either
Fund's objective will be met.
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.
General Investment Objective and Policies
Scudder Small Company Value Fund invests for long-term growth of
capital by seeking out undervalued stocks of small U.S. companies. The Adviser
uses a systematic, proprietary investment approach to identify small, domestic
companies that, in the opinion of the Adviser, are selling at prices that do not
reflect adequately their long-term business potential. These companies are often
out of favor or not closely followed by investors and, as a result, may offer
substantial appreciation potential over time.
Small Company Value Fund is expected to provide little, if any, current
income and is designed for the aggressive portion of an investor's portfolio.
Although the Fund typically holds a large number of securities identified
through a quantitative, value-driven investment strategy, it does entail
above-average investment risk in comparison to larger stocks. Shares of the Fund
should be purchased with a long-term horizon in mind. To encourage long-term
investment, a 1% redemption exchange fee, described more fully below, is payable
to the Fund for the benefit of remaining shareholders on shares held less than
one year.
Investments. In pursuit of long-term growth of capital, the Fund invests, under
normal circumstances, at least 90% of its assets in the common stock of small
U.S. companies. Small Company Value Fund will invest in securities of companies
that are similar in size to those in the Russell 2000(R) Index of small stocks.
The Fund will sell securities of companies that have grown in market
capitalization above the maximum of the Russell 2000 Index, as necessary to keep
the Fund focused on smaller companies.
<PAGE>
Small Company Value Fund takes a diversified approach to investing in
small capitalization issues. The Fund will typically invest in more than one
hundred and fifty small companies, representing a variety of U.S. industries.
While the Fund invests predominantly in common stocks, it can purchase
other types of equity securities including preferred stocks (convertible
securities), rights, warrants, and restricted and illiquid securities.
Securities may be listed on national exchanges or traded over-the-counter. The
Fund also may invest up to 20% of its total assets in U.S. Treasury, agency and
instrumentality obligations on a temporary basis, may enter into repurchase
agreements and reverse repurchase agreements and may engage in strategic
transactions, using such derivatives contracts as index options and futures, to
increase stock market participation, enhance liquidity and manage transaction
costs. The Fund currently intends to borrow only for temporary or emergency
purposes, such as providing for redemptions or distributions, and not for
investment leverage purposes.
For temporary defensive purposes, Small Company Value Fund may invest
without limit in cash and cash equivalents when the Adviser deems such a
position advisable in light of economic or market conditions. It is impossible
to accurately predict how long such alternate strategies may be utilized. In
such cases, the Fund may hold without limit, cash, high grade debt securities,
without equity features, which are rated Aaa, A or A by Moody's Investors
Service, Inc. ("Moody's") or AAA, AA or A by Standard & Poor's Ratings Service,
a division of The McGraw-Hill Companies, Inc. ("S&P"), or, if unrated, are
deemed by the Adviser to be of equivalent quality, and may invest in U.S.
Government securities and money market instruments which are rated in the two
highest categories by Moody's or S&P, or if unrated, are deemed by the Adviser
to be of equivalent quality. The Fund may borrow money for temporary, emergency,
or other purposes, including investment leverage purposes, as determined by the
Trustees. Small Company Value Fund may also borrow under reverse repurchase
agreements. The Investment Company Act of 1940, as amended (the "1940 Act")
requires borrowings to have 300% asset coverage.
General Investment Objective and Policies of Scudder Large
Company Value Fund
Large Company Value Fund seeks maximum long-term capital appreciation
through a value-oriented investment approach. The Fund seeks to achieve its
objective by investing: (i) in marketable securities, principally common stocks;
(ii) up to 20% of its assets in debt securities where capital appreciation from
debt securities is expected to exceed the capital appreciation available from
common stocks; and (iii) for temporary defensive purposes, during periods when
market or economic conditions may warrant, in debt securities, short-term
indebtedness, cash and cash equivalents. Because this defensive policy differs
from the Fund's investment objective, the Fund may not achieve its goal during a
defensive period. The Fund may also invest in preferred stocks consistent with
its objective. Additionally, the Fund may invest in debt securities, repurchase
agreements and reverse repurchase agreements, convertible securities, rights,
warrants, illiquid securities, investment company securities, and may engage in
strategic transactions and derivatives.
Large Company Value Fund uses a value-based investment approach to
pursue a range of investment opportunities, principally among larger,
established U.S. companies. Given this approach, the Fund may be appropriate as
a core investment holding for retirement or other long-term goals.
In seeking capital appreciation, Large Company Value Fund looks for
companies whose securities appear to present a favorable relationship between
market price and opportunity. These may include securities of companies whose
fundamentals or products may be of only average promise.
Market misconceptions, temporary bad news, and other factors may cause
a security to be out of favor in the stock market and to trade at a price below
its potential value. Accordingly, the prices of such securities can rise either
as a result of improved business fundamentals, particularly when earnings grow
faster than general expectations, or as more investors come to recognize the
full extent of a company's underlying potential. These "undervalued" securities
can provide the opportunity for above-average market performance.
Investments in common stocks have a wide range of characteristics, and
the management of Large Company Value 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
2
<PAGE>
industry. However, the Fund reserves the right to invest up to, but less than,
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.
Large Company Value Fund will normally invest at least 65% of its net
assets in the equity securities of large U.S. companies, i.e. those with $1
billion or more in total market capitalization. The Fund's investment
flexibility enables it to pursue investment value in all sectors of the stock
market, including:
o companies that generate or apply new technologies, new and improved
distribution techniques or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
o companies that own or develop natural resources, such as energy
exploration companies;
o companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunications companies;
o foreign companies, including those in countries with more rapid
economic growth than the U.S; and
o companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
Large Company Value 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 or AAA, AA, A or
BBB by S & P or, if unrated, of equivalent quality as determined by the Fund's
investment adviser, Moody's considers bonds it rates Baa to have speculative
elements as well as investment-grade characteristics.
Large Company Value 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.")
Large Company Value Fund is limited to 5% of net assets for initial
margin and premium amounts on futures positions considered speculative by the
Commodities Futures Trading Commission.
Large Company Value 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.
Master/feeder structure
The Trustees of each Fund have 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.
3
<PAGE>
Investments and Investment Techniques
Value Investment Approach. Small Company Value Fund is actively managed using a
disciplined, value-oriented investment management approach. The Adviser uses a
proprietary, computerized model to identify for investment small public U.S.
companies selling at prices that, in the opinion of the Adviser, do not reflect
adequately their long-term business potential. Companies purchased for the Fund
typically have attractive valuations relative to the Russell 2000 Index -- a
widely used benchmark of small stock performance-- based on measures such as
price to earnings, price to book value and price to cash flow ratios.
The Fund's holdings are often out of favor or simply overlooked by
investors. Accordingly, their prices can rise either as a result of improved
business fundamentals, particularly when earnings grow faster than general
expectations, or as more investors come to recognize the full extent of a
company's underlying potential.
While theFund involves above-average equity risk, the Fund's
value-oriented, systematic approach to investing is designed to mitigate
volatility of the Fund's share price relative to the small capitalization sector
of the U.S. stock market. This risk is further managed by purchasing a large
number of stocks, and employing specialized portfolio management techniques,
such as portfolio optimization.The Fund focuses specifically on finding
undervalued stocks of small U.S. companies. Historically, small companies have
been attractive because they have been sources of new technologies and services,
have competed with large companies on the basis of lower labor costs and have
grown faster than larger firms. Their small size has also allowed them to
respond rapidly to changing business conditions. In addition, small companies
have not been closely followed by as many securities analysts as larger
companies, so they have rewarded some investors with the patience and knowledge
to have sought them out.
Investments Involving Above-Average Risk. Small Company Value Fund may purchase
securities carrying above-average risk relative to larger cap stocks or fixed
income investments. The Fund's shares are suitable only for those investors who
can make such investments without concern for current income and who are in a
financial position to assume above-average stock market risks in search of
long-term rewards.
Small companies may have limited product lines, markets or financial
resources; may lack management depth or experience; and may be more vulnerable
to adverse general market or economic developments than large companies. The
prices of small company securities are often more volatile than prices
associated with large company issues, and can display abrupt or erratic
movements at times, due to limited trading volumes and less publicly available
information. To help reduce risk, the Fund allocates its investments among many
companies and different industries.
The securities of small companies are often traded only
over-the-counter and may not be traded in the volume typical of larger companies
trading on a national securities exchange. As a result, the disposition by the
Fund of holdings of such securities may require the Fund to offer a discount
from recent prices or dispose of the securities over a lengthy period of time.
The prices of this type of security may be more volatile than those of larger
companies which are often traded on a national securities exchange.
Common stocks. Under normal circumstances, each Fund invests primarily in common
stocks. Common stock is issued by companies to raise cash for business purposes
and represents a proportionate interest in the issuing companies. Therefore,
each 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 a greater potential
for gain on investment, compared to other classes of financial assets such as
bonds or cash equivalents.
Convertible Securities. Each Fund may invest in convertible securities; that is,
bonds, notes, debentures, preferred stocks, and other securities which are
convertible into common stocks.
The convertible securities in which the Funds may invest may be
converted or exchanged at a stated or determinable exchange ratio into
underlying shares of common stock. The exchange ratio for any particular
convertible
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security may be adjusted from time to time due to stock splits, dividends,
spin-offs, other corporate distributions, or scheduled changes in the exchange
ratio. Convertible debt securities and convertible preferred stocks, until
converted, have general characteristics similar to both debt and equity
securities. Although to a lesser extent than with debt securities generally, the
market value of convertible securities tends to decline as interest rates
increase and, conversely, tends to increase as interest rates decline. In
addition, because of the conversion or exchange feature, the market value of
convertible securities typically changes as the market value of the underlying
common stocks changes, and, therefore, also tends to follow movements in the
general market for equity securities. A unique feature of convertible securities
is that as the market price of the underlying common stock declines, convertible
securities tend to trade increasingly on a yield basis and so may not experience
market value declines to the same extent as the underlying common stock. When
the market price of the underlying common stock increases, the prices of the
convertible securities tend to rise as a reflection of the value of the
underlying common stock, although typically not as much as the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
As debt securities, convertible securities are investments which
provide for a stream of income (or in the case of zero coupon securities,
accretion of income) with generally higher yields than common stocks. Of course,
like all debt securities, there can be no assurance of income or principal
payments because the issuers of the convertible securities may default on their
obligations. Convertible securities generally offer lower yields than
nonconvertible securities of similar quality because of their conversion or
exchange features.
Convertible securities generally are subordinated to other similar but
non-convertible securities of the same issuer, although convertible bonds, as
corporate debt obligations, enjoy seniority in right of payment to all equity
securities, and convertible preferred stock is senior to common stock, of the
same issuer. However, because of the 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.
Real Estate Investment Trusts ("REITs"). Scudder Large Company Value Fund may
invest in REITs. REITs are sometimes informally characterized as equity REITs,
mortgage REITs and hybrid REITs. Investment in REITs may subject the Fund to
risks associated with the direct ownership of real estate, such as decreases in
real estate values, overbuilding, increased competition and other risks related
to local or general economic conditions, increases in operating costs and
property taxes, changes in zoning laws, casualty or condemnation losses,
possible environmental liabilities, regulatory limitations on rent and
fluctuations in rental income. Equity REITs generally experience these risks
directly through fee or leasehold interests, whereas mortgage REITs generally
experience these risks indirectly through mortgage interests, unless the
mortgage REIT forecloses on the underlying real estate. Changes in interest
rates may also affect the value of the Fund's investment in REITs. For instance,
during periods of declining interest rates, certain mortgage REITs may hold
mortgages that the mortgagors elect to prepay, which prepayment may diminish the
yield on securities issued by those REITs.
Certain REITs have relatively small market capitalizations, which may
tend to increase the volatility of the market price of their securities.
Furthermore, REITs are dependent upon specialized management skills, have
limited diversification and are, therefore, subject to risks inherent in
operating and financing a limited number of projects. REITs are also subject to
heavy cash flow dependency, defaults by borrowers and the possibility of failing
to qualify for tax-free pass-through of income under the Internal Revenue Code
of 1986, as amended, and to maintain exemption from the registration
requirements of the 1940 Act. By investing in REITs indirectly through the Fund,
a shareholder will bear not only his or her proportionate share of the expenses
of the Fund's, but also, indirectly, similar expenses of the REITs. In addition,
REITs depend generally on their ability to generate cash flow to make
distributions to shareholders.
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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" or "not readily
marketable," i.e., securities which cannot be sold to the public without
registration under the Securities Act of 1933 or the availability of an
exemption from registration (such as Rules 144 or 144A) or because they are
subject to other legal or contractual delays in or restrictions on resale.
Generally speaking, restricted securities may be sold only to qualified
institutional buyers, or in a privately negotiated transaction to a limited
number of purchasers, or in limited quantities after they have been held for a
specified period of time and other conditions are met pursuant to an exemption
from registration, or in a public offering for which a registration statement is
in effect under the Securities Act of 1933. Each Fund may be deemed to be an
"underwriter" for purposes of the Securities Act of 1933 when selling restricted
securities to the public, and in such event the Fund may be liable to purchasers
of such securities if such sale is made in violation of the 1933 Act or if the
registration statement prepared by the issuer, or the prospectus forming a part
of it, is materially inaccurate or misleading.
The Adviser will monitor the liquidity of such restricted securities
subject to the supervision of the Board of Trustees. In reaching liquidity
decisions, the Adviser will consider the following factors: (1) the frequency of
trades and quotes for the security, (2) the number of dealers wishing to
purchase or sell the security and the number of their potential purchasers, (3)
dealer undertakings to make a market in the security; and (4) the nature of the
security and the nature of the marketplace trades (i.e. the time needed to
dispose of the security, the method of soliciting offers and the mechanics of
the transfer). Neither Fund will invest more than 15% of total assets in
illiquid securities.
Repurchase Agreements. Each 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
purchaser (i.e., the Fund) acquires a security ("Obligation") and the seller
agrees, at the time of sale, to repurchase the Obligation at a specified time
and price. Securities subject to a repurchase agreement are held in a segregated
account and the value of such securities kept at least equal to the repurchase
price on a daily basis. The repurchase price may be higher than the purchase
price, the difference being income to the Fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Fund together
with the repurchase price upon repurchase. In either case, the income to the
Fund is unrelated to the interest rate on the Obligation itself. Obligations
will be physically held by the Custodian or in the Federal Reserve Book Entry
System.
For purposes of the 1940 Act, a repurchase agreement is deemed to be a
loan from the Fund to the seller of the Obligation subject to the repurchase
agreement and is therefore subject to the Fund's investment restriction
applicable to loans. It is not clear whether a court would consider the
Obligation purchased by the Fund subject to a repurchase agreement as being
owned by the Fund or as being collateral for a loan by the Fund to the seller.
In the event of the commencement of bankruptcy or insolvency proceedings with
respect to the seller of the Obligation before repurchase of the Obligation
under a repurchase agreement, the Fund may encounter delay and incur costs
before being able to sell the security. Delays may involve loss of interest or
decline in price of the Obligation. If the court characterizes the transaction
as a loan and the Fund has not perfected a security interest in the Obligation,
the Fund may be required to return the Obligation to the seller's estate and be
treated as an unsecured creditor of the seller. As an unsecured creditor, the
Fund would be at risk of losing some or all of the principal and income involved
in the transaction. As with any unsecured debt obligation purchased for the
Fund, the Adviser seeks to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligation. Apart from the risk of bankruptcy or insolvency
proceedings, there is also the risk that the seller may fail to repurchase the
security. However, if the market value of the Obligation subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Fund will direct the seller of the Obligation to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price. It is possible
that a Fund will be unsuccessful in seeking to impose on the seller a
contractual obligation to deliver additional securities.
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Warrants. Each Fund may invest in warrants up to 5% of the value of total
assets. The holder of a warrant has the right, until the warrant expires, to
purchase a given number of shares of a particular issuer at a specified price.
Such investments can provide a greater potential for profit or loss than an
equivalent investment in the underlying security. Prices of warrants do not
necessarily move, however, in tandem with the prices of the underlying
securities and are, therefore, considered to be speculative investments.
Warrants pay no dividends and confer no rights other than a purchase option.
Thus, if a warrant held by the Fund were not exercised by the date of its
expiration, the Fund would lose the entire purchase price of the warrant.
Reverse Repurchase Agreements. Each Fund may enter into "reverse repurchase
agreements," which are repurchase agreements in which the Fund, as the seller of
the securities, agrees to repurchase them at an agreed upon time and price. Each
Fund maintains a segregated account in connection with outstanding reverse
repurchase agreements. Each Fund will enter into reverse repurchase agreements
only when the Adviser believes that the interest income to be earned from the
investment of the proceeds of the transaction will be greater than the interest
expense of the transaction. Such transactions may increase fluctuations in the
market value of a Fund's assets and may be viewed as a form of leverage.
Lending of Portfolio Securities. Each Fund may seek to increase its income by
lending portfolio securities. Such loans may be made to registered
broker/dealers and are required to be secured continuously by collateral in
cash, U.S. Government Securities and liquid high grade debt obligations
maintained on a current basis at an amount at least equal to the market value
and accrued interest of the securities loaned. Each Fund has the right to call a
loan and obtain the securities loaned on no more than five days' notice. During
the existence of a loan, the Fund will continue to receive the equivalent of any
distributions paid by the issuer on the securities loaned and will also receive
compensation based on investment of the collateral. As with other extensions of
credit there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans will be made only to firms deemed by the Adviser to be in good standing.
The value of the securities loaned will not exceed 5% of the value of the Fund's
total assets at the time any loan is made.
Borrowing. As a matter of fundamental policy, each 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 for a Fund fund to borrow for investment
leveraging 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.
Investment Company Securities. Each Fund may acquire securities of other
investment companies to the extent consistent with its investment objective and
subject to the limitations of the 1940 Act. Each Fund will indirectly bear its
proportionate share of any management fees and other expenses paid by such other
investment companies.
For example, a Fund may invest in a variety of investment companies which seek
to track the composition and performance of specific indexes or a specific
portion of an index. These index-based investments hold substantially all of
their assets in securities representing their specific index. Accordingly, the
main risk of investing in index-based investments is the same as investing in a
portfolio of equity securities comprising the index. The market prices of
index-based investments will fluctuate in accordance with both changes in the
market value of their underlying portfolio securities and due to supply and
demand for the instruments on the exchanges on which they are traded (which may
result in their trading at a discount or premium to their NAVs). Index-based
investments may not replicate exactly the performance of their specified index
because of transaction costs and because of the temporary unavailability of
certain component securities of the index.
Examples of index-based investments include:
SPDRs(R): SPDRs, an acronym for "Standard & Poor's Depositary Receipts," are
based on the S&P 500 Composite Stock Price Index. They are issued by the SPDR
Trust, a unit investment trust that holds shares of substantially all
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the companies in the S&P 500 in substantially the same weighting and seeks to
closely track the price performance and dividend yield of the Index.
MidCap SPDRs(R): MidCap SPDRs are based on the S&P MidCap 400 Index. They are
issued by the MidCap SPDR Trust, a unit investment trust that holds a portfolio
of securities consisting of substantially all of the common stocks in the S&P
MidCap 400 Index in substantially the same weighting and seeks to closely track
the price performance and dividend yield of the Index.
Select Sector SPDRs(R): Select Sector SPDRs are based on a particular sector or
group of industries that are represented by a specified Select Sector Index
within the Standard & Poor's Composite Stock Price Index. They are issued by The
Select Sector SPDR Trust, an open-end management investment company with nine
portfolios that each seeks to closely track the price performance and dividend
yield of a particular Select Sector Index.
DIAMONDS(SM): DIAMONDS are based on the Dow Jones Industrial AverageSM. They are
issued by the DIAMONDS Trust, a unit investment trust that holds a portfolio of
all the component common stocks of the Dow Jones Industrial Average and seeks to
closely track the price performance and dividend yield of the Dow.
Nasdaq-100 Shares: Nasdaq-100 Shares are based on the Nasdaq 100 Index. They are
issued by the Nasdaq-100 Trust, a unit investment trust that holds a portfolio
consisting of substantially all of the securities, in substantially the same
weighting, as the component stocks of the Nasdaq-100 Index and seeks to closely
track the price performance and dividend yield of the Index.
WEBs(SM): WEBs, an acronym for "World Equity Benchmark Shares," are based on 17
country-specific Morgan Stanley Capital International Indexes. They are issued
by the WEBs Index Fund, Inc., an open-end management investment company that
seeks to generally correspond to the price and yield performance of a specific
Morgan Stanley Capital International Index.
Foreign Securities. Investors should recognize that investing in foreign
securities involves certain special considerations, including those set forth
below, which are not typically associated with investing in U.S. securities and
which may favorably or unfavorably affect a 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, Inc. (the "Exchange"), and
securities of some foreign companies are less liquid and more volatile than
securities of domestic companies. Similarly, volume and liquidity in most
foreign bond markets is less than in the U.S. and at times, volatility of price
can be greater than in the U.S. Further, foreign markets have different
clearance and settlement procedures and in certain markets there have been times
when settlements have been unable to keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. Delays in
settlement could result in temporary periods when assets of the Fund are
uninvested and no return is earned thereon. The inability of the Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of portfolio
securities due to settlement problems either could result in losses to the Fund
due to subsequent declines in value of the portfolio security or, if the Fund
has entered into a contract to sell the security, could result in a possible
liability to the purchaser. Payment for securities without delivery may be
required in certain foreign markets. Fixed commissions on some foreign stock
exchanges are generally higher than negotiated commissions on U.S. exchanges,
although the Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. Further, the Fund may encounter difficulties or be
unable to pursue legal remedies and obtain judgments in foreign courts. There is
generally less government supervision and regulation of business and industry
practices, stock exchanges, brokers and listed companies than in the U.S. It may
be more difficult for the Fund's agents to keep currently informed about
corporate actions such as stock dividends or other matters which may affect the
prices of portfolio securities. Communications between the U.S. and foreign
countries may be less reliable than within the U.S., thus increasing the risk of
delayed settlements of portfolio transactions or loss of certificates for
portfolio securities. In addition, with respect to certain foreign countries,
there is the possibility of expropriation or confiscatory taxation, political or
social instability, or diplomatic developments which could affect U.S.
investments in those countries. 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. The management of the Fund
seeks to mitigate the risks associated with the foregoing considerations through
diversification and continuous professional management.
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Because investments in foreign securities will usually involve
currencies of foreign countries, and because the Funds may hold foreign
currencies and forward foreign currency exchange contracts ("forward
contracts"), futures contracts and options on futures contracts on foreign
currencies, the value of the assets of the Fund as measured in U.S. dollars may
be affected favorably or unfavorably by changes in foreign currency exchange
rates and exchange control regulations, and the Fund may incur costs in
connection with conversions between various currencies. Although the Fund values
its assets daily in terms of U.S. dollars, it does not intend to convert its
holdings of foreign currencies into U.S. dollars on a daily basis. It will do so
from time to time, and investors should be aware of the costs of currency
conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to resell that
currency to the dealer. Each Fund will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into forward contracts
(or options thereon) to purchase or sell foreign currencies. (See "Strategic
Transactions and Derivatives" below.)
Debt Securities. When the Adviser believes that it is appropriate to do so in
order to achieve the Large Company Value Fund's objective of long-term capital
appreciation, the Fund may invest in debt securities, including bonds of private
issuers. Portfolio debt investments will be selected on the basis of, among
other things, credit quality, and the fundamental outlooks for currency,
economic and interest rate trends, taking into account the ability to hedge a
degree of currency or local bond price risk. The Fund may purchase
"investment-grade" bonds, rated Aaa, Aa, A or Baa by Moody's or AAA, AA, A or
BBB by S&P or, if unrated, judged to be of equivalent quality as determined by
the Adviser.
The principal risks involved with investments in bonds include interest
rate risk, credit risk and pre-payment risk. Interest rate risk refers to the
likely decline in the value of bonds as interest rates rise. Generally,
longer-term securities are more susceptible to changes in value as a result of
interest-rate changes than are shorter-term securities. Credit risk refers to
the risk that an issuer of a bond may default with respect to the payment of
principal and interest. The lower a bond is rated, the more it is considered to
be a speculative or risky investment. Pre-payment risk is commonly associated
with pooled debt securities, such as mortgage-backed securities and asset backed
securities, but may affect other debt securities as well. When the underlying
debt obligations are prepaid ahead of schedule, the return on the security will
be lower than expected. Pre-payment rates usually increase when interest rates
are falling.
High Yield, High Risk Securities. For Large Company Value Fund: 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.
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
Fund. 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.
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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."
Zero Coupon Securities. The Large Company Value Fund may invest in zero coupon
securities, which pay no cash income and are sold at substantial discounts from
their value at maturity. When held to maturity, their entire income, which
consists of accretion of discount, comes from the difference between the issue
price and their value at maturity. Zero coupon securities are subject to greater
market value fluctuations from changing interest rates than debt obligations of
comparable maturities which make current distributions of interest (cash). Zero
coupon convertible securities offer the opportunity for capital appreciation as
increases (or decreases) in market value of such securities closely follow the
movements in the market value of the underlying common stock. Zero coupon
convertible securities generally are expected to be less volatile than the
underlying common stocks as they usually are issued with short maturities (15
years or less) and are issued with options and/or redemption features
exercisable by the holder of the obligation entitling the holder to redeem the
obligation and receive a defined cash payment.
Zero coupon securities include securities issued directly by the U.S.
Treasury, and U.S. Treasury bonds or notes and their unmatured interest coupons
and receipts for their underlying principal ("coupons") which have been
separated by their holder, typically a custodian bank or investment brokerage
firm. A holder will separate the interest coupons from the underlying principal
(the "corpus") of the U.S. Treasury security. A number of securities firms and
banks have stripped the interest coupons and receipts and then resold them in
custodial receipt programs with a number of different names, including "Treasury
Income Growth Receipts" ("TIGRS") and Certificate of Accrual on Treasuries
("CATS"). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities has stated that for federal tax and securities purposes, in
their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holders of the underlying U.S. Government
securities.
The Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program, as
established by the Treasury Department, is known as "STRIPS" or "Separate
Trading of Registered Interest and Principal of Securities." Under the STRIPS
program, the Fund will be able to have its beneficial ownership of zero coupon
securities recorded directly in the book-entry record-keeping system in lieu of
having to hold certificates or other evidences of ownership of the underlying
U.S. Treasury securities.
When U.S. Treasury obligations have been stripped of their unmatured
interest coupons by the holder, the principal or corpus is sold at a deep
discount because the buyer receives only the right to receive a future fixed
payment on the security and does not receive any rights to periodic interest
(cash) payments. Once stripped or separated, the corpus and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold in such bundled form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells.
(See "TAXES.")
Strategic Transactions and Derivatives. Each Fund may, but is not required to,
utilize various other investment strategies as described below for a variety of
purposes, such as hedging various market risks, managing the effective
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maturity or duration of fixed-income securities in each Fund's portfolio, or
enhancing potential gain. These strategies may be executed through the use of
derivative contracts.
In the course of pursuing these investment strategies, each Fund may
purchase and sell exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other instruments, purchase and
sell futures contracts and options thereon, enter into various transactions such
as swaps, caps, floors, collars, currency forward contracts, currency futures
contracts, currency swaps or options on currencies, or currency futures and
various other currency transactions (collectively, all the above are called
"Strategic Transactions"). In addition, strategic transactions may also include
new techniques, instruments or strategies that are permitted as regulatory
changes occur. Strategic Transactions may be used without limit (subject to
certain limitations imposed by the 1940 Act) 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 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. Each Fund will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. Strategic Transactions will not be used
to alter fundamental investment purposes and characteristics of the Fund, and
the Fund will segregate assets (or as provided by applicable regulations, enter
into certain offsetting positions) to cover its obligations under options,
futures and swaps to limit leveraging of the Fund.
Strategic Transactions, including derivative contracts, have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the Adviser's view as to certain
market movements is incorrect, the risk that the use of such Strategic
Transactions could result in losses greater than if they had not been used. Use
of put and call options may result in losses to the Fund, force the sale or
purchase of portfolio securities at inopportune times or for prices higher than
(in the case of put options) or lower than (in the case of call options) current
market values, limit the amount of appreciation the Fund can realize on its
investments or cause the Fund to hold a security it might otherwise sell. The
use of currency transactions can result in the Fund incurring losses as a result
of a number of factors including the imposition of exchange controls, suspension
of settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time they tend to limit
any potential gain which might result from an increase in value of such
position. Finally, the daily variation margin requirements for futures contracts
would create a greater ongoing potential financial risk than would purchases of
options, where the exposure is limited to the cost of the initial premium.
Losses resulting from the use of Strategic Transactions would reduce net asset
value, and possibly income, and such losses can be greater than if the Strategic
Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of Fund assets in special accounts, as described
below under "Use of Segregated and Other Special Accounts."
A put option gives the purchaser of the option, upon payment of a
premium, the right to sell, and the writer the obligation to buy, the underlying
security, commodity, index, currency or other instrument at the exercise price.
For instance, the Fund's purchase of a put option on a security might be
designed to protect its holdings in the underlying instrument (or, in some
cases, a similar instrument) against a substantial decline in the market value
by giving the Fund
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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. Each 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. 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.
Each Fund's ability to close out its position as a purchaser or seller
of an OCC or exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. Among the possible reasons for the absence of a
liquid option market on an exchange are: (i) insufficient trading interest in
certain options; (ii) restrictions on transactions imposed by an exchange; (iii)
trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities including
reaching daily price limits; (iv) interruption of the normal operations of the
OCC or an exchange; (v) inadequacy of the facilities of an exchange or OCC to
handle current trading volume; or (vi) a decision by one or more exchanges to
discontinue the trading of options (or a particular class or series of options),
in which event the relevant market for that option on that exchange would cease
to exist, although outstanding options on that exchange would generally continue
to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. Each
Fund will only sell OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the 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, 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
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securities "covering" the amount of the Fund's obligation pursuant to an OTC
option sold by it (the cost of the sell-back plus the in-the-money amount, if
any) are illiquid, and are subject to the Fund's limitation on investing no more
than 15% of its net assets in illiquid securities.
If the Fund sells a call option, the premium that it receives may serve
as a partial hedge, to the extent of the option premium, against a decrease in
the value of the underlying securities or instruments in its portfolio or will
increase the Fund's income. The sale of put options can also provide income.
Each Fund may purchase and sell call options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, foreign
sovereign debt, 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.
Each Fund may purchase and sell put options on securities including
U.S. Treasury and agency securities, mortgage-backed securities, foreign
sovereign debt, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments (whether or not it holds the
above securities in its portfolio), and on securities indices, currencies and
futures contracts other than futures on individual corporate debt and individual
equity securities. The Fund will not sell put options if, as a result, more than
50% of the Fund's assets would be required to be segregated to cover its
potential obligations under such put options other than those with respect to
futures and options thereon. In selling put options, there is a risk that the
Fund may be required to buy the underlying security at a disadvantageous price
above the market price.
General Characteristics of Futures. Each Fund may enter into 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, and for duration
management, risk management and return enhancement 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.
Each Fund's use of 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 for bona fide hedging, risk management (including duration management) or
other portfolio and return enhancement 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.
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 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.
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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 primarily in order to hedge, or manage the risk of the value of
portfolio holdings denominated in particular currencies against fluctuations in
relative value. Currency transactions include forward currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional difference among two or more currencies and operates similarly to an
interest rate swap, which is described below. The Fund may enter into currency
transactions with Counterparties which have received (or the guarantors of the
obligations which have received) a credit rating of A-1 or P-1 by S&P or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) are determined to be of equivalent credit quality by
the Adviser.
Each Fund's dealings in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps generally
will be limited to hedging involving either specific transactions or portfolio
positions except as described below. 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.
Each Fund generally 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 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
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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. 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 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, index and other swaps and the
purchase or sale of related caps, floors and collars. The Fund expects to enter
into these transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a later
date. The Fund 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 the Fund will
segregate assets (or enter into offsetting positions) to cover its obligations
under swaps, 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. 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
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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 assets at least equal to
the current amount of the obligation must be segregated with the custodian. The
segregated assets cannot be sold or transferred unless equivalent assets are
substituted in their place or it is no longer necessary to segregate them. For
example, a call option written by the Fund will require the Fund to hold the
securities subject to the call (or securities convertible into the needed
securities without additional consideration) or to segregate cash or liquid
assets sufficient to purchase and deliver the securities if the call is
exercised. A call option sold by the Fund on an index will require the Fund to
own portfolio securities which correlate with the index or to segregate cash or
liquid assets equal to the excess of the index value over the exercise price on
a current basis. A put option written by the Fund requires the Fund to segregate
cash or liquid assets equal to the exercise price.
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 assets 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 cash or liquid
assets equal to its accrued net obligations, as there is no requirement for
payment or delivery of amounts in excess of the net amount. These amounts will
equal 100% of the exercise price in the case of a non cash-settled put, the same
as an OCC guaranteed listed option sold by the Fund, or the in-the-money amount
plus any sell-back formula amount in the case of a cash-settled put or call. In
addition, when the Fund sells a call option on an index at a time when the
in-the-money amount exceeds the exercise price, the Fund will segregate, until
the option expires or is closed out, cash or cash equivalents equal in value to
such excess. OCC issued and exchange listed options sold by the Fund other than
those above generally settle with physical delivery, or with an election of
either physical delivery or cash settlement and the Fund will segregate an
amount of cash or liquid assets equal to the full value of the option. OTC
options settling with physical delivery, or with an election of either physical
delivery or cash settlement will be treated the same as other options settling
with physical delivery.
In the case of a futures contract or an option thereon, the Fund must
deposit initial margin and possible daily variation margin in addition to
segregating cash or liquid assets sufficient to meet its obligation to purchase
or provide securities or currencies, or to pay the amount owed at the expiration
of an index-based futures contract. Such liquid assets may consist of cash, cash
equivalents, liquid debt or equity securities or other acceptable assets.
With respect to swaps, the Fund will accrue the net amount of the
excess, if any, of its obligations over its entitlements with respect to each
swap on a daily basis and will segregate an amount of cash or liquid assets
having a value equal to the accrued excess. Caps, floors and collars require
segregation of assets with a value equal to the Fund's net obligation, if any.
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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, the Fund could purchase a put option if the strike
price of that option is the same or higher than the strike price of a put option
sold by the Fund. Moreover, instead of segregating cash or liquid assets if the
Fund held a futures or forward contract, it could purchase a put option on the
same futures or forward contract with a strike price as high or higher than the
price of the contract held. Other Strategic Transactions may also be offset in
combinations. If the offsetting transaction terminates at the time of or after
the primary transaction no segregation is required, but if it terminates prior
to such time, cash or liquid assets equal to any remaining obligation would need
to be segregated.
Investment Restrictions
Unless specified to the contrary, the following fundamental
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of each Fund involved which, under the 1940 Act
and the rules thereunder and as used in this Statement of Additional
Information, means the lesser of (1) 67% or more of the voting securities
present at such meeting, if the holders of more than 50% of the outstanding
voting securities of a Fund are present or represented by proxy, or (2) more
than 50% of the outstanding voting securities of a Fund.
Any investment restrictions herein which involve a maximum percentage
of securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after and is caused by an acquisition or
encumbrance of securities or assets of, or borrowings by, a Fund. The Funds are
under no restriction as to the amount of portfolio securities which may be
bought or sold.
Each Fund has elected to be classified as a diversified series of an
open-end investment company. In addition, as a matter of fundamental policy,
each Fund will not:
(1) borrow money, except as permitted under the 1940 Act, as amended, and
as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
(2) issue senior securities, except as permitted under the 1940 Act, as
amended, and as interpreted or modified by regulatory authority having
jurisdiction, from time to time;
(3) concentrate its investments in a particular industry, as that term is
used in the 1940 Act, as amended, and as interpreted or modified by
regulatory authority having jurisdiction, from time to time;
(4) engage in the business of underwriting securities issued by others,
except to the extent that the Fund may be deemed to be an underwriter
in connection with the disposition of portfolio securities;
(5) purchase or sell real estate, which term does not include securities
of companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the Fund
reserves freedom of action to hold and to sell real estate acquired as
a result of the Fund's ownership of securities;
(6) purchase physical commodities or contracts related to physical
commodities; or
(7) make loans except as permitted under the 1940 Act, as amended, and as
interpreted or modified by regulatory authority having jurisdiction,
from time to time.
Other Investment Policies. The Trustees of each Trust have voluntarily adopted
policies and restrictions which are observed in the conduct of a 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 prior notice to or approval of
shareholders.
Nonfundamental policies may be changed by the Trustees of each Trust
and without shareholder approval. As a matter of nonfundamental policy, the
Funds do not currently intend to:
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(1) borrow money in an amount greater than 5% of its total assets, except
(i) for temporary or emergency purposes and (ii) by engaging in
reverse repurchase agreements, dollar rolls, or other investments or
transactions described in a Fund's registration statement which may be
deemed to be borrowings;
(2) enter into either of reverse repurchase agreements or dollar rolls in
an amount greater than 5% of its total assets;
(3) purchase securities on margin or make short sales, except (i) short
sales against the box, (ii) in connection with arbitrage transactions,
(iii) for margin deposits in connection with futures contracts,
options or other permitted investments, (iv) that transactions in
futures contracts and options shall not be deemed to constitute
selling securities short, and (v) that a Fund may obtain such
short-term credits as may be necessary for the clearance of securities
transactions;
(4) purchase options, unless the aggregate premiums paid on all such
options held by the Fund at any time do not exceed 20% of its total
assets; or sell put options, if as a result, the aggregate value of
the obligations underlying such put options would exceed 50% of its
total assets;
(5) enter into futures contracts or purchase options thereon unless
immediately after the purchase, the value of the aggregate initial
margin with respect to such futures contracts entered into on behalf
of the Fund and the premiums paid for such options on futures
contracts does not exceed 5% of the fair market value of the Fund's
total assets; provided that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be
excluded in computing the 5% limit;
(6) purchase warrants if as a result, such securities, taken at the lower
of cost or market value, would represent more than 5% of the value of
the Fund's total assets (for this purpose, warrants acquired in units
or attached to securities will be deemed to have no value); and
(7) lend portfolio securities in an amount greater than 5% of its total
assets.
PURCHASES
Additional Information About Opening An Account
Clients having a regular investment counsel account with the Adviser or
its affiliates and members of their immediate families, officers and employees
of the Adviser or of any affiliated organization and their immediate families,
members of the National Association of Securities Dealers, Inc. ("NASD") and
banks may, if they prefer, subscribe initially for at least $2,500 minimum for
Class S and $1,000 for Class AARP shares through Scudder Investor Services, Inc.
(the "Distributor") by letter, fax, TWX, or telephone.
Shareholders of other Scudder funds who have submitted an account application
and have a certified Tax Identification Number, clients having a regular
investment counsel account with the Adviser or its affiliates and members of
their immediate families, officers and employees of the Adviser or of any
affiliated organization and their immediate families, members of the NASD, and
banks may open an account by wire. These investors must call 1-800-225-5163 to
get an account number. During the call, the investor will be asked to indicate
the Fund name, amount to be wired ($2,500 minimum minimum for Class S and $1,000
for Class AARP), name of bank or trust company from which the wire will be sent,
the exact registration of the new account, the taxpayer identification or Social
Security number, address and telephone number. The investor must then call the
bank to arrange a wire transfer to The Scudder Funds, State Street Bank and
Trust Company, Boston, MA 02110, ABA Number 011000028, DDA Account Number:
9903-5552. The investor must give the Scudder fund name, account name and the
new account number. Finally, the investor must send the completed and signed
application to the Fund promptly. Investors interested in investing in the Class
AARP should call 800-253-2277 for further instructions.
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The minimum initial purchase amount is less than $2,500 under certain
special plan accounts.
Minimum balances
Shareholders should maintain a share balance worth at least $2,500 for
Class S and $1,000 for Class AARP ($1,000 for fiduciary accounts such as IRAs,
and custodial accounts such as Uniform Gift to Minor Act, and Uniform Trust to
Minor Act accounts), which amount may be changed by each Fund's Trustees. A
shareholder may open an account with at least $1,000 ($500 for
fiduciary/custodial accounts), if an automatic investment plan (AIP) of
$100/month ($50/month for fiduciary/custodial accounts) is established. Scudder
group retirement plans and certain other accounts have similar or lower minimum
share balance requirements.
Each Fund reserves the right, following 60 days' written notice to
applicable shareholders, to:
o assess an annual $10 per fund charge (with the fee to be paid to the
fund) for any non-fiduciary/non-custodial account without an automatic
investment plan (AIP) in place and a balance of less than $2,500; and
o redeem all shares in Fund accounts below $1,000 where a reduction in
value has occurred due to a redemption, exchange or transfer out of the
account. The Fund will mail the proceeds of the redeemed account to the
shareholder.
Reductions in value that result solely from market activity will not
trigger an involuntary redemption. Shareholders with a combined household
account balance in any of the Scudder Funds of $100,000 or more, as well as
group retirement and certain other accounts will not be subject to a fee or
automatic redemption.
Fiduciary (e.g., IRA or Roth IRA) and custodial accounts (e.g., UGMA or
UTMA) with balances below $100 are subject to automatic redemption following 60
days' written notice to applicable shareholders.
Additional Information About Making Subsequent Investments
Subsequent purchase orders for $10,000 or more and for an amount not
greater than four times the value of the shareholder's account may be placed by
telephone, fax, etc. by established shareholders (except by Scudder Individual
Retirement Account (IRA), Scudder Horizon Plan, Scudder Profit Sharing and Money
Purchase Pension Plans, Scudder 401(k) and Scudder 403(b) Plan holders), members
of the NASD, and banks. Orders placed in this manner may be directed to any
office of the Distributor listed in the Fund's prospectus. A confirmation of the
purchase will be mailed out promptly following receipt of a request to buy.
Federal regulations require that payment be received within three business days.
If payment is not received within that time, the order is subject to
cancellation. In the event of such cancellation or cancellation at the
purchaser's request, the purchaser will be responsible for any loss incurred by
the Fund or the principal underwriter by reason of such cancellation. If the
purchaser is a shareholder, the Trust shall have the authority, as agent of the
shareholder, to redeem shares in the account in order to reimburse the Fund or
the principal underwriter for the loss incurred. Net losses on such transactions
which are not recovered from the purchaser will be absorbed by the principal
underwriter. Any net profit on the liquidation of unpaid shares will accrue to
the Fund.
Additional Information About Making Subsequent Investments by QuickBuy
Shareholders whose predesignated bank account of record is a member of
the Automated Clearing House Network (ACH) and who have elected to participate
in the QuickBuy program, may purchase shares of a Fund by telephone. Through
this service shareholders may purchase up to $250,000. To purchase shares by
QuickBuy, shareholders should call before the close of regular trading on the
New York Stock Exchange (the "Exchange"), normally 4 p.m. eastern time. Proceeds
in the amount of your purchase will be transferred from your bank checking
account two or three business days following your call. For requests received by
the close of regular trading on the Exchange, shares will be purchased at the
net asset value per share calculated at the close of trading on the day of your
call. QuickBuy requests received after the close of regular trading on the
Exchange will begin their processing and be purchased at the net asset value
calculated the following business day. If you purchase shares by QuickBuy and
redeem them within seven days of the purchase, a Fund may hold the redemption
proceeds for a period of up to seven business
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days. If you purchase shares and there are insufficient funds in your bank
account the purchase will be canceled and you will be subject to any losses or
fees incurred in the transaction. QuickBuy transactions are not available for
most retirement plan accounts. However, QuickBuy transactions are available for
Scudder IRA accounts.
In order to request purchases by QuickBuy, shareholders must have
completed and returned to the Transfer Agent the application, including the
designation of a bank account from which the purchase payment will be debited.
New investors wishing to establish QuickBuy may so indicate on the application.
Existing shareholders who wish to add QuickBuy to their account may do so by
completing a QuickBuy Enrollment Form. After sending in an enrollment form
shareholders should allow 15 days for this service to be available.
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 Funds do not follow such procedures, they may be liable for losses due
to unauthorized or fraudulent telephone instructions. The Funds will not be
liable for acting upon instructions communicated by telephone that they
reasonably believe to be genuine.
Investors interested in making subsequent investments in the Class AARP
of a Fund should call 800-253-2277 for further instruction.
Checks
A certified check is not necessary, but checks are only accepted subject to
collection at full face value in U.S. funds and must be drawn on, or payable
through, a U.S. bank.
If shares of a Fund are purchased by a check which proves to be
uncollectible, each Trust reserves the right to cancel the purchase immediately
and the purchaser will be responsible for any loss incurred by the Trust or the
principal underwriter by reason of such cancellation. If the purchaser is a
shareholder, a Trust will have the authority, as agent of
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the shareholder, to redeem shares in the account in order to reimburse the Fund
or the principal underwriter for the loss incurred. Investors whose orders have
been canceled may be prohibited from, or restricted in, placing future orders in
any of the Scudder funds.
Wire Transfer of Federal Funds
To obtain the net asset value determined as of the close of regular
trading on the Exchange on a selected day, your bank must forward federal funds
by wire transfer and provide the required account information so as to be
available to the Fund prior to the close of regular trading on the Exchange
(normally 4 p.m. eastern time).
The bank sending an investor's federal funds by bank wire may charge
for the service. Presently, the Distributor pays a fee for receipt by State
Street Bank and Trust Company (the "Custodian") of "wired funds," but the right
to charge investors for this service is reserved.
Boston banks are closed on certain holidays although the Exchange may
be open. These holidays include Columbus Day (the 2nd Monday in October) and
Veterans Day (November 11). Investors are not able to purchase shares by wiring
federal funds on such holidays because the Custodian is not open to receive such
federal funds on behalf of the Fund.
Share Price
Purchases will be filled without sales charge at the net asset value
next computed after receipt of the application in good order. Net asset value
normally will be computed for each class as of the close of regular trading on
each day during which the Exchange is open for trading. Orders received after
the close of regular trading on the Exchange will receive the next business
day's net asset value. If the order has been placed by a member of the NASD,
other than the Distributor, it is the responsibility of that member broker,
rather than the Fund, to forward the purchase order to Scudder Service
Corporation (the "Transfer Agent") by the close of regular trading on the
Exchange.
Share Certificates
Due to the desire of the Trusts' management to afford ease of
redemption, certificates will not be issued to indicate ownership in the Fund.
Share certificates now in a shareholder's possession may be sent to the Transfer
Agent for cancellation and credit to such shareholder's account. Shareholders
who prefer may hold the certificates in their possession until they wish to
exchange or redeem such shares.
Other Information
Each Fund has 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 the Funds' behalf. Orders for purchase or redemption will be deemed to
have been received by the Fund when such brokers or their authorized designees
accept the orders. Subject to the terms of the contract between the Fund and the
broker, ordinarily orders will be priced at the Fund's net asset value next
computed after acceptance by such brokers or their authorized designees.
Further, if purchases or redemptions of the Funds' 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.
Each 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 the Funds at any time for any reason.
The Tax Identification Number section of the application must be
completed when opening an account. Applications and purchase orders without a
correct certified tax identification number and certain other certified
information (e.g. from exempt organizations, certification of exempt status)
will be returned to the investor. The Funds also reserve 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 a Fund with a tax identification number
during the 30-day notice period.
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Each Trust may issue shares at net asset value in connection with any
merger or consolidation with, or acquisition of the assets of, any investment
company or personal holding company, subject to the requirements of the 1940
Act.
EXCHANGES AND REDEMPTIONS
Exchanges
Exchanges are comprised of a redemption from one Scudder fund and a
purchase into another Scudder Fund. The purchase side of the exchange 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 for Class S and
$1,000 for Class AARP. 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.
Exchange orders received before the close of regular trading on the
Exchange on any business day ordinarily will be executed at the respective net
asset values determined on that day. Exchange orders received after the close of
regular trading on the Exchange will be executed on the following business day.
Investors may also request, at no extra charge, to have exchanges
automatically executed on a predetermined schedule from one Scudder Fund to an
existing account in another Scudder Fund, at current net asset value, through
Scudder's Automatic Exchange Program. Exchanges must be for a minimum of $50.
Shareholders may add this free feature over the telephone or in writing.
Automatic Exchanges will continue until the shareholder requests by telephone or
in writing to have the feature removed, or until the originating account is
depleted. The Trust and the Transfer Agent each reserves the right to suspend or
terminate the privilege of the Automatic Exchange Program at any time.
There is no charge to the shareholder for any exchange described above.
However, shares that are exchanged may be subject to the Fund's 1% redemption
fee. (See "Special Redemption and Exchange Information." An exchange into
another Scudder fund is a redemption of shares, and therefore may result in tax
consequences (gain or loss) to the shareholder, and the proceeds of such an
exchange may be subject to backup withholding. (See "TAXES.")
Investors currently receive the exchange privilege, including exchange
by telephone, automatically without having to elect it. The Trusts employ
procedures, including recording telephone calls, testing a caller's identity,
and sending written confirmation of telephone transactions, designed to give
reasonable assurance that instructions communicated by telephone are genuine,
and to discourage fraud. To the extent that a Trust does not follow such
procedures, it may be liable for losses due to unauthorized or fraudulent
telephone instructions. The Trusts will not be liable for acting upon
instructions communicated by telephone that it reasonably believes to be
genuine. The Trusts, the Funds and the Transfer Agent each reserves the right to
suspend or terminate the privilege of exchanging by telephone or fax at any
time.
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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. Investors interested in exchanging Class AARP shares
of a Fund should call 800-253-2277 for more information.
Scudder retirement plans may have different exchange requirements.
Please refer to appropriate plan literature.
Special Redemption and Exchange Information
In general, shares of the Funds may be exchanged or redeemed at net
asset value. However, shares of the Small Company Value Fund held for less than
one year are redeemable at a price equal to 99% of the then current net asset
value per share. This 1% discount, referred to in the prospectus and this
statement of additional information as a redemption fee, directly affects the
amount a shareholder who is subject to the discount receives upon exchange or
redemption. It is intended to encourage long-term investment in the Fund, to
avoid transaction and other expenses caused by early redemptions and to
facilitate portfolio management. The fee is not a deferred sales charge, is not
a commission paid to the Adviser or its subsidiaries, and does not benefit the
Adviser in any way. The Fund reserves the right to modify the terms of or
terminate this fee at any time.
The redemption discount will not be applied to (a) a redemption of
shares of the Fund outstanding for one year or more, (b) shares purchased
through certain Scudder retirement plans, including 401(k) plans, 403(b) plans,
457 plans, Keogh accounts, and Profit Sharing and Money Purchase Pension Plans
provided, however, if such shares are purchased through a broker, financial
institution or recordkeeper maintaining an omnibus account for the shares, such
waiver may not apply. (Before purchasing shares, please check with your account
representative concerning the availability of the fee waiver. In addition, this
waiver does not apply to IRA and SEP-IRA accounts.) (c) a redemption of
reinvestment shares (i.e., shares purchased through the reinvestment of
dividends or capital gains distributions paid by the Fund), (d) a redemption of
shares by the Fund upon exercise of its right to liquidate accounts (i) falling
below the minimum account size by reason of shareholder redemptions or (ii) when
the shareholder has failed to provide tax identification information, or (e) a
redemption of shares due to the death of the registered shareholder of a Fund
account, or, due to the death of all registered shareholders of a Fund account
with more than one registered shareholder, (i.e., joint tenant account), upon
receipt by Scudder Service Corporation of appropriate written instructions and
documentation satisfactory to Scudder Service Corporation. For this purpose and
without regard to the shares actually redeemed, shares will be treated as
redeemed as follows: first, reinvestment shares; second, purchased shares held
one year or more; and third, purchased shares held for less than one year.
Finally, if a redeeming shareholder acquires Fund shares through a transfer from
another shareholder, applicability of the discount, if any, will be determined
by reference to the date the shares were originally purchased, and not from the
date of transfer between shareholders.
Redemption by Telephone
Shareholders currently receive the right, automatically without having
to elect it, to redeem by telephone up to $100,000 and have the proceeds mailed
to their address of record. Shareholders may also request to have the proceeds
mailed or wired to their predesignated bank account. In order to request wire
redemptions by telephone, shareholders must have completed and returned to the
Transfer Agent the application, including the designation of a bank account to
which the redemption proceeds are to be sent.
(a) NEW INVESTORS wishing to establish telephone redemption to a
predesignated bank account must complete the appropriate section on
the application.
(b) EXISTING SHAREHOLDERS (except those who are Scudder IRA, Scudder
Pension and Profit-Sharing, Scudder 401(k) and Scudder 403(b)
Planholders) who wish to establish telephone 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
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the account. An original signature and an original signature guarantee
are required for each person in whose name the account is registered.
If a request for redemption to a shareholder's bank account is made by
telephone or fax, payment will be by Federal Reserve bank wire to the bank
account designated on the application, unless a request is made that the
redemption check be mailed to the designated bank account. There will be a $5
charge for all wire redemptions.
Note: Investors designating a savings bank to receive their telephone
redemption proceeds are advised that if the savings bank is not a
participant in the Federal Reserve System, redemption proceeds must be
wired through a commercial bank which is a correspondent of the savings
bank. As this may delay receipt by the shareholder's account, it is
suggested that investors wishing to use a savings bank discuss wire
procedures with their bank and submit any special wire transfer
information with the telephone redemption authorization. If appropriate
wire information is not supplied, redemption proceeds will be mailed to
the designated bank.
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 a Fund and the shareholder) of shares purchased by check will not be
accepted until the purchase check has cleared which may take up to seven
business days.
Telephone redemption is not available with respect to shares
represented by share certificates for Large Company Value Fund, formerly known
as Scudder Capital Growth Fund, or shares held in certain retirement accounts
for the Fund.
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 Funds 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.
Each Fund employs procedures, including recording telephone calls,
testing a caller's identity, and sending written confirmation of telephone
transactions, designed to give reasonable assurance that instructions
communicated by telephone are genuine, and to discourage fraud. To the extent
that a Fund does not follow such procedures, it may be liable for losses due to
unauthorized or fraudulent telephone instructions. A Fund will not be liable for
acting upon instructions communicated by telephone that it reasonably believes
to be genuine.
Redemption by Mail or Fax
Any existing share certificates representing shares being redeemed must
accompany a request for redemption and be duly endorsed or accompanied by a
proper stock assignment form with signature(s) guaranteed.
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In order to ensure proper authorization before redeeming shares, the
Transfer Agent may request additional documents such as, but not restricted to,
stock powers, trust instruments, certificates of death, appointments as
executor, certificates of corporate authority and waivers of tax (required in
some states when settling estates).
It is suggested that shareholders holding shares registered in other
than individual names contact the Transfer Agent prior to any redemptions to
ensure that all necessary documents accompany the request. When shares are held
in the name of a corporation, trust, fiduciary, agent, attorney or partnership,
the Transfer Agent requires, in addition to the stock power, certified evidence
of authority to sign. These procedures are for the protection of shareholders
and should be followed to ensure prompt payment. Redemption requests must not be
conditional as to date or price of the redemption. Proceeds of a redemption will
be sent within five business days after receipt by the Transfer Agent of a
request for redemption that complies with the above requirements. Delays in
payment of more than seven days for shares tendered for repurchase or redemption
may result, but only until the purchase check has cleared.
The requirements for IRA redemptions are different from those for
regular accounts. For more information please call 1-800-225-5163.
Redemption-In-Kind
Each Trust reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase order by
making payment in whole or in part in readily marketable securities chosen by
the Trust and valued as they are for purposes of computing the Fund's net asset
value (a redemption-in-kind). If payment is made in securities, a shareholder
may incur transaction expenses in converting these securities into cash. Each
Trust has elected, however, to be governed by Rule 18f-1 under the 1940 Act as a
result of which each 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 value of the net assets of the Fund at the beginning of
the period.
Other Information
If a shareholder redeems all shares in the account after the record
date of a dividend, the shareholder will receive, in addition to the net asset
value thereof, all declared but unpaid dividends thereon. The value of shares
redeemed or repurchased may be more or less than the shareholder's cost
depending on the net asset value at the time of redemption or repurchase. A wire
charge may be applicable for redemption proceeds wired to an investor's bank
account. Redemptions of shares, including an exchange into another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and the
proceeds of such redemptions may be subject to backup withholding. (see
"TAXES.")
Shareholders who wish to redeem shares from Special Plan Accounts
should contact the employer, trustee or custodian of the Plan for the
requirements.
The determination of net asset value and a shareholder's right to
redeem shares and to receive payment may be suspended at times and a
shareholder's right to redeem shares and to receive payment may be suspended at
times during which (a) the Exchange is closed, other than customary weekend and
holiday closings, (b) trading on the Exchange is restricted for any reason, (c)
an emergency exists as a result of which disposal by the Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or (d) a
governmental body having jurisdiction over the Fund may by order permit such a
suspension for the protection of the Trust's shareholders; provided that
applicable rules and regulations of the SEC (or any succeeding governmental
authority) shall govern as to whether the conditions prescribed in (b), (c) or
(d) exist.
FEATURES AND SERVICES OFFERED BY THE FUNDS
The No-Load Concept
Investors are encouraged to be aware of the full ramifications of
mutual fund fee structures, and of how Scudder distinguishes its Scudder Family
of Funds from the vast majority of mutual funds available today. The primary
distinction is between load and no-load funds.
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Load funds generally are defined as mutual funds that charge a fee for
the sale and distribution of fund shares. There are three types of loads:
front-end loads, back-end loads, and asset-based 12b-1 fees. 12b-1 fees are
distribution-related fees charged against fund assets and are distinct from
service fees, which are charged for personal services and/or maintenance of
shareholder accounts. Asset-based sales charges and service fees are typically
paid pursuant to distribution plans adopted under 12b-1 under the 1940 Act.
A front-end load is a sales charge, which can be as high as 8.50% of
the amount invested. A back-end load is a contingent deferred sales charge,
which can be as high as 8.50% of either the amount invested or redeemed. The
maximum front-end or back-end load varies, and depends upon whether or not a
fund also charges a 12b-1 fee and/or a service fee or offers investors various
sales-related services such as dividend reinvestment. The maximum charge for a
12b-1 fee is 0.75% of a fund's average annual net assets, and the maximum charge
for a service fee is 0.25% of a fund's average annual net assets.
A no-load fund does not charge a front-end or back-end load, but can
charge a small 12b-1 fee and/or service fee against fund assets. Under the
National Association of Securities Dealers Conduct Rules, a mutual fund can call
itself a "no-load" fund only if the 12b-1 fee and/or service fee does not exceed
0.25% of a fund's average annual net assets.
Because funds and classes in the Scudder Family of Funds do not pay any
asset-based sales charges or service fees, Scudder uses the phrase no-load to
distinguish Scudder funds and classes from other 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.
Internet access
World Wide Web Site -- The address of the Scudder Funds site is www.scudder.com.
The address for the Class AARP shares is aarp.scudder.com. These sites offer
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 sites also enable users to access or view fund prospectuses and
profiles with links between summary information in Fund Summaries and details in
the Prospectus. Users can fill out new account forms on-line, order free
software, and request literature on funds.
Account Access -- Scudder is among the first mutual fund families to allow
shareholders to manage their fund accounts through the World Wide Web. Scudder
Fund shareholders can view a snapshot of current holdings, review account
activity and move assets between Scudder Fund accounts.
Scudder's personal portfolio capabilities -- known as SEAS (Scudder
Electronic Account Services) -- are accessible only by current Scudder Fund
shareholders that have set up a Personal Page on Scudder's Web site. Using a
secure Web browser, shareholders sign on to their account with their Social
Security number and their SAIL password. As an additional security measure,
users can change their current password or disable access to their portfolio
through the World Wide Web.
An Account Activity option reveals a financial history of transactions
for an account, with trade dates, type and amount of transaction, share price
and number of shares traded. For users who wish to trade shares between Scudder
Funds, the Fund Exchange option provides a step-by-step procedure to exchange
shares among existing fund accounts or to new Scudder Fund accounts.
Dividends and Capital Gains Distribution Options
Investors have freedom to choose whether to receive cash or to reinvest
any dividends from net investment income or distributions from realized capital
gains in additional shares of a Fund. A change of instructions for the method of
payment may be given to the Transfer Agent in writing at least five days prior
to a dividend record date. Shareholders may change their dividend option by
calling 1-800-225-5163 for Class S and 1-800-253-2277 for Class AARP or by
sending written instructions to the Transfer Agent. Please include your account
number with your written request.
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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 to their predesignated bank account through Scudder's Direct
Distributions Program. Shareholders who elect to participate in the Direct
Distributions Program, and whose predesignated checking account of record is
with a member bank of Automated Clearing House Network (ACH) can have income and
capital gain distributions automatically deposited to their personal bank
account usually within three business days after a Fund pays its distribution. A
Direct Distributions request form can be obtained by calling 1-800-225-5163 for
Class S and 1-800-253-2277 for Class AARP. Confirmation Statements will be
mailed to shareholders as notification that distributions have been deposited.
Investors choosing to participate in the Automatic Withdrawal Plan must
reinvest any dividends or capital gains. For most retirement plan accounts, the
reinvestment of dividends and capital gains is also required.
Reports to Shareholders
The Trust issues shareholders unaudited semiannual financial statements
and annual financial statements audited by independent accountants, including a
list of investments held and statements of assets and liabilities, operations,
changes in net assets and financial highlights.
Transaction Summaries
Annual summaries of all transactions in each Fund account are available
to shareholders. The summaries may be obtained by calling 1-800-253-2277 for
Class AARP shares and 1-800-225-SCUDDER for Class S shares.
THE SCUDDER FAMILY OF FUNDS
The Scudder Family of Funds is America's first family of mutual funds
and the nation's oldest family of no-load mutual funds; a list of Scudder's
funds follows.
MONEY MARKET
Scudder U.S. Treasury Money Fund
Scudder Cash Investment Trust
Scudder Money Market Series+
TAX FREE MONEY MARKET
Scudder Tax Free Money Fund
TAX FREE
Scudder Medium Term Tax Free Fund
Scudder Managed Municipal Bonds
Scudder High Yield Tax Free Fund
Scudder California Tax Free Fund*
Scudder Massachusetts Tax Free Fund*
Scudder New York Tax Free Fund*
--------
+ The institutional class of shares is not part of the Scudder Family of
Funds.
** Only the Scudder Shares are part of the Scudder Family of Funds.
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U.S. INCOME
Scudder Short Term Bond Fund
Scudder GNMA Fund
Scudder Income Fund
Scudder High Yield Bond Fund
GLOBAL INCOME
Scudder Global Bond Fund
Scudder Emerging Markets Income Fund
ASSET ALLOCATION
Scudder Pathway Series: Conservative Portfolio
Scudder Pathway Series: Balanced Portfolio
Scudder Pathway Series: Growth Portfolio
U.S. GROWTH AND INCOME
Scudder Balanced Fund
Scudder Dividend & Growth Fund
Scudder Growth and Income Fund
Scudder Select 500 Fund
Scudder 500 Index Fund
U.S. GROWTH
Value
Scudder Large Company Value Fund
Scudder Value Fund**
Scudder Small Company Value Fund
Growth
Scudder Classic Growth Fund**
Scudder Large Company Growth Fund
Scudder Select 1000 Growth Fund
Scudder Development Fund
Scudder 21st Century Growth Fund
GLOBAL EQUITY
Worldwide
Scudder Global Fund
Scudder International Fund***
Scudder Global Discovery Fund**
Scudder Emerging Markets Growth Fund
Scudder Gold Fund
--------
** Only the Scudder Shares are part of the Scudder Family of Funds.
*** Only the International Shares are part of the Scudder Family of Funds.
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<PAGE>
Regional
Scudder Greater Europe Growth Fund
Scudder Pacific Opportunities Fund
Scudder Latin America Fund
The Japan Fund, Inc.
INDUSTRY SECTOR FUNDS
Choice Series
Scudder Health Care Fund
Scudder Technology Fund
The net asset values of most Scudder funds can be found daily in the
"Mutual Funds" section of The Wall Street Journal under "Scudder Funds," and in
other leading newspapers throughout the country. Investors will notice the net
asset value and offering price are the same, reflecting the fact that no sales
commission or "load" is charged on the sale of shares of the Scudder funds. The
latest seven-day yields for the money-market funds can be found every Monday and
Thursday in the "Money-Market Funds" section of The Wall Street Journal. This
information also may be obtained by calling the Scudder Automated Information
Line (SAIL) at 1-800-343-2890 for Class S shares or 1-800-253-2277 for Class
AARP shares.
Certain Scudder funds or classes thereof may not be available for
purchase or exchange. For more information, please call 1-800-SCUDDER.
SPECIAL PLAN ACCOUNTS
Detailed information on any Scudder investment plan, including the
applicable charges, minimum investment requirements and disclosures made
pursuant to Internal Revenue Service (the "IRS") requirements, may be obtained
by contacting Scudder Investor Services, Inc., Two International Place, Boston,
Massachusetts 02110-4103 or by calling toll free, 1-800-225-2470. The
discussions of the plans below describe only certain aspects of the federal
income tax treatment of the plan. The state tax treatment may be different and
may vary from state to state. It is advisable for an investor considering the
funding of the investment plans described below to consult with an attorney or
other investment or tax adviser with respect to the suitability requirements and
tax aspects thereof.
Shares of the Funds may also be a permitted investment under profit
sharing and pension plans and IRAs other than those offered by the Funds'
distributor depending on the provisions of the relevant plan or IRA.
None of the plans assures a profit or guarantees protection against
depreciation, especially in declining markets.
Scudder Retirement Plans: Profit-Sharing and Money Purchase
Pension Plans for Corporations and Self-Employed Individuals
Shares of the Funds 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.
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Scudder 401(k): Cash or Deferred Profit-Sharing Plan
for Corporations and Self-Employed Individuals
Shares of the Funds may be purchased as the investment medium under a
plan in the form of a Scudder 401(k) Plan adopted by a corporation, a
self-employed individual or a group of self-employed individuals (including sole
proprietors and partnerships), or other qualifying organization. This plan has
been approved as a prototype by the IRS.
Scudder IRA: Individual Retirement Account
Shares of the Funds 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, such as a pension or profit sharing plan, a
governmental plan, a simplified employee pension plan, a simple retirement
account, 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. If an individual is an active participant,
the deductibility of his or her IRA contributions in 2000 is phased out if the
individual has gross income between $32,000 and $42,000 and is single, if the
individual has gross income between $52,000 and $62,000 and is married filing
jointly, or if the individual has gross income between $0 and $10,000 and is
married filing separately; the phase-out ranges for individuals who are single
or married filing jointly are subject to annual adjustment through 2005 and
2007, respectively. If an individual is married filing jointly and the
individual's spouse is an active participant but the individual is not, the
deductibility of his or her IRA contributions is phased out if their combined
gross income is between $150,000 and $160,000. 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. 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.
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, even if only one spouse
has earned income). All income and capital gains derived from IRA investments
are reinvested and compound tax-deferred until distributed. Such tax-deferred
compounding can lead to substantial retirement savings.
Scudder Roth IRA: Individual Retirement Account
Shares of the Funds 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
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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, certain medical expenses, the
purchase of health insurance for an unemployed individual and
qualified higher education expenses.
An individual with an income of $100,000 or less (who is not married
filing separately) can roll his or her existing IRA into a Roth IRA. However,
the individual must pay taxes on the taxable amount in his or her traditional
IRA. Individuals who complete the rollover in 1998 will be allowed to spread the
tax payments over a four-year period. After 1998, all taxes on such a rollover
will have to be paid in the tax year in which the rollover is made.
Scudder 403(b) Plan
Shares of the Funds may also be purchased as the underlying investment
for tax sheltered annuity plans under the provisions of Section 403(b)(7) of the
Internal Revenue Code. In general, employees of tax-exempt organizations
described in Section 501(c)(3) of the Internal Revenue Code (such as hospitals,
churches, religious, scientific, or literary organizations and educational
institutions) or a public school system are eligible to participate in a 403(b)
plan.
Automatic Withdrawal Plan
Non-retirement plan shareholders may establish an Automatic Withdrawal
Plan to receive monthly, quarterly or periodic redemptions from his or her
account for any designated amount of $50 or more. Shareholders may designate
which day they want the automatic withdrawal to be processed. The check amounts
may be based on the redemption of a fixed dollar amount, fixed share amount,
percent of account value or declining balance. The Plan provides for income
dividends and capital gains distributions, if any, to be reinvested in
additional Shares. Shares are then liquidated as necessary to provide for
withdrawal payments. Since the withdrawals are in amounts selected by the
investor and have no relationship to yield or income, payments received cannot
be considered as yield or income on the investment and the resulting
liquidations may deplete or possibly extinguish the initial investment and any
reinvested dividends and capital gains distributions. Requests for increases in
withdrawal amounts or to change the payee must be submitted in writing, signed
exactly as the account is registered, and contain signature guarantee(s). Any
such requests must be received by a 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 a Fund under the Plan have
been liquidated or upon receipt by the Trust of notice of death of the
shareholder.
An Automatic Withdrawal Plan request form can be obtained by calling
1-800-225-5163 for Class S and 1-800-253-2277 for Class AARP.
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, each Trust and its agents reserve the right to establish a maintenance
charge in the future depending on the services required by the investor.
Each 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
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Shareholders may arrange to make periodic investments in Class S shares
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 for Class S shares.
Shareholders may arrange to make periodic investments in the AARP class
of each Fund through automatic deductions from checking accounts. The minimum
pre-authorized investment amount is $500. This minimum also applies to
shareholders who open a Gift to Minors Account pursuant to the UGMA, however,
the automatic deduction option is not available. New shareholders who open a
Gift to Minors Account pursuant to the Uniform Transfer to Minors Act (UTMA) and
who sign up for the Automatic Investment Plan will be able to open a Fund
account for less than $500 if they agree to increase their investment to $500
within a 15 month period. Investors may also invest in any AARP class for $500
if they establish a plan with a minimum automatic investment of at least $100
per month. This feature is only available to Gifts to Minors Account investors.
The Automatic Investment Plan may be discontinued at any time without prior
notice to a shareholder if any debit from their bank is not paid, or by written
notice to the shareholder at least thirty days prior to the next scheduled
payment to the Automatic Investment Plan.
The Automatic Investment Plan involves an investment strategy called
dollar cost averaging. Dollar cost averaging is a method of investing whereby a
specific dollar amount is invested at regular intervals. By investing the same
dollar amount each period, when shares are priced low the investor will purchase
more shares than when the share price is higher. Over a period of time this
investment approach may allow the investor to reduce the average price of the
shares purchased. However, this investment approach does not assure a profit or
protect against loss. This type of regular investment program may be suitable
for various investment goals such as, but not limited to, college planning or
saving for a home.
Uniform Transfers/Gifts to Minors Act
Grandparents, parents or other donors may set up custodian accounts for
minors. The minimum initial investment is $1,000 unless the donor agrees to
continue to make regular share purchases for the account through Scudder's
Automatic Investment Plan (AIP). In this case, the minimum initial investment is
$500.
The Trust reserves the right, after notice has been given to the
shareholder and custodian, to redeem and close a shareholder's account in the
event that regular investments to the account cease before the $1,000 minimum is
reached.
FEATURES AND SERVICES OFFERED BY THE AARP INVESTMENT PROGRAM
o Experienced Professional Management: The Adviser provides investment advice
to the Funds.
o AARP's Commitment: the Program was designed with AARP's active
participation to provide strong, ongoing representation of the members'
interests and to help ensure a high level of service.
o Diversification: you may benefit from investing in one or more large
portfolios of carefully selected securities.
o No Sales Commissions: the AARP Funds are no-load funds, so you pay no sales
charges to purchase, transfer or redeem shares, nor do you pay Rule 12b-1
(i.e., distribution) fees.
o Automatic Dividend Reinvestment: you may receive dividends by check or
arrange to have them automatically reinvested.
o Readily Available Account, Price, Yield and Total Return Information: You
may dial our automated Easy-Access Line, toll-free, 1-800-631-4636 for
recorded account information, share price, yield and total return
information, 7 days a week.
o Convenience and Efficiency: simplified investment procedures save you time
and help your money work harder for you.
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o Direct Deposit Program: you may have your Social Security or other checks
received from the U.S. Government or any other regular income checks, such
as pension, dividend, interest, and even payroll checks automatically
deposited directly to your account.
o Direct Payment of Regular Fixed Bills: with a minimum qualifying balance of
$10,000 in one Fund, you may arrange to have your regular bills that are of
fixed amounts, such as rent, mortgage, or other obligations of $50 or more
sent directly from your account at the end of the month.
o Personal Service and Information: professionally trained service
representatives are available to help you whenever you have questions
through our toll-free number, 1-800-253-2277.
o Consolidated Statements: in addition to receiving a confirmation statement
of each transaction in your account, you receive, without extra charge, a
convenient monthly consolidated statement. (Retirement Plan statements are
mailed quarterly.) This statement contains the market value of all your
holdings in the Funds and a complete listing of your transactions for the
statement period.
o Shareholder Handbook: the Shareholder Handbook was created to help answer
many of the questions you may have about investing in the Program.
o IRA Shareholder Handbook: the IRA Shareholder Handbook was created to help
answer many of the questions you may have about investing in the no-fee
AARP IRA.
o A Glossary of Investment Terms: the Glossary of Investment Terms defines
commonly used financial and investment terms.
o Newsletter: every month, shareholders receive our newsletter, Financial
Focus (retirement plan shareholders receive a special edition of Financial
Focus on a quarterly basis) which is designed to help keep you up-to-date
on economic and investment developments, and any new financial services and
features of the Program.
Distributions Direct
Investors may also have dividends and distributions automatically
deposited to their predesignated bank account through the AARP Funds'
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
1-800-253-2277. Confirmation statements will be mailed to shareholders as
notification that distributions have been deposited.
Reports to Shareholders
The AARP Funds send to shareholders semiannually financial statements,
which are examined annually by independent accountants, including a list of
investments held and statements of assets and liabilities, operations, changes
in net assets, and financial highlights.
Investors receive a brochure entitled Your Guide to Simplified
Investment Decisions when they order an investment kit for the Funds which also
contains a prospectus. The Shareholder's Handbook is sent to all new
shareholders to help answer any questions they may have about investing.
Similarly, an IRA Handbook is sent to all new IRA shareholders. Every month,
shareholders will be sent the newsletter, Financial Focus. Retirement plan
shareholders will be sent a special edition of Financial Focus on a quarterly
basis. The newsletters are designed to help you keep up to date on economic and
investment developments, and any new financial services and features of the
Program.
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Direct Payment of Regular Fixed Bills
Shareholders who own or purchase $10,000 or more of shares of an AARP
Fund may arrange to have regular fixed bills such as rent, mortgage or other
payments of more than $50 made directly from their account. The arrangements are
virtually the same as for an Automatic Withdrawal Plan (see above). For more
information concerning this plan, write to the AARP Investment Program from
Scudder, P.O. Box 2540, Boston, MA 02208-2540 or call, toll-free,
1-800-253-2277.
Direct Deposit Program
Investors can have Social Security or other checks from the U.S.
Government or any other regular income checks such as pension, dividends, and
even payroll checks automatically deposited directly to their accounts.
Investors may allocate a minimum of 25% of their income checks into any AARP
Fund. Information may be obtained by contacting the AARP Investment Program from
Scudder, P.O. Box 2540, Boston, Massachusetts 02208-2540, or by calling toll
free, 1-800-253-2277.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
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.
Each Fund may allow the practice of distributing the entire excess of net
realized long-term capital gains over net realized short-term capital losses.
However, the Funds may retain all or part of such gain for reinvestment, after
paying the related federal income taxes for which the shareholders may claim a
credit against their federal income tax liability. If a Fund does not distribute
the amount of capital gains and/or ordinary income required to be distributed by
an excise tax provision of the Code, the Fund may be subject to that excise tax.
In certain circumstances, the Fund may determine that it is in the interest of
shareholders to distribute less than the required amount. (See "TAXES.")
Any dividends or capital gains distributions declared in October,
November, or December with a record date in that month and paid during the
following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year declared. If a
shareholder has elected to reinvest any dividends and/or other distributions,
such distributions will be made in shares of the Fund and confirmations will be
mailed to each shareholder. If a shareholder has chosen to receive cash, a check
will be sent. Distributions of investment company taxable income and net
realized capital gains are taxable, whether made in shares or cash (see
"TAXES").
Small Company Value Fund intends to distribute investment company
taxable income and any net realized capital gains resulting from Fund investment
activity in November or December each year. Large Company Value 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.
PERFORMANCE INFORMATION
From time to time, quotations of a Fund's performance may be included
in advertisements, sales literature or reports to shareholders or prospective
investors. These performance figures will be calculated in the following manner:
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Average Annual Total Return
Average Annual Total Return is the average annual compound rate of
return for the periods of one year and the life of the Fund, all ended on the
last day of a recent calendar quarter. Average annual total return quotations
reflect changes in the price of the Fund's shares and assume that all dividends
and capital gains distributions during the respective periods were reinvested in
Fund shares. Average annual total return is calculated by finding the average
annual compound rates of return of a hypothetical investment over such periods,
according to the following formula (average annual total return is then
expressed as a percentage):
T = (ERV/P)^1/n - 1
Where:
P = a hypothetical initial investment of $1,000
T = Average Annual Total Return
n = Number of years
ERV = Ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
Average Annual Total Return for the periods ended July 31, 2000
One year Five years Ten years
Small Company Value Fund N/A
Large Company Value Fund
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 the Funds 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 Funds 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 Fund's shares and
assume that all dividends and capital gains distributions during the period were
reinvested in Fund shares. Cumulative Total Return is calculated by finding the
cumulative rates of return of a hypothetical investment over such periods,
according to the following formula (Cumulative Total Return is then expressed as
a percentage):
C = (ERV/P) - 1
Where:
C = Cumulative Total Return
P = a hypothetical initial investment of $1,000
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ERV = Ending redeemable value: ERV is the
value, at the end of the applicable
period, of a hypothetical $1,000
investment made at the beginning of the
applicable period.
Cumulative Total Return for the periods ended July 31, 2000
One year Five years Ten years
Small Company Value Fund N/a
Large Company Value Fund
Total Return
Total Return is the rate of return on an investment for a specified
period of time calculated in the same manner as Cumulative Total Return.
Quotations of the Funds' Performance are historical and are not
intended to indicate future performance. An investor's share when redeemed may
be worth more or less than their original cost. Performance of the Funds will
vary based on changes in market conditions and the level of Fund's expenses.
There may be quarterly periods following the periods reflected in the
performance bar chart in the fund's prospectus which may be higher or lower than
those included in the bar chart.
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 the 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 Fund's and classes' performance data.
Comparison of Fund Performance
In connection with communicating its performance to current or
prospective shareholders, the Fund also may compare these figures to the
performance of unmanaged indices which may assume reinvestment of dividends or
interest but generally do not reflect deductions for administrative and
management costs. From time to time, in advertising and marketing literature,
this Fund's performance may be compared to the performance of broad groups of
mutual funds with similar investment goals, as tracked by independent
organizations.
From time to time, in marketing and other Fund literature, Trustees and
officers of the Funds, the Funds' portfolio manager, or members of the portfolio
management team may be depicted and quoted to give prospective and current
shareholders a better sense of the outlook and approach of those who manage the
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 Funds may be advertised as an investment choice in Scudder's
college planning program. Statistical and other information, as provided by the
Social Security Administration, may be used in marketing materials pertaining to
retirement planning in order to estimate future payouts of social security
benefits. Estimates may be used on demographic and economic data.
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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.
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 the Fund.
FUND ORGANIZATION
The combined prospectus and this Statement of Additional Information
for Scudder Small Company Value Fund and Scudder Large Company Value Fund each
offers two classes of shares to provide investors with different purchase
options. The two classes are: the Class S and the Class AARP. Each class has its
own important features and policies. On October 2, 2000, shares of Scudder Small
Company Value Fund and Scudder Large Company Value Fund were redesignated Class
S shares of their respective funds. Shares of the AARP class are specially
designed for members of the American Association of Retired Persons ("AARP").
FUND ORGANIZATION FOR SMALL COMPANY VALUE FUND The Fund is a series of Scudder
Securities Trust, formerly Scudder Development Fund, a Massachusetts business
trust established under a Declaration of Trust dated October 16, 1985. The
Trust's predecessor was organized as a Delaware corporation in 1970. The Trust's
authorized capital consists of an unlimited number of shares of beneficial
interest of $0.01 par value. There are two classes, Class AARP and Class S,
which have equal rights as to voting, dividends and liquidation. The Trust's
shares are currently divided into seven series, Scudder Development Fund,
Scudder Financial Services Fund, Scudder Health Care Fund, Scudder Micro Cap
Fund, Scudder Small Company Value Fund, Scudder Technology Fund and Scudder 21st
Century Growth Fund. The Trustees have the authority to issue additional series
of shares and to designate the relative rights and preferences as between the
different series. Each share of each series has equal rights with each other
share of that series as to voting, dividends and liquidations. All shares issued
and outstanding will be fully paid and nonassessable by the Trust, and
redeemable as described in this Statement of Additional Information and in each
series' prospectus.
The assets of the Trust received for the issue or sale of the shares of
each series and all income, earnings, profits and proceeds thereof, subject only
to the rights of creditors, are specifically allocated to such series and
constitute the underlying assets of such series. The underlying assets of each
series are segregated on the books of account, and are to be charged with the
liabilities in respect to such series and with a proportionate share of the
general
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liabilities of the Trust. If a series were unable to meet its obligations, the
assets of all other series may in some circumstances be available to creditors
for that purpose, in which case the assets of such other series could be used to
meet liabilities which are not otherwise properly chargeable to them. Expenses
with respect to any two or more series are to be allocated in proportion to the
asset value of the respective series except where allocations of direct expenses
can otherwise be fairly made. The officers of the Trust, subject to the general
supervision of the Trustees, have the power to determine which liabilities are
allocable to a given series, or which are general or allocable to two or more
series. In the event of the dissolution or liquidation of the Trust or any
series, the holders of the shares of any series are entitled to receive as a
class the underlying assets of such shares available for distribution to
shareholders.
Shares of the Trust entitle their holders to one vote per share;
however, separate votes are taken by each series on matters affecting that
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series.
The Trustees, in their discretion, may authorize the division of shares
of the Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution. The Trustees have no present
intention of taking the action necessary to effect the division of shares into
separate classes, or of changing the method of distribution of shares of the
Fund.
The Declaration of Trust provides that obligations of the Fund are not
binding upon the Trustees individually but only upon the property of the Fund,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Fund will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Fund, except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Fund. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
FUND ORGANIZATION FOR LARGE COMPANY VALUE FUND The Fund is a separate series of
Value Equity Trust. Value Equity Trust, formerly Scudder Equity Trust, is a
Massachusetts business trust established under a Declaration of Trust dated
October 16, 1985, as amended. The Trust's authorized capital consists of an
unlimited number of shares of beneficial interest, par value $0.01 per share.
The Trustees have the authority to issue additional series of shares. If more
than one series of shares were issued and a series were unable to meet its
obligations, the remaining series might have to assume the unsatisfied
obligations of that series.
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. The
Fund has two classes, Class AARP and Class S, which have equal rights as to
voting, dividends and liquidation. All shares issued and outstanding will be
fully paid and nonassessable by the Trust, and redeemable as described in this
Statement of Additional Information and in the Funds' combined prospectus.
Each share of each class of a Fund shall be entitled to one vote (or
fraction thereof in respect of a fractional share) on matters that such shares
(or class of shares) shall be entitled to vote. Shareholders of each Fund shall
vote together on any matter, except to the extent otherwise required by the 1940
Act, or when the Board of Trustees has determined that the matter affects only
the interest of shareholders of one or more classes of a Fund, in which case
only the shareholders of such class or classes of that Fund shall be entitled to
vote thereon. Any matter shall be deemed to have been effectively acted upon
with respect to a Fund if acted upon as provided in Rule 18f-2 under the 1940
Act, or any successor rule, and in the Fund's Declaration of Trust. As used in
this Statement of Additional Information, the term "majority", when referring to
the approvals to be obtained from shareholders in connection with general
matters affecting the Fund 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
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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 the 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 Fund, of any general assets not attributable to the Fund that are
available for distribution.
The Trustees, in their discretion, may authorize the division of shares
of a Fund (or shares of a series) into different classes, permitting shares of
different classes to be distributed by different methods. Although shareholders
of different classes of a series would have an interest in the same portfolio of
assets, shareholders of different classes may bear different expenses in
connection with different methods of distribution.
Currently, the assets of Value Equity Trust received for the issue or
sale of the shares of each series and all income, earnings, profits and proceeds
thereof, subject only to the rights of creditors, are specifically allocated to
such series and constitute the underlying assets of such series. The underlying
assets of each series are segregated on the books of account, and are to be
charged with the liabilities in respect to such series and with a proportionate
share of the general liabilities of Value Equity Trust. If a series were unable
to meet its obligations, the assets of all other series may in some
circumstances be available to creditors for that purpose, in which case the
assets of such other series could be used to meet liabilities which are not
otherwise properly chargeable to them. Expenses with respect to any two or more
series are to be allocated in proportion to the asset value of the respective
series except where allocations of direct expenses can otherwise be fairly made.
The officers of Value Equity Trust, subject to the general supervision of the
Trustees, have the power to determine which liabilities are allocable to a given
series, or which are general or allocable to two or more series. In the event of
the dissolution or liquidation of Value Equity Trust, the holders of the shares
of any series are entitled to receive as a class the underlying assets of such
shares available for distribution to shareholders.
The Trust's predecessor was organized in 1966 as a Delaware corporation
under the name "Scudder Duo-Vest Inc." as a closed-end, diversified dual-purpose
investment company. Effective April 1, 1982, its original dual-purpose nature
was terminated and it became an open-end investment company with only one class
of shares outstanding. At a Special Meeting of Shareholders held May 18, 1982,
the shareholders voted to amend the investment objective to seek to maximize
long-term growth of capital and to change the name of the corporation to
"Scudder Capital Growth Fund, Inc." ("SCGF, Inc."). The fiscal year end of SCGF,
Inc. was changed from March 31 to September 30 by action of its Directors on May
18, 1982. Effective as of September 30, 1982, Scudder Special Fund, Inc. was
merged into SCGF, Inc. In October 1985, the Fund's form of organization was
changed to a Massachusetts business trust upon approval of the shareholders.
Shares of Value Equity Trust entitle their holders to one vote per
share; however, separate votes are taken by each series on matters affecting an
individual series. For example, a change in investment policy for a series would
be voted upon only by shareholders of the series involved. Additionally,
approval of the investment advisory agreement is a matter to be determined
separately by each series. Approval by the shareholders of one series is
effective as to that series whether or not enough votes are received from the
shareholders of the other series to approve such agreement as to the other
series.
The Trust has a Declaration of Trust which provides that obligations of
a Fund are not binding upon the Trustees individually but only upon the property
of that Fund, that the Trustees and officers will not be liable for errors of
judgment or mistakes of fact or law, and that a Fund involved will indemnify the
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their offices with the
Trust, except if it is determined in the manner provided in the Declaration of
Trust that they have not acted in good faith in the reasonable belief that their
actions were in the best interests of the Fund involved. Nothing in the
Declaration of Trust, however, protects or indemnifies a Trustee or officer
against any liability to which that person would otherwise be subject by reason
of willful misfeasance, bad faith, gross negligence, or reckless disregard of
the duties involved in the conduct of that person's office.
No series of the Trust shall be liable for the obligations of any other
series.
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INVESTMENT ADVISER
Scudder Kemper Investments, Inc., an investment counsel firm, acts as
investment adviser to the Funds. 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 December 31, 1997, Zurich
Insurance Company ("Zurich") acquired a majority interest in the Adviser, and
Zurich Kemper Investments, Inc., a Zurich subsidiary, became part of the
Adviser. The Adviser's name changed to Scudder Kemper Investments, Inc. On
September 7, 1998, the businesses of Zurich (including Zurich's 70% interest in
Scudder Kemper) and the financial services businesses of B.A.T Industries p.l.c.
("B.A.T") were combined to form a new global insurance and financial services
company known as Zurich Financial Services Group. By way of a dual holding
company structure, former Zurich shareholders initially owned approximately 57%
of Zurich Financial Services Group, with the balance initially owned by former
B.A.T shareholders.
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. Today, it provides
investment counsel for many individuals and institutions, including insurance
companies, colleges, industrial corporations, and financial and banking
organizations, as well as providing investment advice to over 280 open and
closed-end mutual funds. The Adviser maintains a large research department,
which conducts continuous studies of the factors that affect the position of
various industries, companies and individual securities. The Adviser receives
published reports and statistical compilations from issuers and other sources,
as well as analyses from brokers and dealers who may execute portfolio
transactions for the Adviser's clients. However, the Adviser regards this
information and material as an adjunct to its own research activities. The
Adviser's international investment management team travels the world,
researching hundreds of companies. In selecting the securities in which the Fund
may invest, the conclusions and investment decisions of the Adviser with respect
to the Funds are based primarily on the analyses of its own research department.
Certain investments may be appropriate for the Funds and also for other
clients advised by the Adviser. Investment decisions for the Fund and other
clients are made with a view toward achieving their respective investment
objectives and after consideration of such factors as their current holdings,
availability of cash for investment and the size of their investments generally.
Frequently, a particular security may be bought or sold for only one client or
in different amounts and at different times for more than one but less than all
clients. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the security. In addition, purchases
or sales of the same security may be made for two or more clients on the same
day. In such event, such transactions will be allocated among the clients in a
manner believed by the Adviser to be equitable to each. In some cases, this
procedure could have an adverse effect on the price or amount of the securities
purchased or sold by the Fund. Purchase and sale orders for the Fund may be
combined with those of other clients of the Adviser in the interest of achieving
the most favorable net results to the Fund.
In certain cases the investments for the Funds are managed by the same
individuals who manage one or more other mutual funds advised by the Adviser
that have similar names, objectives and investment styles as the Fund. You
should be aware that a Fund is likely to differ from these other mutual funds in
size, cash flow pattern and tax matters. Accordingly, the holdings and
performance of the Fund can be expected to vary from those of the other mutual
funds.
TO BE UPDATED
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Each Fund's present investment management agreement (the "Agreement")
was approved by the Trustees on August 6, 1998, became effective September 7,
1998, and was approved at a shareholder meeting held on December 15, 1998.The
Agreement will continue in effect until September 30, 2000, and from year to
year thereafter only if its continuance is approved annually by the vote of a
majority of those Trustees who are not parties to such Agreement or interested
persons of the Adviser or the Trust, cast in person at a meeting called for the
purpose of voting on such approval, and either by a vote of the Trust's Trustees
or of a majority of the outstanding voting securities of the Fund. The Agreement
may be terminated at any time without payment of penalty by either party on
sixty days' written notice, and automatically terminates in the event of its
assignment.
Under the Agreements, the Adviser provides the Fund with continuing
investment management for the Fund's portfolio consistent with the Fund's
investment objective, policies and restrictions and determines what securities
shall be purchased, held or sold and what portion of the Fund's assets shall be
held uninvested, subject always to the provisions of the Trust's Declaration of
Trust and By-Laws, the 1940 Act, the Code and to the Fund's investment
objective, policies and restrictions, and subject, further, to such policies and
instructions as the Board of Trustees of the Fund may from time to time
establish. The Adviser also advises and assists the officers of the Fund in
taking such steps as are necessary or appropriate to carry out the decisions of
its Trustees and the appropriate committees of the Trustees regarding the
conduct of the business of the Fund.
Under the Agreement, the Adviser also renders significant
administrative services (not otherwise provided by third parties) necessary for
the Fund's operations as an open-end investment company including, but not
limited to, preparing reports and notices to the Trustees and shareholders;
supervising, negotiating contractual arrangements with, and monitoring various
third-party service providers to the Fund (such as the Fund's transfer agent,
pricing agents, custodian, accountants and others); preparing and making filings
with the SEC and other regulatory agencies; assisting in the preparation and
filing of the Fund's federal, state and local tax returns; preparing and filing
the Fund's federal excise tax returns; assisting with investor and public
relations matters; monitoring the valuation of securities and the calculation of
net asset value; monitoring the registration of shares of the Fund under
applicable federal and state securities laws; maintaining the Fund's books and
records to the extent not otherwise maintained by a third party; assisting in
establishing accounting policies of the Fund; assisting in the resolution of
accounting and legal issues; establishing and monitoring the Fund's operating
budget; processing the payment of the Fund's bills; assisting the Fund in, and
otherwise arranging for, the payment of distributions and dividends and
otherwise assisting the Fund in the conduct of its business, subject to the
direction and control of the Trustees.
The Adviser pays the compensation and expenses (except those for
attending Board and committee meetings outside New York, New York and Boston,
Massachusetts) of all Trustees, officers and executive employees of the Fund
affiliated with the Adviser, and makes available, without expense to the Fund,
the services of such directors, officers and employees of the Adviser as may
duly be elected officers of the Fund, subject to their individual consent to
serve and to any limitations imposed by law, and provides the Fund's office
space and facilities.
TO BE UPDATED: For these services the Small Company Value Fund pays the
Adviser a fee equal to an annual rate of 0.75% of the Fund's average daily net
assets payable monthly, provided the Fund will make such interim payments as may
be requested by the Adviser not to exceed 75% of the amount of the fee then
accrued on the books of the Fund and unpaid. The Adviser agreed until November
30, 2000 to maintain the total annualized expenses of the Fund at no more than
1.25% of the average daily net assets of the Fund. The investment advisory fees
paid to the Adviser for the fiscal years ending August 31, 1998 were$1,778,500.
or the eleven months ended July 31, 1999, the Adviser did not impose a portion
of its management fee which amounted to $670,202, and the amount imposed
amounted to $1,164,515. For the fiscal year ended July 31, 2000, the fees paid
were ___________
For the Adviser's services, prior to October 2, 2000, Large Company
Value Fund paid the Adviser a fee equal to 0.75 of 1% on the first $500 million
of average daily net assets; 0.65 of 1% on the next $500 million of such assets;
0.60 of 1% on the next $500 million of such assets, 0.55 of 1% on the next $500
million of such assets and 0.50 of 1% of such net assets in excess of $ 2
billion, payable monthly, provided the Fund will make such interim payments as
may be requested by the Adviser not to exceed 75% of the amount of the fee then
accrued on the books of the Fund and unpaid. After October 2, 2000, the Fund
paid a fee equal to 0.60 of 1% on the first $1.5 billion of average daily net
assets; 0.575 of 1% on the next $500 million of such assets; 0.550 of 1% on the
next $500 million of such assets, 0.525
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of 1% on the next $1 billion of such assets and 0.500 of 1% on the next $1
billion of such assets and 0.475 of 1% of such net assets in excess of $ 5
billion, payable monthly, provided the Fund will make such interim payments as
may be requested by the Adviser not to exceed 75% of the amount of the fee then
accrued on the books of the Fund and unpaid
For the fiscal years ended September 30, 1997 and 1998, Large Company
Value Fund incurred aggregate fees pursuant to its then effective investment
advisory agreement of $12,187,280 and $14,296,878, respectively. For the ten
months ended July 31, 1999, Large Company Value Fund incurred aggregate fees
pursuant to its then effective investment advisory agreement of $12,261,953. For
the fiscaly year ended July 31, 2000, fees were
$-----------.
Under the Agreement, the Fund is responsible for all of its other
expenses including: fees and expenses incurred in connection with membership in
investment company organizations; broker's commissions, legal, auditing and
accounting expenses; the calculation of net asset value; taxes and governmental
fees; the fees and expenses of the Transfer Agent; the cost of preparing share
certificates or any other expenses including expenses of issuance, redemption or
repurchase of shares; the expenses of and the fees for registering or qualifying
securities for sale; the fees and expenses of Trustees, officers and employees
of the Fund who are not affiliated with the Adviser; the cost of printing and
distributing reports and notices to shareholders; and the fees and disbursements
of custodians. The Fund may arrange to have third parties assume all or part of
the expenses of sale, underwriting and distribution of shares of the Fund. The
Fund is also responsible for expenses of shareholders' meetings, the cost of
responding to shareholders' inquiries and expenses incurred in connection with
litigation, proceedings and claims and the legal obligation it may have to
indemnify its officers and Trustees with respect thereto.
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 Trusts, with respect to each 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 Trusts' investment products and services.
In reviewing the terms of the Agreement and in discussions with the
Adviser concerning such Agreement, the Trustees who are not "interested persons"
of the Adviser are represented by independent counsel at the Fund's expense.
The Agreement provides that the Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Adviser in the performance of its duties or from reckless disregard by the
Adviser of its obligations and duties under the Agreement.
Officers and employees of the Adviser from time to time may have
transactions with various banks, including the Fund's custodian bank. It is the
Adviser's opinion that the terms and conditions of those transactions which have
occurred were not influenced by existing or potential custodial or other Fund
relationships.
The Adviser may serve as adviser to other funds with investment
objectives and policies similar to those of the Funds that may have different
distribution arrangements or expenses, which may affect performance.
None of the Trustees or officers of the Funds 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 Funds.
The term Scudder Investments is the designation given to the services
provided by Scudder Kemper Investments, Inc. and its affiliates to the Scudder
Family of Funds.
Administrative Fee
Each Fund's Board of Trustees has approved the adoption of a new
administrative services agreement (an "Administrative Agreement"). Under each
Fund's Administrative Agreement, each share class of the Fund will pay a fixed
fee rate (the "Administrative Fee") to Scudder Kemper Investments, Inc., the
Fund's investment adviser ("Scudder Kemper"). In return, Scudder Kemper will
provide or pay others to provide substantially all services that a fund normally
requires for its operations, such as transfer agency fees, shareholder servicing
fees, custodian fees, and fund accounting fees, but not including expenses such
as taxes, brokerage, interest, extraordinary expenses and fees and
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expenses of Board members not affiliated with Scudder Kemper (including fees and
expenses of their independent counsel). Each fund would continue to pay the fees
required by its investment management agreement with Scudder Kemper. Each
Administrative Agreement will have an initial term of three years, subject to
earlier termination by a fund's Board. Such an administrative fee would enable
investors to determine with greater certainty the expense level that the fund
will experience, and, for the term of the administrative agreement, would
transfer substantially all of the risk of increased cost to Scudder Kemper. The
date upon which each fund's Administrative Agreement will be implemented is set
forth below, along with the administrative fee rate that will be in effect under
each Administrative Agreement.
Each Fund has entered into administrative services agreements with
Scudder Kemper (the "Administration Agreements"), pursuant to which Scudder
Kemper will provide or pay others to provide substantially all of the
administrative services required by a Fund (other than those provided by Scudder
Kemper under its investment management agreements with the Funds, as described
above) in exchange for the payment by each Fund of an administrative services
fee (the "Administrative Fee") of 0.45% of its average daily net assets for
Small Company Vlaue Fund and 0.30% of its average daily net assets for Large
Company Value Fund. One effect of these arrangements is to make each Fund's
future expense ratio more predictable. The Administrative Fee becaome effective
on August 25, 2000 for Small Company Value Fund and October 2, 2000 for Large
Company Value Fund. The details of the proposal (including expenses that are not
covered) are set out below.
Various third-party service providers (the "Service Providers"), some
of which are affiliated with Scudder Kemper, provide certain services to the
Funds pursuant to separate agreements with the Funds. Scudder Fund Accounting
Corporation, a subsidiary of Scudder Kemper, computes net asset value for the
Funds and maintains their accounting records. Scudder Service Corporation, also
a subsidiary of Scudder Kemper, is the transfer, shareholder servicing and
dividend-paying agent for the shares of the Funds. Scudder Trust Company, an
affiliate of Scudder Kemper, provides subaccounting and recordkeeping services
for shareholders in certain retirement and employee benefit plans. As custodian,
Brown Brothers Harriman holds the portfolio securities of the Funds, pursuant to
a custodian agreement. PricewaterhouseCoopers LLP audits the financial
statements of the Funds and provides other audit, tax, and related services. In
addition to the fees they pay under the investment management agreements with
Scudder Kemper, the Funds pay the fees and expenses associated with these
service arrangements, as well as each Fund's insurance, registration, printing,
postage and other costs.
Scudder Kemper will pay the Service Providers for the provision of
their services to the Funds and will pay other fund expenses, including
insurance, registration, printing and postage fees. In return, each Fund will
pay Scudder Kemper an Administrative Fee.
Each Administration Agreement has an initial term of three years,
subject to earlier termination by the Fund's Board. The fee payable by a Fund to
Scudder Kemper pursuant to the Administration Agreements is reduced by the
amount of any credit received from the Fund's custodian for cash balances.
Certain expenses of the Funds will not be borne by Scudder Kemper under
the Administration Agreements, such as taxes, interest and extraordinary
expenses; and the fees and expenses of the Independent Trustees (including the
fees and expenses of their independent counsel). In addition, each Fund will
continue to pay the fees required by its investment management agreement with
Scudder Kemper.
AMA InvestmentLink(SM) Program
Pursuant to an Agreement between the Adviser and AMA Solutions, Inc., a
subsidiary of the American Medical Association (the "AMA"), dated May 9, 1997,
Scudder has agreed, subject to applicable state regulations, to pay AMA
Solutions, Inc. royalties in an amount equal to 5% of the management fee
received by Scudder with respect to assets invested by AMA members in Scudder
funds in connection with the AMA InvestmentLink(SM) Program. Scudder will also
pay AMA Solutions, Inc. a general monthly fee, currently in the amount of $833.
The AMA and AMA Solutions, Inc. are not engaged in the business of providing
investment advice and neither is registered as an investment adviser or
broker/dealer under federal securities laws. Any person who participates in the
AMA InvestmentLink(SM)
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<PAGE>
Program will be a customer of Scudder (or of a subsidiary thereof) and not the
AMA or AMA Solutions, Inc. AMA InvestmentLinkSM is a service mark of AMA
Solutions, Inc.
Personal Investments by Employees of the Adviser
Employees of the Adviser are permitted to make personal securities
transactions, subject to requirements and restrictions set forth in the
Adviser's Code of Ethics. The Code of Ethics contains provisions and
requirements designed to identify and address certain conflicts of interest
between personal investment activities and the interests of investment advisory
clients such as the Funds. Among other things, the Code of Ethics, which
generally complies with standards recommended by the Investment Company
Institute's Advisory Group on Personal Investing, prohibits certain types of
transactions absent prior approval, imposes time periods during which personal
transactions may not be made in certain securities, and requires the submission
of duplicate broker confirmations and monthly reporting of securities
transactions. Additional restrictions apply to portfolio managers, traders,
research analysts and others involved in the investment advisory process.
Exceptions to these and other provisions of the Code of Ethics may be granted in
particular circumstances after review by appropriate personnel.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position with
Underwriter,
Scudder Investor
Name, Age, and Address Position with Fund Principal Occupation** Services, Inc.
---------------------- ------------------ ---------------------- --------------
<S> <C> <C> <C>
</TABLE>
TO BE UPDATED
* ______________ is considered by the Fund and its counsel to be a person
who is an "interested person" of the Adviser or of the Fund within the
meaning of the 1940 Act.
** Unless otherwise stated, all officers and trustees have been associated
with their respective companies for more than five years, but not
necessarily in the same capacity.
@ _________ is a member of the Executive Committee
which may exercise substantially all of the
powers of the Board of Trustees when it is not in
session.
+ Address: Two International Place, Boston, Massachusetts 02110
++ Address: 345 Park Avenue, New York, New York 10154
# Address: 101 California Street, Suite 4100, San Francisco, CA
94111-5886
## Address: 222 South Riverside Plaza, Chicago, IL 60606-5808
The Trustees and Officers of the Trusts also serve in similar
capacities with other Scudder Funds.
REMUNERATION
Responsibilities of the Board -- Board and Committee
Meetings
The Board of Trustees is responsible for the general oversight of the
Fund's business. A majority of the Board's members are not affiliated with
Scudder Kemper Investments, Inc. These "Independent Trustees" have primary
responsibility for assuring that the Fund is managed in the best interests of
its shareholders.
The Board of Trustees meets at least quarterly to review the investment
performance of the Fund and other operational matters, including policies and
procedures designed to ensure compliance with various regulatory requirements.
At least annually, the Independent Trustees review the fees paid to the Adviser
and its affiliates for investment advisory services and other administrative and
shareholder services. In this regard, they evaluate, among other things, the
Fund's investment performance, the quality and efficiency of the various other
services provided, costs incurred by the Adviser and its affiliates and
comparative information regarding fees and expenses of competitive funds. They
are assisted in this process by the Fund's independent public accountants and by
independent legal counsel selected by the Independent Trustees.
All the Independent Trustees serve on the Committee on Independent
Trustees, which nominates Independent Trustees and considers other related
matters, and the Audit Committee, which selects the Fund's independent public
44
<PAGE>
accountants and reviews accounting policies and controls. In addition,
Independent Trustees from time to time have established and served on task
forces and subcommittees focusing on particular matters such as investment,
accounting and shareholder service issues.
Compensation of Officers and Trustees
The Independent Trustees receive the following compensation from the
Funds of each Trust: an annual trustee's fee of $3,500; a fee of $325 for
attendance at each board meeting, audit committee meeting or other meeting held
for the purposes of considering arrangements between the Trust on behalf of the
Fund and the Adviser or any affiliate of the Adviser; $100 for all other
committee meetings; and reimbursement of expenses incurred for travel to and
from Board Meetings. No additional compensation is paid to any Independent
Trustee for travel time to meetings, attendance at directors' educational
seminars or conferences, service on industry or association committees,
participation as speakers at directors' conferences or service on special
trustee task forces or subcommittees. Independent Trustees do not receive any
employee benefits such as pension or retirement benefits or health insurance.
Notwithstanding the schedule of fees, the Independent Trustees have in the past
and may in the future waive a portion of their compensation.
The Independent Trustees also serve in the same capacity for other
funds managed by the Adviser. These funds differ broadly in type and complexity
and in some cases have substantially different Trustee fee schedules. The
following table shows the aggregate compensation received by each Independent
Trustee during 1999 from the Trust and from all of the Scudder funds as a group.
<TABLE>
<CAPTION>
Scudder Securities Trust* Value Equity Trust* All Scudder Funds
------------------------ ------------------ -----------------
Paid by Paid by Paid by Paid by Paid by Paid by
Name The Trust The Adviser The Trust The Adviser the Funds the Adviser(1)
---- --------- ----------- --------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
TO BE UPDATED
45
<PAGE>
<TABLE>
<CAPTION>
Scudder Securities Trust* Value Equity Trust* All Scudder Funds
------------------------ ------------------ -----------------
Paid by Paid by Paid by Paid by Paid by Paid by
Name The Trust The Adviser The Trust The Adviser the Funds the Adviser(1)
---- --------- ----------- --------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
Members of the Board of Trustees who are employees of the Adviser or
its affiliates receive no direct compensation from the Trust, although they are
compensated as employees of the Adviser, or its affiliates, as a result of which
they may be deemed to participate in fees paid by the Fund.
The Trustees and Officers of the Trust also serve in similar capacities
with respect to other Scudder Funds.
Certain accounts for which the Adviser acts as investment adviser owned
shares in the aggregate, or ________18.42% of the outstanding shares on
_________. The Adviser may be deemed to be the beneficial owner of such shares,
but disclaims any beneficial ownership in such shares.
As of ______________2000,_________ shares in the aggregate, or ______%
of the outstanding shares of Scudder Small Company Value Fund were held in the
name of _____________who may be deemed to be the beneficial owner of certain of
these shares, but disclaims any beneficial ownership therein.
As of ______________2000,_________ shares in the aggregate, or ______%
of the outstanding shares of Scudder Large Company Value Fund were held in the
name of _____________who may be deemed to be the beneficial owner of certain of
these shares, but disclaims any beneficial ownership therein.
46
<PAGE>
DISTRIBUTOR
Each Trust has an underwriting agreement with Scudder Investor
Services, Inc., Two International Place, Boston, MA 02110 (the "Distributor"), a
Massachusetts corporation, which is a subsidiary of the Adviser, a Delaware
corporation.
TO BE UPDATED
SMALL CO VALUE:The Trust's underwriting agreement dated September 7,
1998 will remain in effect until September 30, 2000 and from year to year
thereafter only if its continuance is approved annually by a majority of the
Trustees who are not parties to such agreement or interested persons of any such
party and either by a vote of a majority of the Trustees or a majority of the
outstanding voting securities of the Fund. The underwriting agreement was last
approved by the Trustees on August 6, 1998.LARGE COMPANY VALUE The Trust, on
behalf of the Fund, has an underwriting agreement with Scudder Investor
Services, Inc. Two International Place, Boston, MA 02110 (the "Distributor"), a
Massachusetts corporation, which is a subsidiary of the Adviser. This
underwriting agreement dated September 7, 1998 will remain in effect until
September 30, 2000 and from year to year thereafter only if its continuance is
approved annually by a majority of the Trustees who are not parties to such
agreement or interested persons of any such party and either by 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 14, 1999.
Under the underwriting agreement, the Funds are responsible for: the
payment of all fees and expenses in connection with the preparation and filing
with the SEC of its registration statement and prospectus and any amendments and
supplements thereto; the registration and qualification of shares for sale in
the various states, including registering the Funds as a broker or dealer in the
various states as required; the fees and expenses of preparing, printing and
mailing prospectuses annually to existing shareholders (see below for expenses
relating to prospectuses paid by the Distributor), notices, proxy statements,
reports or other communications to shareholders of the Funds; the cost of
printing and mailing confirmations of purchases of shares and any prospectuses
accompanying such confirmations; any issuance taxes and/or any initial transfer
taxes; a portion of shareholder toll-free telephone charges and expenses of
shareholder service representatives; the cost of wiring funds for share
purchases and redemptions (unless paid by the shareholder who initiates the
transaction); the cost of printing and postage of business reply envelopes; and
a portion of the cost of computer terminals used by both the Funds and the
Distributor.
The Distributor will pay for printing and distributing prospectuses or
reports prepared for its use in connection with the offering of the Funds'
shares to the public and preparing, printing and mailing any other literature or
advertising in connection with the offering of the shares of the Funds to the
public. The Distributor will pay all fees and expenses in connection with its
qualification and registration as a broker or dealer under federal and state
laws, a portion of the cost of toll-free telephone service and expenses of
shareholder service representatives, a portion of the cost of computer
terminals, and expenses of any activity which is primarily intended to result in
the sale of shares issued by the Funds, unless a 12b-1 Plan is in effect which
provides that the Funds shall bear some or all of such expenses.
NOTE: Although the Funds do not currently have 12b-1 Plans, the
Funds would also pay those fees and expenses permitted to be
paid or assumed by the Funds pursuant to a 12b-1 Plan, if any,
were adopted by the Funds, notwithstanding any other provision
to the contrary in the underwriting agreement.
As agent, the Distributor currently offers the Funds' shares on a
continuous basis to investors in all states in which shares of the Fund may from
time to time be registered or where permitted by applicable law. The
underwriting agreement provides that the Distributor accepts orders for shares
at net asset value as no sales commission or load is charged to the investor.
The Distributor has made no firm commitment to acquire shares of the Fund.
47
<PAGE>
TAXES
Each Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code or a predecessor statute, and has qualified as
such since its inception. It intends to continue to qualify for such treatment.
Such qualification does not involve governmental supervision or management of
investment practices or policy.
A regulated investment company qualifying under Subchapter M of the
Code is required to distribute to its shareholders at least 90% of its
investment company taxable income (including net short-term capital gain) and
generally is not subject to federal income tax to the extent that it distributes
annually its investment company taxable income and net realized capital gains in
the manner required under the Code.
If for any taxable year a Fund does not qualify for the special federal
income tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates (without
any deduction for distributions to its shareholders). In such event, dividend
distributions would be taxable to shareholders to the extent of the Fund's
earnings and profits, and would be eligible for the dividends received deduction
in the case of corporate shareholders.
Each Fund is subject to a 4% nondeductible excise tax on amounts
required to be but not distributed under a prescribed formula. The formula
requires payment to shareholders during a calendar year of distributions
representing at least 98% of the Fund's ordinary income for the calendar year,
at least 98% of the excess of its capital gains over capital losses (adjusted
for certain ordinary losses) realized during the one-year period ending October
31 during such year, and all ordinary income and capital gains for prior years
that were not previously distributed.
Investment company taxable income includes dividends, interest and net
short-term capital gains in excess of net long-term capital losses, less
expenses. Net realized capital gains for a fiscal year are computed by taking
into account any capital loss carryforward of the Fund. Presently, the Fund has
no capital loss carryforwards.
If any net realized long-term capital gains in excess of net realized
short-term capital losses are retained by a Fund for reinvestment, requiring
federal income taxes to be paid thereon by the Fund, the Fund intends to elect
to treat such capital gains as having been distributed to shareholders. As a
result, each shareholder will report such capital gains as long-term capital
gains, will be able to claim a relative share of federal income taxes paid by
the Fund on such gains as a credit against personal federal income tax
liability, and will be entitled to increase the adjusted tax basis on Fund
shares by the difference between such reported gains and the individual tax
credit.
Distributions of investment company taxable income are taxable to
shareholders as ordinary income.
Dividends from domestic corporations are expected to comprise a
substantial part of each Fund's gross income. To the extent that such dividends
constitute a portion of a Fund's gross income, a portion of the income
distributions of the Fund may be eligible for the deduction for dividends
received by corporations. Shareholders will be informed of the portion of
dividends which so qualify. The dividends-received deduction is reduced to the
extent the shares of the Fund with respect to which the dividends are received
are treated as debt-financed under federal income tax law, and is eliminated if
either those shares or the shares of the Fund are deemed to have been held by
the Fund or the shareholder, as the case may be, for less than 46 days during
the 90-day period beginning 45 days before the shares become ex-dividend.
Properly designated distributions of the excess of net long-term
capital gain over net short-term capital loss are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of the Fund
have been held by such shareholders. Such distributions are not eligible for the
dividends-received deduction. Any loss realized upon the redemption of shares
held at the time of redemption for six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain during such six-month period.
48
<PAGE>
Distributions of investment company taxable income and net realized
capital gains will be taxable as described above, whether received in shares or
in cash. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for federal income tax purposes in each
share so received equal to the net asset value of a share on the reinvestment
date.
All distributions of investment company taxable income and net realized
capital gain, whether received in shares or in cash, must be reported by each
shareholder on his or her federal income tax return. Dividends and capital gains
distributions declared in October, November or December and payable to
shareholders of record in such a month will be deemed to have been received by
shareholders on December 31 if paid during January of the following year.
Redemptions of shares, including exchanges for shares of another Scudder fund,
may result in tax consequences (gain or loss) to the shareholder and are also
subject to these reporting requirements.
A qualifying individual may make a deductible IRA contribution for any
taxable year only if (i) neither the individual nor his or her spouse (unless
filing separate returns) is an active participant in an employer's retirement
plan, or (ii) the individual (and his or her spouse, if applicable) has an
adjusted gross income below a certain level ($40,050 for married individuals
filing a joint return, with a phase-out of the deduction for adjusted gross
income between $40,050 and $50,000; $25,050 for a single individual, with a
phase-out for adjusted gross income between $25,050 and $35,000). However, an
individual not permitted to make a deductible contribution to an IRA for any
such taxable year may nonetheless make nondeductible contributions up to $2,000
to an IRA (up to $2,000 per individual for married couples if only one spouse
has earned income) for that year. There are special rules for determining how
withdrawals are to be taxed if an IRA contains both deductible and nondeductible
amounts. In general, a proportionate amount of each withdrawal will be deemed to
be made from nondeductible contributions; amounts treated as a return of
nondeductible contributions will not be taxable. Also, annual contributions may
be made to a spousal IRA even if the spouse has earnings in a given year if the
spouse elects to be treated as having no earnings (for IRA contribution
purposes) for the year.
Distributions by a Fund result in a reduction in the net asset value of
the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution would nevertheless be taxable to the
shareholder as ordinary income or capital gain as described above, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should consider the tax implications of buying shares just
prior to a distribution. The price of shares purchased at that time includes the
amount of the forthcoming distribution. Those purchasing just prior to a
distribution will then receive a partial return of capital upon the
distribution, which will nevertheless be taxable to them.
Each Fund may invest in shares of certain foreign corporations which
may be classified under the Code as passive foreign investment companies
("PFICs"). If a Fund receives a so-called "excess distribution" with respect to
PFIC stock, the Fund itself may be subject to a tax on a portion of the excess
distribution. Certain distributions from a PFIC as well as gains from the sale
of the PFIC shares are treated as "excess distributions." In general, under the
PFIC rules, an excess distribution is treated as having been realized ratably
over the period during which the Fund held the PFIC shares. The Fund will be
subject to tax on the portion, if any, of an excess distribution that is
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Excess
distributions allocated to the current taxable year are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
Each Fund may make an election to mark to market its shares of these
foreign investment companies in lieu of being subject to U.S. federal income
taxation. At the end of each taxable year to which the election applies, the
Fund would report as ordinary income the amount by which the fair market value
of the foreign company's stock exceeds the Fund's adjusted basis in these
shares; any mark to market losses and any loss from an actual disposition of
shares would be deductible as ordinary loss to the extent of any net mark to
market gains included in income in prior years. The effect of the election would
be to treat excess distributions and gain on dispositions as ordinary income
which is not subject to a fund level tax when distributed to shareholders as a
dividend. Alternatively, the Fund may elect to include as income and gain its
share of the ordinary earnings and net capital gain of certain foreign
investment companies in lieu of being taxed in the manner described above.
Equity options (including covered call options on portfolio stock) and
over-the-counter options on debt securities written or purchased by a Fund will
be subject to tax under Section 1234 of the Code. In general, no loss is
recognized by a Fund upon payment of a premium in connection with the purchase
of a put or call option. The
49
<PAGE>
character of any gain or loss recognized (i.e., long-term or short-term) will
generally depend, in the case of a lapse or sale of the option, on the Fund's
holding period for the option, and in the case of an exercise of a put option,
on the Fund's holding period for the underlying stock. The purchase of a put
option may constitute a short sale for federal income tax purposes, causing an
adjustment in the holding period of the underlying stock or substantially
identical stock in the Fund's portfolio. If a Fund writes a put or call option,
no gain is recognized upon its receipt of a premium. If the option lapses or is
closed out, any gain or loss is treated as a short-term capital gain or loss. If
a call option is exercised, any resulting gain or loss is a short-term or
long-term capital gain or loss depending on the holding period of the underlying
stock. The exercise of a put option written by a Fund is not a taxable
transaction for the Fund.
Many futures contracts and certain foreign currency forward contracts
entered into by a Fund and all listed non-equity options written or purchased by
a Fund (including options on futures contracts and options on broad-based stock
indices) will be governed by Section 1256 of the Code. Absent a tax election to
the contrary, gain or loss attributable to the lapse, exercise or closing out of
any such position generally will be treated as 60% long-term and 40% short-term
capital gain or loss, and on the last trading day of the Fund's fiscal year, all
outstanding Section 1256 positions will be marked to market (i.e. treated as if
such positions were closed out at their closing price on such day), with any
resulting gain or loss recognized as 60% long-term and 40% short-term. Under
Section 988 of the Code, discussed below, foreign currency gain or loss from
foreign currency-related forward contracts and similar financial instruments
entered into or acquired by a Fund will be treated as ordinary income or loss.
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 a Fund which consist of at least one stock and at least
one other position with respect to a related security which substantially
diminishes the Fund's risk of loss with respect to such stock could be treated
as a "straddle" which is governed by Section 1092 of the Code, the operation of
which may cause deferral of losses, adjustments in the holding periods of stock
or securities and conversion of short-term capital losses into long-term capital
losses. An exception to these straddle rules exists for certain "qualified
covered call options" on stock written by the Fund.
Positions of a Fund which consist of at least one position not governed
by Section 1256 and at least one futures or forward contract or non-equity
option governed by Section 1256 which substantially diminishes the Fund's risk
of loss with respect to such other position will be treated as a "mixed
straddle." Although mixed straddles are subject to the straddle rules of Section
1092 of the Code, certain tax elections exist for them which reduce or eliminate
the operation of these rules. Each Fund intends to monitor its transactions in
options and futures and may make certain tax elections in connection with these
investments.
Notwithstanding any of the foregoing, recent tax law changes may
require 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.
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 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
50
<PAGE>
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.
A portion of the difference between the issue price of zero coupon
securities and their face value ("original issue discount") is considered to be
income to a Fund each year, even though the Fund will not receive cash interest
payments from these securities. This original issue discount imputed income will
comprise a part of the investment company taxable income of the Fund which must
be distributed to shareholders in order to maintain the qualification of the
Fund as a regulated investment company and to avoid federal income tax at the
Fund's level. In addition, if a Fund invests in certain high yield original
issue discount obligations issued by corporations, a portion of the original
issue discount accruing on the obligation may be eligible for the deduction for
dividends received by corporations. In such event, dividends of investment
company taxable income received from the Fund by its corporate shareholders, to
the 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.
Each Fund will be required to report to the Internal Revenue Service
all distributions of taxable income and capital gains as well as gross proceeds
from the redemption or exchange of Fund shares, except in the case of certain
exempt shareholders. Under the backup withholding provisions of Section 3406 of
the Code, distributions of taxable income and capital gains and proceeds from
the redemption or exchange of the shares of a regulated investment company may
be subject to withholding of federal income tax at the rate of 31% in the case
of non-exempt shareholders who fail to furnish the investment company with their
taxpayer identification numbers and with required certifications regarding their
status under the federal income tax law. Withholding may also be required if the
Fund is notified by the IRS or a broker that the taxpayer identification number
furnished by the shareholder is incorrect or that the shareholder has previously
failed to report interest or dividend income. If the withholding provisions are
applicable, any such distributions and proceeds, whether taken in cash or
reinvested in additional shares, will be reduced by the amounts required to be
withheld.
Shareholders of a Fund may be subject to state and local taxes on
distributions received from the Fund and on redemptions of the Fund's shares.
Each distribution is accompanied by a brief explanation of the form and
character of the distribution. In January of each year, each Fund issues to each
shareholder a statement of the federal income tax status of all distributions.
Each Fund is organized as a series of a Massachusetts business trust
and is not liable for any income or franchise tax in the Commonwealth of
Massachusetts, provided that it qualifies as a regulated investment company for
federal income tax purposes.
The foregoing discussion of U.S. federal income tax law relates solely
to the application of that law to U.S. persons, i.e., U.S. --- citizens and
residents and U.S. corporations, partnerships, trusts and estates. Each
shareholder who is not a U.S. person should consider the U.S. and foreign tax
consequences of ownership of shares of a Fund, including the possibility that
such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or
at a lower rate under an applicable income tax treaty) on amounts constituting
ordinary income received by him or her, where such amounts are treated as income
from U.S. sources under the Code.
Dividend and interest income received by a Fund from sources outside
the U.S. may be subject to withholding and other taxes imposed by such foreign
jurisdictions. Tax conventions between certain countries and the U.S. may reduce
or eliminate these foreign taxes, however, and foreign countries generally do
not impose taxes on capital gains respecting investments by foreign investors.
51
<PAGE>
Shareholders should consult their tax advisers about the application of
the provisions of tax law described in this Statement of Additional Information
in light of their particular tax situations.
PORTFOLIO TRANSACTIONS
Brokerage Commissions
Allocation of brokerage is supervised by the Adviser.
The primary objective of the Adviser in placing orders for the purchase
and sale of securities for the Fund is to obtain the most favorable net results,
taking into account such factors as price, commission where applicable, size of
order, difficulty of execution and skill required of the executing
broker/dealer. The Adviser seeks to evaluate the overall reasonableness of
brokerage commissions paid (to the extent applicable) through the familiarity of
the Distributor with commissions charged on comparable transactions, as well as
by comparing commissions paid by the Fund to reported commissions paid by
others. The Adviser routinely reviews commission rates, execution and settlement
services performed and makes internal and external comparisons.
The Fund's purchases and sales of fixed-income securities are generally
placed by the Adviser with primary market makers for these securities on a net
basis, without any brokerage commission being paid by the Fund. Trading does,
however, involve transaction costs. Transactions with dealers serving as primary
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues may be made, which will include an underwriting fee paid to
the underwriter.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Adviser's practice to place such orders with
broker/dealers who supply brokerage and research services to the Adviser or the
Fund. The term "research services" includes advice as to the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or purchasers or sellers of securities; and
analyses and reports concerning issuers, industries, securities, economic
factors and trends, portfolio strategy and the performance of accounts. The
Adviser is authorized when placing portfolio transactions, if applicable, for
the Fund to pay a brokerage commission in excess of that which another broker
might charge for executing the same transaction on account of execution services
and the receipt of research services. The Adviser has negotiated arrangements,
which are not applicable to most fixed-income transactions, with certain
broker/dealers pursuant to which a broker/dealer will provide research services,
to the Adviser or the Fund in exchange for the direction by the Adviser of
brokerage transactions to the broker/dealer. These arrangements regarding
receipt of research services generally apply to equity security transactions.
The Adviser will not place orders with a broker/dealer on the basis that the
broker/dealer has or has not sold shares of the Fund. In effecting transactions
in over-the-counter securities, orders are placed with the principal market
makers for the security being traded unless, after exercising care, it appears
that more favorable results are available elsewhere.
To the maximum extent feasible, it is expected that the Adviser will
place orders for portfolio transactions through the Distributor, which is a
corporation registered as a broker/dealer and a subsidiary of the Adviser; the
Distributor will place orders on behalf of the Fund with issuers, underwriters
or other brokers and dealers. The Distributor will not receive any commission,
fee or other remuneration from the Fund for this service.
Although certain research services from broker/dealers may be useful to
the Fund and to the Adviser, it is the opinion of the Adviser that such
information only supplements the Adviser's own research effort since the
information must still be analyzed, weighed, and reviewed by the Adviser's
staff. Such information may be useful to the Adviser in providing services to
clients other than the Fund, and the Adviser in connection with the Fund uses
not all such information. Conversely, such information provided to the Adviser
by broker/dealers through whom other clients of the Adviser effect securities
transactions may be useful to the Adviser in providing services to the Fund.
The Trustees review, from time to time, whether the recapture for the
benefit of the Fund of some portion of the brokerage commissions or similar fees
paid by the Fund on portfolio transactions is legally permissible and advisable.
TO BE UPDATED:
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<PAGE>
Small Company Value Fund: For the fiscal years ended August 31, 1998,
and the eleven-month period ended July 31, 1999, the Fund paid brokerage
commissions of $250,097, and $263,729, respectively. For the fiscal year ended
August 31, 1998, $151,007 (60% of the total brokerage commissions paid) resulted
from orders placed, consistent with the policy of obtaining the most favorable
net results, with brokers and dealers who provided supplementary research market
and statistical information to the Fund or the Adviser. The total amount of
brokerage transactions aggregated $185996,842, of which $90,770,575 (49% of all
brokerage transactions) were transactions which included research commissions.
For the eleven month period ended July 31, 1999, $222,500 (84% of the total
brokerage commissions paid) resulted from orders placed, consistent with the
policy of obtaining the most favorable net results, with brokers and dealers who
provided supplementary research market and statistical information to the Fund
or the Adviser. The total amount of brokerage transactions aggregated
$187,405,537, of which $161,418,902 (86% of all brokerage transactions) were
transactions which included research commissions. For the fiscal year ended July
31, 2000, the Fund paid brokerage commissions of $------.
Large Company Value Fund: In the fiscal years ended September 30, 1997
and 1998, Large Company Value Fund paid brokerage commissions of $2,188,295 and
$1,318,544 respectively. In the fiscal year ended July 31, 2000 the Fund paid
brokerage commissions of $-----------. For the ten months ended July 31, 1999,
Large Company Value Fund paid brokerage commissions of $1,722,405. For the
fiscal year ended September 30, 1998, $1,260,550 , (95.60% of the total
brokerage commissions paid) resulted from orders placed, consistent with the
policy of obtaining the most favorable net results, with brokers and dealers who
provided supplementary research services to the Trust or Adviser. For the ten
months ended July 31, 1999, $1,365,362 , (79.27% of the total brokerage
commissions paid) resulted from orders placed, consistent with the policy of
obtaining the most favorable net results, with brokers and dealers who provided
supplementary research services to the Trust or Adviser. The total amount of
brokerage transactions aggregated for the fiscal year ended September 30, 1998
was $977,798,986 of which $874,809,855 (89.47% of all brokerage transactions)
were transactions which included research commissions. The total amount of
brokerage transactions aggregated for the 10 months ended July 31, 1999 was
$1,429,520,190 of which $1,157,569,737 (80.98% of all brokerage transactions)
were transactions which included research commissions.
Portfolio Turnover
The portfolio turnover rates (defined by the SEC as the ratio of the
lesser of sales or purchases to the monthly average value of such securities
owned during the year, excluding all securities whose remaining maturities at
the time of acquisition were one year or less) for each fund is listed below.
Higher levels of activity bya Fund result in higher transaction costs and may
also result in taxes on realized capital gains to be borne by the Fund's
shareholders. Purchases and sales are made for each Fund whenever necessary, in
management's opinion, to meet the Fund's objectives.
TO BE UPDATED:
Small Company Value Fund: for the fiscal year ended August 30, 1998,
and the eleven month period ended July 31, 1999, were 22.6%, and 33.7%,
respectively. For the eleven-month period ended July 31, 1999, the figure has
been annualized. For the fiscal year ended July 31,. 2000, the portfolio
turnover reate was %.
Large Company Value Fund: for the fiscal year ended September 30, 1998
the rate was 39.5%. Large Company Value Fund's average annualized portfolio
turnover rate for the 10 months ended July 31, 1999 was 35.2% and for the fiscal
year ended July 31, 2000 it was %.
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
("Value Time"). The Exchange is scheduled to be closed on the following
holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day,
53
<PAGE>
Independence Day, Labor Day, Thanksgiving and Christmas, and on the preceding
Friday or subsequent Monday when one of these holidays falls on a Saturday or
Sunday, respectively. Net asset value per share is determined by dividing the
value of the total assets of the Fund, less all liabilities, by the total number
of shares outstanding.
An exchange-traded equity security is valued at its most recent sale
price on the exchange it is traded as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the most recent bid quotation
and the most recent asked quotation (the "Calculated Mean") on such exchange as
of the Value Time. Lacking a Calculated Mean quotation, the security is valued
at the most recent bid quotation on such exchange as of the Value Time. An
equity security which is traded on The National Association of Securities
Dealers Automated Quotation (Nasdaq) system will be valued at its most recent
sale price on such system as of the Value Time. Lacking any sales, the security
will be valued at the most recent bid quotation as of the Value Time. The value
of an equity security not quoted on the Nasdaq System, but traded in another
over-the-counter market, is its most recent sale price, if there are any sales
of such security on such market as of the Value Time. Lacking any sales, the
security is valued at the Calculated Mean quotation for such security as of the
Value Time. Lacking a Calculated Mean quotation, the security is valued at the
most recent bid quotation as of the Value Time.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities with
remaining maturities of sixty days or less shall be valued by the amortized cost
method, which the Board believes approximates market value. If it is not
possible to value a particular debt security pursuant to these valuation
methods, the value of such security is the most recent bid quotation supplied by
a bona fide marketmaker. If it is not possible to value a particular debt
security pursuant to the above methods, the Adviser may calculate the price of
that debt security, subject to limitations established by the Board.
An exchange traded options contract on securities, currencies, futures
and other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the Calculated
Mean. Lacking any Calculated Mean, the options contract is valued at the most
recent bid quotation in the case of a purchased options contract, or the most
recent asked quotation in the case of a written options contract. An options
contract on securities, currencies and other financial instruments traded
over-the-counter is valued at the most recent bid quotation in the case of a
purchased options contract and at the most recent asked quotation in the case of
a written options contract. Futures contracts are valued at the most recent
settlement price. Foreign currency exchange forward contracts are valued at the
value of the underlying currency at the prevailing currency exchange rates as of
the date on which the net asset value per share is to be determined.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's Valuation Committee, the value of a
portfolio asset as determined in accordance with these procedures does not
represent the fair market value of the portfolio asset, the value of the
portfolio asset is taken to be an amount which, in the opinion of the Valuation
Committee, represents fair market value on the basis of all available
information. The value of other portfolio holdings owned by the Fund is
determined in a manner which, in the discretion of the Valuation Committee most
fairly reflects fair market value of the property on the valuation date.
Following the valuations of securities or other portfolio assets in
terms of the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets in terms of U.S. dollars is
calculated by converting the Local Currency into U.S. dollars at the prevailing
currency exchange rate on the valuation date.
ADDITIONAL INFORMATION
Experts
The financial highlights of the Fund included in the Fund's prospectus
and the Financial Statements incorporated by reference in this Statement of
Additional Information have been so included or incorporated by reference in
reliance on the report of PricewaterhouseCoopers LLP, 160 Federal Street,
Boston, MA 02110, independent accountants, and given on the authority of said
firm as experts in accounting and auditing. PricewaterhouseCoopers LLP audits
the financial statements of the Fund and provides other audit, tax, and related
services.
54
<PAGE>
Shareholder Indemnification
Each Trust is an organization of the type commonly known as a
Massachusetts business trust. Under Massachusetts law, shareholders of such a
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the Trust. The Declaration of Trust contains an express
disclaimer of shareholder liability in connection with the Fund's property or
the acts, obligations or affairs of the Trust. The Declaration of Trust also
provides for indemnification out of the Fund's property of any shareholder held
personally liable for the claims and liabilities which a shareholder may become
subject by reason of being or having been a shareholder. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Fund itself would be unable to meet its
obligations.
Other Information
Many of the investment changes in the Funds will be made at prices
different from those prevailing at the time they may be reflected in a regular
report to shareholders of the Fund. These transactions will reflect investment
decisions made by the Adviser in light of the objective and policies of each
Fund, and other factors such as its other portfolio holdings and tax
considerations, and should not be construed as recommendations for similar
action by other investors.
On September 16, 1998, the Board of the Small Company Value Fund
changed the fiscal year end from August 31 to July 31.
On June 7, 1999, the Board of Large Company Value Fund changed the
fiscal year end from September 30 to July 31.
The CUSIP number of the Class AARP of the Small Company Value Fund is
________________.
The CUSIP number of the Class S of the Small Company Value Fund is
811196-20-3.
The CUSIP number of the Class S of the Large Company Value Fund is
920390-50-7.
The CUSIP number of the Class AARP of the Large Company Value Fund
is________________.
Each Fund employs State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 as custodian.
The firm of Dechert Price & Rhoads is counsel to each Fund.
The Funds' combined prospectus and this Statement of Additional
Information omit certain information contained in the Registration Statement
which the Funds have filed with the SEC under the Securities Act of 1933 and
reference is hereby made to the Registration Statement for further information
with respect to the Funds and the securities offered hereby. This Registration
Statement and its amendments are available for inspection by the public at the
SEC in Washington, D.C.
Scudder Fund Accounting Corporation ("SFAC"), Two International Place,
Boston, Massachusetts, 02110-4103, a subsidiary of the Adviser, computes net
asset value for each Fund.
Each Fund, or the Adviser (including any affiliate of the Adviser), or
both, may pay unaffiliated third parties for providing recordkeeping and other
administrative services with respect to accounts of participants in retirement
plans or other beneficial owners of Fund shares whose interests are held in an
omnibus account.
Other Information for Small Company Value Fund
The name "Scudder Securities Trust" is a designation of the Trustees
for the time being under a Declaration of Trust dated October 16, 1985, as
amended from time to time, and all persons dealing with the Fund must look
solely to the property of the Fund for the enforcement of any claims against the
Fund as neither the Trustees, officers, agents or
55
<PAGE>
shareholders assume any personal liability for obligations entered into on
behalf of the Fund. No series of the Trust shall be liable for the obligations
of any other series. Upon the initial purchase of shares of the Fund, the
shareholder agrees to be bound by the Trust's Declaration of Trust, as amended
from time to time. The Declaration of Trust is on file at the Massachusetts
Secretary of State's Office in Boston, Massachusetts.
Costs incurred by the Small Company Value Fund in conjunction with its
organization are being amortized over the five year period beginning October 6,
1995.
The Fund pays SFAC an annual fee equal to 0.025% of the first $150
million of average daily net assets, 0.0075% of the next $85 million of such
assets, and, 0.0045% of such assets in excess of $1 billion, plus holding and
transaction charges for this service. For the fiscal years ended August 31, 1997
and 1998, the amounts charged to the Fund by SFAC aggregated $57,935 and
$81,326, respectively.
For the eleven-month period ended July 31, 1999, the amount charged to
the Fund by SFAC aggregated $67,799, of which $13,084 was unpaid at July 31,
1999.
Scudder Service Corporation ("SSC"), P.O. Box 2291, Boston,
Massachusetts 02107-2291, a subsidiary of the Adviser, is the transfer and
dividend paying agent for the Fund. SSC also provides subaccounting and
recordkeeping services for shareholder accounts in certain retirement and
employee benefit plans. Each Fund pays SSC a fee for maintaining each account
for a retail participant of $26.00, and for each retirement participant of
$29.00. The Fund pays SSC an annual fee for each account maintained for a
participant. For the fiscal years ended August 31, 1997 and 1998, the amounts
charged to the Fund by SSC aggregated $285,621 and $736,233, respectively, of
which $31,498 and $72,297 was unpaid at August 31, 1997 and 1998, respectively.
For the eleven-month period ended July 31, 1999, the amount charged to
the Fund by SSC aggregated $696,431, of which $59,497 was unpaid at July 31,
1999.
Scudder Trust Company ("STC"), an affiliate of the Adviser, provides
recordkeeping and other services in connection with certain retirement and
employee benefit plans invested in the Fund. Annual service fees are paid by the
Fund to STC, Two International Place, Boston, Massachusetts 02110-4103 for such
accounts. The Fund pays STC an annual fee of $29.00 per shareholder account. For
the fiscal years ended August 31, 1997 and 1998, the amounts charged to the Fund
by STC aggregated $20,160 and $255,111, respectively.
For the eleven-month period ended July 31, 1999, the amount charged to
the Fund by STC aggregated $743,277, of which $170,877 was unpaid at July 31,
1999.
Other Information for Large Company Value Fund
The name "Value Equity Trust" is the designation of the Trustees for
the time being under a Declaration of Trust dated October 16, 1985, as amended,
and all persons dealing with the Fund must look solely to the property of the
Fund for the enforcement of any claims against the Fund as neither the Trustees,
officers, agents, shareholders nor other series of the Trust assumes any
personal liability for obligations entered into on behalf of the Fund. Upon the
initial purchase of shares of the Fund, the shareholder agrees to be bound by
the Trust's Declaration of Trust, as amended from time to time. The Declaration
of Trust is on file at the Massachusetts Secretary of State's Office in Boston,
Massachusetts. 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 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 the
next 85 million of such assets, and 0.0045% of such assets in excess of $1
billion, plus holding and transaction charges for this service. For the fiscal
years ended September 30, 1996, 1997 and 1998, Large Company Value Fund incurred
annual fees of $158,045, $157,173 and $174,325, respectively. For the 10 months
ended July 31, 1999, Large Company Value Fund incurred fees of $147,196, of
which $30,868 was unpaid at July 31, 1999.
The 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 years ended September 30, 1996, 1997, and 1998, Large
Company
56
<PAGE>
Value Fund incurred annual fees of $1,715,004, $2,505,046, and $2,518,178. For
the ten months ended July 31, 1999, Large Company Value Fund incurred fees of
$2,057,788, of which $204,116 was unpaid at July 31, 1999.
The Fund pays Scudder Trust Company an annual fee of $29.00 for each
account maintained for a participant. For the fiscal years ended September 30,
1996, 1997, and 1998, Large Company Value Fund incurred annual fees of
$1,715,004, $1,562,194, and $1,835,663. For the ten months ended July 31, 1999,
Large Company Value Fund incurred annual fees of $1,545,597, of which $294,062
was unpaid at July 31, 1999.
FINANCIAL STATEMENTS
The financial statements, including the investment portfolio, of Class
S of Scudder Small Company Value Fund, and Class S of Scudder Large Company
Value Fund, together with the Report of Independent Accountants, Financial
Highlights and notes to financial statements in the Annual Report to the
Shareholders of the Fund dated July 31, 2000, as filed with the Securities and
Exchange Commission for Value Equity Trust on Form N-3D, and are hereby deemed
to be a part of this Statement of Additional Information.
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<PAGE>
APPENDIX
The following is a description of the ratings given by Moody's and S&P
to corporate and municipal bonds.
Ratings of Municipal and Corporate Bonds
Standard & Poor's:
Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong. Debt rated AA has a very
strong capacity to pay interest and repay principal and differs from the highest
rated issues only in small degree. Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories. Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay interest and
repay principal for debt in this category than in higher rated categories.
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest. While
such debt will likely have some quality and protective characteristics, large
uncertainties or major exposures to adverse conditions outweigh these.
Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating. Debt rated B has a greater
vulnerability to default but currently has the capacity to meet interest
payments and principal repayments. Adverse business, financial, or economic
conditions will likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to senior
debt that is assigned an actual or implied BB or BB- rating.
Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal in the event of
adverse business, financial, or economic conditions. It is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating. The rating CC typically is applied to debt subordinated
to senior debt that is assigned an actual or implied CCC rating. The rating C
typically is applied to debt subordinated to senior debt that is assigned an
actual or implied CCC- debt rating. The C rating may be used to cover a
situation where a bankruptcy petition has been filed, but debt service payments
are continued. The rating C1 is reserved for income bonds on which no interest
is being paid. Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period had not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Moody's:
Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Bonds which are rated Aa are
judged to be of high quality by all standards. Together with the Aaa group they
comprise what are generally known as high-grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities. Bonds which are rated A possess many
favorable investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future.
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<PAGE>
Bonds that are rated Baa are considered as medium grade obligations,
i.e.; they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. Bonds that are rated Ba are
judged to have speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may be very
moderate and thereby not well safeguarded during other good and bad times over
the future. Uncertainty of position characterizes bonds in this class. Bonds
that are rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. Bonds that are rated Ca represent obligations that are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings. Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
59
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VALUE EQUITY TRUST
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits.
-------- ---------
<S> <C> <C>
(a) (1) Amended and Restated Declaration of Trust dated March 17, 1988.
(Incorporated by reference to Exhibit 1(a) to Post-Effective Amendment No.
25 to the Registration Statement.)
(2) Establishment and Designation of Series dated December 15, 1986.
(Incorporated by reference to Exhibit 1(b) to Post-Effective Amendment No.
25 to the Registration Statement.)
(3) Amended Establishment and Designation of Series dated May 4, 1987.
(Incorporated by reference to Exhibit 1(c) to Post-Effective Amendment No.
25 to the Registration Statement.)
(4) Certificate of Amendment dated December 13, 1990.
(Incorporated by reference to Exhibit 1(d) to Post-Effective Amendment No.
25 to the Registration Statement.)
(5) Establishment and Designation of Series dated October 6, 1992.
(Incorporated by reference to Exhibit 1(e) to Post-Effective Amendment No.
25 to the Registration Statement.)
(6) Redesignation of Series by the Registrant on behalf of Scudder Capital
Growth Fund, dated December 2, 1996.
(Incorporated by reference to Exhibit 1(f) to Post-Effective Amendment No.
25 to the Registration Statement.)
(7) Establishment and Designation of Classes of Shares of Beneficial Interest,
$0.01 Par Value, Kemper A, B & C Shares, and Scudder Shares.
(Incorporated by reference to Post-Effective Amendment No. 30 to the
Registration Statement.)
(8) Redesignation of Series, Scudder Value Fund to Value Fund.
(Incorporated by reference to Post-Effective Amendment No. 30 to the
Registration Statement.)
(9)(a) Establishment and Designation of Classes of Shares of Beneficial Interest,
$.01 Par Value, Scudder Large Company Value Fund - Class S Shares and
Scudder Large Company Value Fund - AARP Shares, dated March 17, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(9)(b) Establishment and Designation of Classes of Shares of Beneficial Interest,
$.01 Par Value, Scudder Select 500 Fund - Class S Shares and Scudder Select
500 Fund - AARP Shares, dated March 17, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(9)(c) Establishment and Designation of Classes of Shares of Beneficial Interest,
$.01 Par Value, Scudder Select 1000 Growth Fund - Class S Shares and Scudder
Select 1000 Growth Fund - AARP Shares, dated March 17, 2000.
<PAGE>
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(b) (1) By-Laws as of October 16, 1985.
(Incorporated by reference to Exhibit 2(a) to Post-Effective Amendment No.
25 to the Registration Statement.)
(2) Amendment to the By-Laws of Registrant as amended through December 9, 1985.
(Incorporated by reference to Exhibit 2(b) to Post-Effective Amendment No.
25 to the Registration Statement.)
(3) Amendment to the Registrant's By-Laws dated December 12, 1991.
(Incorporated by reference to Exhibit 2(c) to Post-Effective Amendment No.
25 to the Registration Statement.)
(4) Amendment to the Registrant's By-Laws dated September 17, 1992.
(Incorporated by reference to the Exhibit 2(d) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(5) Amendment to the Registrant's By-Laws dated February 7, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(c) Inapplicable.
(d) (1) Investment Management Agreement between the Registrant, on behalf of Scudder
Large Company Value Fund, and Scudder Kemper Investments, Inc. dated
September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 30 to the
Registration Statement.)
(2) Investment Management Agreement between the Registrant, on behalf of Value
Fund, and Scudder Kemper Investment, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 30 to the
Registration Statement.)
(3) Investment Management Agreement between the Registrant on behalf of Scudder
Select 500 Fund and Scudder Kemper Investments, Inc., dated March 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 33 to the
Registration Statement.)
(4) Investment Management Agreement between the Registrant on behalf of Scudder
Select 1000 Growth Fund and Scudder Kemper Investments, Inc., dated March
31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 33 to the
Registration Statement.)
(5) Investment Management Agreement between the Registrant, on behalf of Scudder
Large Company Value Fund, and Scudder Kemper Investments, Inc., dated
February 7, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
2
<PAGE>
(6) Form of Investment Management Agreement between the Registrant, on behalf of
Scudder Select 500 Fund, and Scudder Kemper Investments, Inc., dated August
25, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(7) Form of Investment Management Agreement between the Registrant, on behalf of
Scudder Select 1000 Growth Fund, and Scudder Kemper Investments, Inc., dated
October 2, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(e) (1) Underwriting and Distribution Services Agreement between the Registrant, on
behalf of Value Fund, and Kemper Distributors, Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 30 to the
Registration Statement.)
(2) Underwriting Agreement between the Registrant and Scudder Investor Services,
Inc. dated September 7, 1998.
(Incorporated by reference to Post-Effective Amendment No. 30 to the
Registration Statement.)
(3) Amendment dated September 30, 1999 to the Underwriting and Distribution
Services Agreement between the Registrant, on behalf of Value Fund, and
Kemper Distributors, Inc.
(Incorporated by reference to Post-Effective Amendment No. 35 to the
Registration Statement.)
(4) Form of Amendment dated December 7, 1999 to the Underwriting and
Distribution Services Agreement between the Registrant, on behalf of Value
Fund, and Kemper Distributors, Inc.
(Incorporated by reference to Post-Effective Amendment No. 37 to the
Registration Statement.)
(f) Inapplicable.
(g) (1) Custodian Agreement between the Registrant and State Street Bank and Trust
Company ("State Street Bank") dated October 1, 1982.
(Incorporated by reference to Exhibit 8(a)(1) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(1)(a) Fee schedule for Exhibit (g)(1).
(Incorporated by reference to Exhibit 8(a)(2) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(2) Amendment to Custodian Contract dated March 31, 1986.
(Incorporated by reference to Exhibit 8(a)(3) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(3) Amendment to Custodian Contract dated October 1, 1982.
(Incorporated by reference to Exhibit 8(a)(4)to Post-Effective Amendment No.
25 to the Registration Statement.)
3
<PAGE>
(4) Amendment to Custodian Contract dated September 16, 1988.
(Incorporated by reference to Exhibit 8(a)(5) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(5) Amendment to Custodian Contract dated December 13, 1990.
(Incorporated by reference to Exhibit 8(a)(6) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(5)(a) Fee schedule for Exhibit (g)(5) dated August 1, 1994.
(Incorporated by reference to Exhibit 8(a)(7) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(6) Amendment to Custodian Contract dated March 1, 1999.
(Incorporated by reference to Post-Effective Amendment No. 35 to the
Registration Statement.)
(6)(a) Form of Fee schedule for Exhibit (g)(6).
(Incorporated by reference to Post-Effective Amendment No. 35 to the
Registration Statement.)
(7) Agency Agreement between State Street Bank and Trust Company and The Bank of
New York, London office dated January 1, 1979.
(Incorporated by reference to Exhibit (b)(1) to Post-Effective Amendment No.
25 to the Registration Statement.)
(8) Subcustodian Agreement between State Street Bank and the Chase Manhattan
Bank, N.A. dated September 1, 1986.
(Incorporated by reference to Exhibit 8(c)(1) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(h) (1) Transfer Agency and Service Agreement between the Registrant and Scudder
Service Corporation dated October 2, 1989.
(Incorporated by reference to Exhibit 9(a)(1) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(1)(a) Fee schedule for Exhibit (h)(1).
(Incorporated by reference to Exhibit 9(a)(2) to Post Effective Amendment
No. 25 to the Registration Statement.)
(1)(b) Form of revised fee schedule for Exhibit (h)(1).
(Incorporated by reference to Exhibit 9(a)(3) to Post-Effective Amendment
No. 23 to the Registration Statement.)
(2) Transfer Agency Fee Schedule between the Registrant and Kemper Service
Company on behalf of Scudder Value Fund dated January 1, 1999.
(Incorporated by reference to Post-Effective Amendment No. 35 to the
Registration Statement.)
(3) Agency Agreement between the Registrant on behalf of Value Fund and Kemper
Service Company dated April 16, 1998.
(Incorporated by reference to Post-Effective No. 30 to the Registration
Statement.)
4
<PAGE>
(4) Amendment No. 1 dated September 30, 1999 to the Agency Agreement between the
Registrant, on behalf of Value Fund, and Kemper Service Company.
(Incorporated by reference to Post-Effective Amendment No. 35 to the
Registration Statement.)
(5) COMPASS Service Agreement between Scudder Trust Company and the Registrant
dated October 1, 1995.
(Incorporated by reference to Exhibit 9(b)(3)to Post-Effective Amendment No.
24 to this Registration Statement.)
(6) Shareholder Services Agreement between the Registrant and Charles Schwab &
Co., Inc. dated June 1, 1990.
(Incorporated by reference to Exhibit 9(c) to Post-Effective Amendment No.
25 to the Registration Statement.)
(7) 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.)
(8) Fund Accounting Services Agreement between the Registrant, on behalf of
Scudder Capital Growth Fund, and Scudder Fund Accounting Corporation dated
October 19, 1994.
(Incorporated by reference to Exhibit 9(e)(1) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(9) Fund Accounting Services Agreement between the Registrant, on behalf of
Scudder Value Fund, and Scudder Fund Accounting Corporation dated October
24, 1994.
(Incorporated by reference to Exhibit 9(e)(2) to Post-Effective Amendment
No. 25 to the Registration Statement.)
(10) Amendment No. 1 dated September 30, 1999 to the Fund Accounting Service
Agreement between the Registrant, on behalf of Value Fund, and Scudder Fund
Accounting Corporation.
(Incorporated by reference to Post-Effective Amendment No. 35 to the
Registration Statement.)
(11) Special Servicing Agreement dated November 15, 1996 between Scudder Pathway
Series and the Registrant, on behalf of Scudder Capital Growth Fund and
Scudder Value Fund.
(Incorporated by reference to Exhibit 9(f) to Post-Effective Amendment No.
25 to the Registration Statement.)
(12) Administrative Services Agreement between the Registrant and Kemper
Distributors, Inc. dated April 1998.
(Incorporated by reference to Post-Effective Amendment No. 30 to the
Registration Statement.)
(12)(a) Amendment No. 1 dated September 14, 1999 to the Administrative Services
Agreement between the Registrant on behalf of Value Fund and Kemper
Distributors, Inc.
(Incorporated by reference to Post-Effective Amendment No. 35 to the
Registration Statement.)
5
<PAGE>
(12)(b) Form of Administrative Services Agreement (and Fee Schedule thereto) between
the Registrant, on behalf of Scudder Large Company Value Fund, Scudder
Select 500 Fund, Scudder Select 1000 Growth Fund, and Value Fund, and
Scudder Kemper, Investments, Inc., dated August 28, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(13) Fund Accounting Services Agreement between the Registrant, on behalf of
Scudder Select 500 Fund, and Scudder Fund Accounting Corporation dated March
31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 33 to the
Registration Statement.)
(14) Fund Accounting Services Agreement between the Registrant, on behalf of
Scudder Select 1000 Growth Fund, and Scudder Fund Accounting Corporation
dated March 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 33 to the
Registration Statement.)
(15) License Agreement between the Registrant, on behalf of Scudder Select 500
Fund, and Standard & Poor's Corporation, dated March 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 34 to the
Registration Statement.)
(16) Research License Agreement between the Registrant, on behalf of Scudder
Select 1000 Growth Fund, and Frank Russell Company dated March 31, 1999.
(Incorporated by reference to Post-Effective Amendment No. 34 to the
Registration Statement.)
(i) Opinion and Consent of Legal Counsel.
To be filed by amendment.
(j) Consent of Independent Accountants.
To be filed by amendment.
(k) Inapplicable.
(l) Inapplicable.
(m) Inapplicable.
(n) Mutual Funds Multi-Distribution System Plan (Rule 18f-3 Plan).
(Incorporated by reference to Exhibit 18 of Post-Effective Amendment No. 29
to the Registration Statement.)
(1) Plan With Respect to Scudder Large Company Value Fund Pursuant to Rule
18f-3, dated March 14, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(2) Amended and Restated Plan With Respect to Scudder Large Company Value Fund
Pursuant to Rule 18f-3, dated May 8, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
6
<PAGE>
(3) Plan With Respect to Scudder Select 500 Fund Pursuant to Rule 18f-3, dated
March 14, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(4) Amended and Restated Plan With Respect to Scudder Select 500 Fund Pursuant
to Rule 18f-3, dated May 8, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(5) Plan With Respect to Scudder Select 1000 Growth Fund Pursuant to Rule 18f-3,
dated March 14, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(6) Amended and Restated Plan With Respect to Scudder Select 1000 Growth Fund
Pursuant to Rule 18f-3, dated May 8, 2000.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
(p) Scudder Kemper Investments, Inc. Code of Ethics.
(Incorporated by reference to Post-Effective Amendment No. 38 to the
Registration Statement.)
(1) Code of Ethics of Value Equity Trust.
(Incorporated by reference to Post-Effective Amendment No. 39 to the
Registration Statement.)
</TABLE>
Item 24. Persons Controlled by or under Common Control with Fund.
-------- --------------------------------------------------------
None
Item 25. Indemnification.
-------- ----------------
A policy of insurance covering Scudder Kemper Investments,
Inc., its subsidiaries including Scudder Investor Services,
Inc., and all of the registered investment companies advised
by Scudder Kemper Investments, Inc. insures the Registrant's
trustees and officers and others against liability arising by
reason of an alleged breach of duty caused by any negligent
act, error or accidental omission in the scope of their
duties.
Article IV, Sections 4.1 - 4.3 of the Registrant's Declaration
of Trust provide as follows:
Section 4.1. No Personal Liability of Shareholders, Trustees,
etc. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Trust Property or
the acts, obligations or affairs of the Trust. No Trustee,
officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to
the Trust or its Shareholders, in connection with Trust
Property or the affairs of the Trust, save only that arising
from bad faith, willful 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
7
<PAGE>
become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all
legal and other expenses reasonably incurred by him in
connection with any such claim or liability. The
indemnification and reimbursement required by the preceding
sentence shall be made only out of the assets of the one or
more Series of which the Shareholder who is entitled to
indemnification or reimbursement was a Shareholder at the time
the act or event occurred which gave rise to the claim against
or liability of said Shareholder. The rights accruing to a
Shareholder under this Section 4.1 shall not impair any other
right to which such Shareholder may be lawfully entitled, nor
shall anything herein contained restrict the right of the
Trust to indemnify or reimburse a Shareholder in any
appropriate situation even though not specifically provided
herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee,
officer, employee or agent of the Trust shall be liable to the
Trust, its Shareholders, or to any Shareholder, Trustee,
officer, employee, or agent thereof for any action or failure
to act (including without limitation the failure to compel in
any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance,
gross negligence or reckless disregard of the duties involved
in the conduct of his office.
Section 4.3. Mandatory Indemnification.
(a) Subject to the exceptions and limitations contained
in paragraph (b) below:
(i) every person who is, or has been, a Trustee or
officer of the Trust shall be indemnified by the Trust to the
fullest extent permitted by law against all liability and
against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which
he becomes involved as a party or otherwise by virtue of his
being or having been a Trustee or officer and against amounts
paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal, administrative or other,
including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a
Trustee or officer:
(i) against any liability to the Trust, a Series
thereof, or the Shareholders by reason of a final adjudication
by a court or other body before which a proceeding was brought
that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which he shall
have been finally adjudicated not to have acted in good faith
in the reasonable belief that his action was in the best
interest of the Trust;
(iii) in the event of a settlement or other
disposition not involving a final adjudication as provided in
paragraph (b)(i) or (b)(ii) resulting in a payment by a
Trustee or officer, unless there has been a determination that
such Trustee or officer did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office:
(A) by the court or other body approving the
settlement or other disposition; or
(B) based upon a review of readily available
facts (as opposed to a full trial-type inquiry) by
(x) vote of a majority of the Disinterested Trustees
acting on the matter (provided that a majority of the
Disinterested Trustees then in office act on the
matter) or (y) written opinion of independent legal
counsel.
8
<PAGE>
(c) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust,
shall be severable, shall not affect any other rights
to which any Trustee or officer may now or hereafter
be entitled, shall continue as to a person who has
ceased to be such Trustee or officer and shall insure
to the benefit of the heirs, executors,
administrators and assigns of such a person. Nothing
contained herein shall affect any rights to
indemnification to which personnel of the Trust other
than Trustees and officers may be entitled by
contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense
to any claim, action, suit or proceeding of the
character described in paragraph (a) of this Section
4.3 may be advanced by the Trust prior to final
disposition thereof upon receipt of an undertaking by
or on behalf of the recipient to repay such amount if
it is ultimately determined that he is not entitled
to indemnification under this Section 4.3, provided
that either:
(i) such undertaking is secured by a surety bond or
some other appropriate security provided by the recipient, or
the Trust shall be insured against losses arising out of any
such advances; or
(ii) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the Disinterested
Trustees act on the matter) or an independent legal counsel in
a written opinion shall determine, based upon a review of
readily available facts (as opposed to a full trial-type
inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested
Trustee" is one who is not (i) an "Interested Person" of the
Trust (including anyone who has been exempted from being an
"Interested Person" by any rule, regulation or order of the
Commission), or (ii) involved in the claim, action, suit or
proceeding.
Item 26. Business or Other Connections of Investment Adviser
-------- ---------------------------------------------------
Scudder Kemper Investments, Inc. has stockholders and
employees who are denominated officers but do not as such have
corporation-wide responsibilities. Such persons are not
considered officers for the purpose of this Item 26.
<TABLE>
<CAPTION>
Business and Other Connections of Board
Name of Directors of Registrant's Adviser
---- ------------------------------------
9
<PAGE>
<S> <C>
Stephen R. Beckwith Treasurer, Scudder Kemper Investments, Inc.**
Director, Kemper Service Company
Director, Vice President and Treasurer, Scudder Fund Accounting Corporation*
Director and Treasurer, 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**
Director and Chairman, Scudder Threadneedle International Ltd.
Director, Scudder Kemper Holdings (UK) Ltd. oo
Director and President, Scudder Realty Holdings Corporation *
Director, Scudder, Stevens & Clark Overseas Corporation o
Director and Treasurer, Zurich Investment Management, Inc. xx
Director and Treasurer, Zurich Kemper Investments, Inc.
Lynn S. Birdsong Director, Vice President and Chief Investment Officer, Scudder Kemper Investments,
Inc.**
Director and Chairman, Scudder Investments (Luxembourg) S.A.#
Director, Scudder Investments (U.K.) Ltd. oo
Director and Chairman of the Board, Scudder Investments Asia, Ltd. ooo
Director and Chairman, Scudder Investments Japan, Inc. +
Senior Vice President, Scudder Investor Services, Inc.
Director and Chairman, Scudder Trust (Cayman) Ltd. @@@
Director, Scudder, Stevens & Clark Australia x
Director and Vice President, Zurich Investment Management, Inc. xx
Director and President, Scudder, Stevens & Clark Corporation **
Director and President, Scudder , Stevens & Clark Overseas Corporation o
Director, Scudder Threadneedle International Ltd.
Director, Korea Bond Fund Management Co., Ltd. @@
William H. Bolinder Director, Scudder Kemper Investments, Inc.**
Member Group Executive Board, Zurich Financial Services, Inc. ##
Chairman, Zurich-American Insurance Company xxx
Nicholas Bratt Director, Scudder Kemper Investments, Inc.**
Vice President, Scudder, Stevens & Clark Corporation **
Vice President, Scudder, Stevens & Clark Overseas Corporation o
Laurence W. Cheng Director, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, ZKI Holding Corporation xx
Gunther Gose Director, Scudder Kemper Investments, Inc.**
CFO, Member Group Executive Board, Zurich Financial Services, Inc. ##
CEO/Branch Offices, Zurich Life Insurance Company ##
Rolf Huppi Director, Chairman of the Board, Scudder Kemper Investments, Inc.**
Member, Corporate Executive Board, Zurich Insurance Company of Switzerland ##
Director, Chairman of the Board, Zurich Holding Company of America xxx
Director, ZKI Holding Corporation xx
10
<PAGE>
Harold D. Kahn Chief Financial Officer, Scudder Kemper Investments, Inc.**
Kathryn L. Quirk Chief Legal Officer, Chief Compliance Officer and Secretary, Scudder Kemper
Investments, Inc.**
Director, Vice President, Chief Legal Officer and Secretary, Kemper Distributors, Inc.
Director and Secretary, Kemper Service Company
Director, Senior Vice President, Chief Legal Officer & 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 and Secretary, 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. @
Director and Secretary, Scudder, Stevens & Clark Corporation**
Director and Secretary, Scudder, Stevens & Clark Overseas Corporation o
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, Chief Legal Officer and Secretary, Scudder Financial
Services, Inc.*
Director, Korea Bond Fund Management Co., Ltd. @@
Director, Scudder Threadneedle International Ltd.
Director, Chairman of the Board and Secretary, Scudder Investments Canada, Ltd.
Director, Scudder Investments Japan, Inc. +
Director and Secretary, Scudder Kemper Holdings (UK) Ltd. oo
Director and Secretary, Zurich Investment Management, Inc. xx
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 o
President and Director, Scudder, Stevens & Clark Corporation**
Director, Scudder Realty Advisors, Inc. @
Director, IBJ Global Investment Management S.A. Luxembourg, Grand-Duchy of Luxembourg
Director, Scudder Threadneedle International Ltd.
Director, Scudder Investments Japan, Inc. +
Director, Scudder Kemper Holdings (UK) Ltd. oo
President and Director, Zurich Investment Management, Inc. xx
Director and Deputy Chairman, Scudder Investment Holdings Ltd.
</TABLE>
* Two International Place, Boston, MA
@ 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
11
<PAGE>
@@@ Grand Cayman, Cayman Islands, British West Indies
o 20-5, Ichibancho, Chiyoda-ku, Tokyo, Japan
### 1-7, Kojimachi, Chiyoda-ku, Tokyo, Japan
xx 222 S. Riverside, Chicago, IL
xxx 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
One South Place, 5th Floor, London EC2M 2ZS England
oo
ooo One Exchange Square, 29th Floor, Hong Kong
+ Kamiyachyo Mori Building, 12F1, 4-3-20, Toranomon, Minato-ku,
Tokyo 105-0001
x Level 3, Five Blue Street, North Sydney, NSW 2060
Item 27. Principal Underwriters.
-------- ----------------------
(a)
Scudder Investor Services, Inc. acts as principal underwriter of the
Registrant's shares and also acts as principal underwriter for other
funds managed by Scudder Kemper Investments, Inc.
(b)
The Underwriter has employees who are denominated officers of an
operational area. Such persons do not have corporation-wide
responsibilities and are not considered officers for the purpose of
this Item 27.
<TABLE>
<CAPTION>
(1) (2) (3)
Scudder Investor Services, Inc. Position and Offices with Positions and
Name and Principal Scudder Investor Services, Inc. Offices with Registrant
Business Address ------------------------------- -----------------------
----------------
<S> <C> <C>
Lynn S. Birdsong Senior Vice President None
345 Park Avenue
New York, NY 10154
Mark S. Casady President and Assistant Treasurer None
Two International Place
Boston, MA 02110
Linda Coughlin Director and Senior Vice President Trustee and President
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
12
<PAGE>
Scudder Investor Services, Inc. Position and Offices with Positions and
Name and Principal Scudder Investor Services, Inc. Offices with Registrant
Business Address ------------------------------- -----------------------
----------------
William F. Glavin Vice President None
Two International Place
Boston, MA 02110
Margaret D. Hadzima Assistant Treasurer None
Two International Place
Boston, MA 02110
John R. Hebble Assistant Treasurer Treasurer
Two International Place
Boston, MA 02110
James J. McGovern Chief Financial Officer and Treasurer None
345 Park Avenue
New York, NY 10154
Lorie C. O'Malley Vice President None
Two International Place
Boston, MA 02110
Caroline Pearson Clerk Assistant Secretary
Two International Place
Boston, MA 02110
Kathryn L. Quirk Director, Senior Vice President, Chief Trustee, Vice President
345 Park Avenue Legal Officer and Assistant Clerk and Assistant Secretary
New York, NY 10154
Robert A. Rudell Director and Vice President None
Two International Place
Boston, MA 02110
Linda J. Wondrack Vice President and Chief Compliance None
Two International Place Officer
Boston, MA 02110
</TABLE>
Item 28. Location of Accounts and Records.
-------- ---------------------------------
Certain accounts, books and other documents required to be
maintained by Section 31(a) of the 1940 Act and the Rules
promulgated thereunder are maintained by Scudder Kemper
Investments Inc., Two International Place, Boston, MA
02110-4103. Records relating to the duties of the Registrant's
custodian are maintained by State Street Bank and Trust
Company, Heritage Drive, North Quincy, Massachusetts. Records
relating to the duties of the Registrant's transfer agent are
maintained by Scudder Service Corporation, Two International
Place, Boston, Massachusetts.
Item 29. Management Services.
-------- --------------------
Inapplicable.
13
<PAGE>
Item 30. Undertakings.
-------- -------------
Inapplicable.
14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereto duly authorized, in the City of Boston and the Commonwealth of
Massachusetts on the 26th day of July, 2000.
VALUE EQUITY TRUST
By: /s/ John Millette
------------------------
John Millette
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Henry P. Becton, Jr.
--------------------------------------
Henry P. Becton, Jr.* Trustee July 26, 2000
/s/ Linda C. Coughlin
--------------------------------------
Linda C. Coughlin* Trustee and President (Chief July 26, 2000
Executive Officer)
/s/Dawn-Marie Driscoll
--------------------------------------
Dawn-Marie Driscoll* Trustee July 26, 2000
/s/ Edgar R. Fiedler
--------------------------------------
Edgar R. Fiedler* Trustee July 26, 2000
/s/ Keith R. Fox
--------------------------------------
Keith R. Fox* Trustee July 26, 2000
/s/ Joan E. Spero
--------------------------------------
Joan E. Spero* Trustee July 26, 2000
/s/ Jean Gleason Stromberg
--------------------------------------
Jean Gleason Stromberg* Trustee July 26, 2000
/s/ Jean C. Tempel
--------------------------------------
Jean C. Tempel* Trustee July 26, 2000
/s/ Steven Zaleznick
--------------------------------------
Steven Zaleznick* Trustee July 26, 2000
/s/ John R. Hebble
--------------------------------------
John R. Hebble Treasurer (Chief Financial Officer) July 26, 2000
</TABLE>
<PAGE>
*By: /s/ John Millette
---------------------------
John Millette**
Secretary
**Attorney-in-fact pursuant to powers of attorney for
Keith R. Fox and Joan E. Spero, contained in
Post-Effective Amendment No. 34 to the
Registration Statement, and powers of attorney for
Henry P. Becton, Jr., Linda C. Coughlin, Dawn-Marie
Driscoll, Edgar K. Fiedler, Jean Gleason Stromberg,
Jean C. Tempel and Steven Saleznick, filed herein.
<PAGE>
POWER OF ATTORNEY
-----------------
GLOBAL/INTERNATIONAL FUND, INC.
INVESTMENT TRUST
SCUDDER CALIFORNIA TAX FREE TRUST
SCUDDER CASH INVESTMENT TRUST
SCUDDER FUNDS TRUST
SCUDDER INCOME TRUST
SCUDDER INTERNATIONAL FUND, INC.
SCUDDER MONEY MARKET TRUST
SCUDDER MUNICIPAL TRUST
SCUDDER MUTUAL FUNDS, INC.
SCUDDER PATHWAY SERIES
SCUDDER PORTFOLIO TRUST
SCUDDER SECURITIES TRUST
SCUDDER STATE TAX FREE TRUST
SCUDDER TAX FREE MONEY FUND
SCUDDER TAX FREE TRUST
SCUDDER U.S. TREASURY MONEY FUND
VALUE EQUITY TRUST
Pursuant to the requirements of the Securities Act of 1933, this Power
of Attorney has been signed below by the following persons in the capacities and
on the dates indicated. By so signing, the undersigned in his/her capacity as
trustee or officer, or both, as the case may be of the Registrant, does hereby
appoint John Millette and Caroline Pearson and each of them, severally, or if
more than one acts, a majority of them, his/her true and lawful attorney and
agent to execute in his/her name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
--------- ----- ----
/s/Henry P. Becton, Jr. 7/14/2000
---------------------------------------
Henry P. Becton, Jr. Trustee/Director
<PAGE>
POWER OF ATTORNEY
-----------------
GLOBAL/INTERNATIONAL FUND, INC.
INVESTMENT TRUST
SCUDDER CALIFORNIA TAX FREE TRUST
SCUDDER CASH INVESTMENT TRUST
SCUDDER FUNDS TRUST
SCUDDER INCOME TRUST
SCUDDER INTERNATIONAL FUND, INC.
SCUDDER MONEY MARKET TRUST
SCUDDER MUNICIPAL TRUST
SCUDDER MUTUAL FUNDS, INC.
SCUDDER PATHWAY SERIES
SCUDDER PORTFOLIO TRUST
SCUDDER SECURITIES TRUST
SCUDDER STATE TAX FREE TRUST
SCUDDER TAX FREE MONEY FUND
SCUDDER TAX FREE TRUST
SCUDDER U.S. TREASURY MONEY FUND
VALUE EQUITY TRUST
Pursuant to the requirements of the Securities Act of 1933, this Power
of Attorney has been signed below by the following persons in the capacities and
on the dates indicated. By so signing, the undersigned in his/her capacity as
trustee or officer, or both, as the case may be of the Registrant, does hereby
appoint John Millette and Caroline Pearson and each of them, severally, or if
more than one acts, a majority of them, his/her true and lawful attorney and
agent to execute in his/her name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
--------- ----- ----
/s/Linda C. Coughlin 7/14/2000
---------------------------------------
Linda C. Coughlin Trustee/Director
9
<PAGE>
POWER OF ATTORNEY
-----------------
GLOBAL/INTERNATIONAL FUND, INC.
INVESTMENT TRUST
SCUDDER CALIFORNIA TAX FREE TRUST
SCUDDER CASH INVESTMENT TRUST
SCUDDER FUNDS TRUST
SCUDDER INCOME TRUST
SCUDDER INTERNATIONAL FUND, INC.
SCUDDER MONEY MARKET TRUST
SCUDDER MUNICIPAL TRUST
SCUDDER MUTUAL FUNDS, INC.
SCUDDER PATHWAY SERIES
SCUDDER PORTFOLIO TRUST
SCUDDER SECURITIES TRUST
SCUDDER STATE TAX FREE TRUST
SCUDDER TAX FREE MONEY FUND
SCUDDER TAX FREE TRUST
SCUDDER U.S. TREASURY MONEY FUND
VALUE EQUITY TRUST
Pursuant to the requirements of the Securities Act of 1933, this Power
of Attorney has been signed below by the following persons in the capacities and
on the dates indicated. By so signing, the undersigned in his/her capacity as
trustee or officer, or both, as the case may be of the Registrant, does hereby
appoint John Millette and Caroline Pearson and each of them, severally, or if
more than one acts, a majority of them, his/her true and lawful attorney and
agent to execute in his/her name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
--------- ----- ----
/s/Dawn-Marie Driscoll 7/14/2000
---------------------------------------
Dawn-Marie Driscoll Trustee/Director
2
<PAGE>
POWER OF ATTORNEY
-----------------
GLOBAL/INTERNATIONAL FUND, INC.
INVESTMENT TRUST
SCUDDER CALIFORNIA TAX FREE TRUST
SCUDDER CASH INVESTMENT TRUST
SCUDDER FUNDS TRUST
SCUDDER INCOME TRUST
SCUDDER INTERNATIONAL FUND, INC.
SCUDDER MONEY MARKET TRUST
SCUDDER MUNICIPAL TRUST
SCUDDER MUTUAL FUNDS, INC.
SCUDDER PATHWAY SERIES
SCUDDER PORTFOLIO TRUST
SCUDDER SECURITIES TRUST
SCUDDER STATE TAX FREE TRUST
SCUDDER TAX FREE MONEY FUND
SCUDDER TAX FREE TRUST
SCUDDER U.S. TREASURY MONEY FUND
VALUE EQUITY TRUST
Pursuant to the requirements of the Securities Act of 1933, this Power
of Attorney has been signed below by the following persons in the capacities and
on the dates indicated. By so signing, the undersigned in his/her capacity as
trustee or officer, or both, as the case may be of the Registrant, does hereby
appoint John Millette and Caroline Pearson and each of them, severally, or if
more than one acts, a majority of them, his/her true and lawful attorney and
agent to execute in his/her name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
--------- ----- ----
/s/Edgar R. Fiedler 6/20/00
---------------------------------------
Edgar R. Fiedler Trustee/Director
<PAGE>
POWER OF ATTORNEY
-----------------
GLOBAL/INTERNATIONAL FUND, INC.
INVESTMENT TRUST
SCUDDER CALIFORNIA TAX FREE TRUST
SCUDDER CASH INVESTMENT TRUST
SCUDDER FUNDS TRUST
SCUDDER INCOME TRUST
SCUDDER INTERNATIONAL FUND, INC.
SCUDDER MONEY MARKET TRUST
SCUDDER MUNICIPAL TRUST
SCUDDER MUTUAL FUNDS, INC.
SCUDDER PATHWAY SERIES
SCUDDER PORTFOLIO TRUST
SCUDDER SECURITIES TRUST
SCUDDER STATE TAX FREE TRUST
SCUDDER TAX FREE MONEY FUND
SCUDDER TAX FREE TRUST
SCUDDER U.S. TREASURY MONEY FUND
VALUE EQUITY TRUST
Pursuant to the requirements of the Securities Act of 1933, this Power
of Attorney has been signed below by the following persons in the capacities and
on the dates indicated. By so signing, the undersigned in his/her capacity as
trustee or officer, or both, as the case may be of the Registrant, does hereby
appoint John Millette and Caroline Pearson and each of them, severally, or if
more than one acts, a majority of them, his/her true and lawful attorney and
agent to execute in his/her name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
--------- ----- ----
/s/Jean Gleason Stromberg 7/14/2000
---------------------------------------
Jean Gleason Stromberg Trustee/Director
3
<PAGE>
POWER OF ATTORNEY
-----------------
GLOBAL/INTERNATIONAL FUND, INC.
INVESTMENT TRUST
SCUDDER CALIFORNIA TAX FREE TRUST
SCUDDER CASH INVESTMENT TRUST
SCUDDER FUNDS TRUST
SCUDDER INCOME TRUST
SCUDDER INTERNATIONAL FUND, INC.
SCUDDER MONEY MARKET TRUST
SCUDDER MUNICIPAL TRUST
SCUDDER MUTUAL FUNDS, INC.
SCUDDER PATHWAY SERIES
SCUDDER PORTFOLIO TRUST
SCUDDER SECURITIES TRUST
SCUDDER STATE TAX FREE TRUST
SCUDDER TAX FREE MONEY FUND
SCUDDER TAX FREE TRUST
SCUDDER U.S. TREASURY MONEY FUND
VALUE EQUITY TRUST
Pursuant to the requirements of the Securities Act of 1933, this Power
of Attorney has been signed below by the following persons in the capacities and
on the dates indicated. By so signing, the undersigned in his/her capacity as
trustee or officer, or both, as the case may be of the Registrant, does hereby
appoint John Millette and Caroline Pearson and each of them, severally, or if
more than one acts, a majority of them, his/her true and lawful attorney and
agent to execute in his/her name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
--------- ----- ----
/s/Jean C. Tempel 7/14/2000
---------------------------------------
Jean C. Tempel Trustee/Director
<PAGE>
POWER OF ATTORNEY
-----------------
GLOBAL/INTERNATIONAL FUND, INC.
INVESTMENT TRUST
SCUDDER CALIFORNIA TAX FREE TRUST
SCUDDER CASH INVESTMENT TRUST
SCUDDER FUNDS TRUST
SCUDDER INCOME TRUST
SCUDDER INTERNATIONAL FUND, INC.
SCUDDER MONEY MARKET TRUST
SCUDDER MUNICIPAL TRUST
SCUDDER MUTUAL FUNDS, INC.
SCUDDER PATHWAY SERIES
SCUDDER PORTFOLIO TRUST
SCUDDER SECURITIES TRUST
SCUDDER STATE TAX FREE TRUST
SCUDDER TAX FREE MONEY FUND
SCUDDER TAX FREE TRUST
SCUDDER U.S. TREASURY MONEY FUND
VALUE EQUITY TRUST
Pursuant to the requirements of the Securities Act of 1933, this Power
of Attorney has been signed below by the following persons in the capacities and
on the dates indicated. By so signing, the undersigned in his/her capacity as
trustee or officer, or both, as the case may be of the Registrant, does hereby
appoint John Millette and Caroline Pearson and each of them, severally, or if
more than one acts, a majority of them, his/her true and lawful attorney and
agent to execute in his/her name, place and stead (in such capacity) any and all
amendments to the Registration Statement and any post-effective amendments
thereto and all instruments necessary or desirable in connection therewith, to
attest the seal of the Registrant thereon and to file the same with the
Securities and Exchange Commission. Each of said attorneys and agents shall have
power to act with or without the other and have full power and authority to do
and perform in the name and on behalf of the undersigned, in any and all
capacities, every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and approving the act of said attorneys and
agents and each of them.
SIGNATURE TITLE DATE
--------- ----- ----
/s/Steven Zaleznick 7/14/2000
---------------------------------------
Steven Zaleznick Trustee/Director
<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. 40
TO REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 40
TO REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
VALUE EQUITY TRUST
<PAGE>
VALUE EQUITY TRUST
EXHIBIT INDEX
2
